Production Planning

Devaki Nadkarni

Production Planning

Annual demand byitem and by region

Monthly demandfor 15 months by

product type

Monthly demandfor 5 months by

item

Forecasts needed

Allocatesproduction

among plants

Determinesseasonal plan by

product type

Determines monthlyitem production

schedules

Decision ProcessDecision Level

Corporate

Plant manager

Shopsuperintendent

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.

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Production Planning Horizons

Master Production Scheduling

Production Planning and Control Systems

Pond DrainingSystems

Aggregate Planning

PushSystems (MRP)

PullSystems (JIT)

Focusing onBottlenecks

Long-Range Capacity Planning Long-Range(years)

Medium-Range(6-18 months)

Short-Range(weeks)

Very-Short-Range(hours - days)

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Production Planning: Units of Measure

Master Production Scheduling

Production Planning and Control Systems

Pond DrainingSystems

Aggregate Planning

PushSystems

PullSystems

Focusing onBottlenecks

Long-Range Capacity Planning Entire Product Line

ProductFamily

SpecificProduct Model

Labor, Materials,Machines

Aggregate PlanningAggregate planning involves planning the best quantity

to produce during time periods in the intermediate-range 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.

Market Environment

Forecast and customer order

Resource base and

technology

Capacity (facilities, material, labour and

capital)

Aggregate Production Plan

Master Production Schedule

Material Requirements

Capacity Requirements

Flowchart of Aggregate plan and Master Production Schedule

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(product-

mix).Symptoms of poorly designed MPS:4. Overloaded facilities5. Under-loaded facilities6. Excessive inventory levels on some end

items and frequent stock out on others.7. Unrealistic schedules that production

personnel do not follow.8. Unreliable delivery promises to customers.9. Excessive expediting or follow-up.

Capacity Requirement PlanningCapacity 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)

A

Independent Demand Items

B(4) C(2)

D(2) E(1) D(3) F(2)

Dependent DemandItems

Independent vs. Dependent Demand

Production Planning Hierarchy

Firm orders from knowncustomers

Forecast of demand

from random customers

Aggregate Product Plan

Master Production Schedule

(MPS)

Material Requirements

Planning (MRP)

Engineering design changes

Bill of Materials (BOM) file

Inventory transactions

Inventory records

file

Reports

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