Production Planning
Devaki Nadkarni
Production Planning
Decision Process
Forecasts needed
Corporate
Allocates
production
among plants
Annual demand by
item and by region
Plant manager
Determines
seasonal plan by
product type
Monthly demand
for 15 months by
product type
Shop
superintendent
Determines monthly
item production
schedules
Monthly demand
for 5 months by
item
Decision Level
Objectives of Production Planning
• To deliver quality goods in required quantities to the
customer in the required delivery schedule – to achieve
maximum customer satisfaction and minimum possible
cost.
• To ensure maximum utilization of all resources.
• To ensure production of quality products.
• To minimize the product through-put time of
production/manufacturing cycle time.
• To maintain optimum inventory level.
• To maintain flexibility in manufacturing operations.
• To co-ordinate between labour and machines and
various supporting departments.
Production Planning Horizons
Long-Range Capacity Planning
Long-Range
(years)
Aggregate Planning
Medium-Range
(6-18 months)
Master Production Scheduling
Short-Range
(weeks)
Production Planning and Control Systems
Very-Short-Range
(hours - days)
Pond Draining
Push
Pull
Systems
Systems (MRP) Systems (JIT)
Focusing on
Bottlenecks
4
Production Planning: Units of Measure
Long-Range Capacity Planning
Entire
Product Line
Aggregate Planning
Product
Family
Master Production Scheduling
Specific
Product Model
Production Planning and Control Systems
Labor, Materials,
Machines
Pond Draining
Systems
Push
Systems
Pull
Systems
Focusing on
Bottlenecks
5
Aggregate Planning
Aggregate planning involves planning the best quantity
to produce during time periods in the intermediaterange horizon (often 3 months to 18 months) and
planning the lowest cost method of providing the
adjustable capacity to accommodate production
requirements.
• It facilitates fully loaded facilities and minimizes
overloading and under loading and keeps production
cost low.
• Adequate production capacity is provided to meet
expected aggregate demand.
• To manage change in production/ operations
management by planning for production resources
that adapt to the changes in customer demands.
Flowchart of Aggregate plan and Master Production Schedule
Market
Environment
Resource base
and
technology
Forecast and
customer order
Capacity (facilities,
material, labour and
capital)
Aggregate
Production Plan
Master
Production
Schedule
Material
Requirements
Capacity
Requirements
Steps in Aggregate Capacity Planning
• Prepare the sales forecast for each product
that indicates the quantities to be sold in each
time period.
• Sum up the individual forecast into one
aggregate demand.
• Transform the aggregate demand for each
time period into labour, materials, machines
and other elements of production capacity
required to satisfy aggregate demand.
• Develop alternative resource schemes for
supplying the necessary production to
support the cumulative aggregate demand
and choose the best that meets the objectives
of the organisation.
Master Production Scheduling
The master production scheduling sets the
quantity of each end item(finished product)
to be completed in each time period of the
short range planning horizon.
Objectives:
1. To schedule end items to be completed
promptly and when promised to customers.
2. To avoid overloading or under-loading the
production facility so that production facility
is efficiently utilized at the optimum cost.
Functions of Master Production Schedule
• Translating aggregate plans into specific end
items.
• Evaluating alternative schedules.
• Generating material requirements.
• Generating capacity requirements.
• Facilitating information processing.
• Maintaining valid priorities.
• Utilizing capacity effectively.
The elements of MPS:
1. Demand management.
2. Lot sizing.
3. No. of products to be scheduled(productmix).
Symptoms of poorly designed MPS:
1. Overloaded facilities
2. Under-loaded facilities
3. Excessive inventory levels on some end
items and frequent stock out on others.
4. Unrealistic schedules that production
personnel do not follow.
5. Unreliable delivery promises to customers.
6. Excessive expediting or follow-up.
Capacity Requirement Planning
Capacity Requirement Planning is a techniques
for determining what labour/personnel and
equipment capacities are needed to meet the
production objectives.
It involves activities such as
• Assessing existing capacity and forecasting
future capacity needs
• Identifying alternative ways to modify capacity
• Evaluating financial, economical and
technological capacity alternatives to avoid
bottlenecks.
• Plan capacity to achieve the production
schedule
Material Requirements Planning (MRP)
Material Requirements Planning (MRP)
is a system for planning the future
requirements of dependent
demand items.
Material Requirements Planning
Functions:
• Order planning and control.
• Priority planning and control.
• Provision of a basis for planning capacity
requirements and development of broad
business plans.
Successful implementation of MRP results into
reduced levels of average inventory, optimum
utilisation of human and capital resources,
workforce planning, improved vendor
relations, better capital investment decisions,
reduced delivery lead times.
Make or Buy Decision
Considerations
• Economic considerations.
• Non economic considerations
 Availability of supply and alternative sources of
supply for components and sub-units.
 Control of trade secrets and design secrets.
 Quality and reliability considerations.
 Delivery schedules to be met.
 Reliability of supply of external suppliers.
 Availability of manufacturing capacity (in-house)
Independent vs. Dependent
Demand
Independent Demand
Items
Dependent Demand
Items
A
C(2)
B(4)
D(2)
E(1)
D(3)
F(2)
Production Planning Hierarchy
Firm orders
from known
customers
Aggregate
Product Plan
Engineering
design changes
Master
Production
Schedule
(MPS)
Bill of
Materials
(BOM) file
Material
Requirements
Planning
(MRP)
Reports
Forecast
of demand
from random
customers
Inventory
transactions
Inventory
records
file
Materials Requirements
Planning (MRP)
Materials Requirements
Planning (MRP)
• Computer based system
• Explodes Master Schedule (MPS) into
required amounts of raw materials and
subassemblies to support MPS
• Nets against current orders and
inventories to develop production and
purchased material ordering schedules
Material Requirements Planning
• How much of an item is needed?
• When is an item needed to complete
–
–
a specified number of units...
in a specified period of time?
• Dependent demand drives MRP
Objectives of MRP
• Improve customer service
• Reduce inventory investment
• Improve plant operating efficiency
MRP Computer Program
• Begins with number of end items needed
• Add service parts not included in MPS
• Explode MPS into gross requirements by
consulting bill of materials file
• Modify gross requirements to get net
requirements:
• Net Requirements = Gross Requirements
+ Allocated Inventory
+ Safety Stock
- Inventory On Hand
• Offset orders to allow for lead time
Outputs of MRP
• Planned order schedule - quantity of
material to be ordered in each time period
• Changes to planned orders - modifications
to previous planned orders
• Secondary outputs:
– Exception reports
– Performance reports
– Planning reports
More MRP Terminology
• Gross Requirements
–These requirements are typically forecast for
independent demand items
–Today’s trend is to replace forecasts with
blanket orders in order to reduce variability
and shorten lead-time
–The customer is offered a price discount for
placing blanket orders
More MRP Terminology
• On-hand inventory
– The inventory physically present in the facility
• Allocated inventory
– The inventory physically present in the facility
but allocated to a particular work order or
purchase order
More MRP Terminology
• Net requirements
–A quantity of an item that must be purchased or
manufactured in order to be able to fully deliver
independent demand requirements in a timely
fashion
–Presence of positive net requirements signals that
an order must be planned to be received in a given
period
–Net requirement quantities are subject to
adjustments due to lot sizes considerations. This
may lead to some orders being received early
(inventory is held) or late (order backlog)
More MRP Terminology
• Planned order released
– Quantities that must be planned to be
released in some future periods in order to
meet the requirements
More MRP Terminology
• Scheduled receipts
– Quantities that will be received in some future
periods as their corresponding orders have
been released in the past
• Planned order receipts become scheduled receipts
at the time when they are released to the shop or
to suppliers
More MRP Terminology
• Gross to Net logic:
Net Requirements = Gross Requirements
+ Allocated Inventory
+ Safety Stock
- Inventory On Hand