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Production planning is the function of establishing an overall level of output, called the production plan.

The process also includes any other activities needed to satisfy current planned levels of sales, while meeting the firm's general objectives regarding profit, productivity, lead times, and customer satisfaction, as expressed in the overall business plan. The managerial objective of production planning is to develop an integrated game plan where the operations portion is the production plan. This production plan, then, should link the firm's strategic goals to operations (the production function) as well as coordinating operations with sales objectives, resource availability, and financial budgets.
The production-planning process requires the comparison of sales requirements and production capabilities and the inclusion of budgets, pro forma financial statements, and supporting plans for materials and workforce requirements, as well as the production plan itself. A primary purpose of the production plan is to establish production rates that will achieve management's objective of satisfying customer demand. Demand satisfaction could be accomplished through the maintaining, raising, or lowering of inventories or backlogs, while keeping the workforce relatively stable. If the firm has implemented a just-in-time philosophy, the firm would utilize a chase strategy, which would mean satisfying customer demand while keeping inventories at a minimum level.
The term production planning is really too limiting since the intent is not to purely produce a plan for the operations function. Because the plan affects many firm functions, it is normally prepared with information from marketing and coordinated with the functions of manufacturing, engineering, finance, materials, and so on. Another term, sales and operations planning, has recently come into use, more accurately representing the concern with coordinating several critical activities within the firm.
Production planning establishes the basic objectives for work in each of the major functions. It should be based on the best tradeoffs for the firm as a whole, weighing sales and marketing objectives, manufacturing's cost, scheduling and inventory objectives, and the firm's financial objectives. All these must be integrated with the strategic view of where the company wants to go.
The production-planning process typically begins with an updated sales forecast covering the next 6 to 18 months. Any desired increase or decrease in inventory or backlog levels can be added or subtracted, resulting in the production plan. However, the production plan is not a forecast of demand. It is planned production, stated on an aggregate basis. An effective production-planning process will typically utilize explicit time fences for when the aggregate plan can be changed (increased or decreased). Also, there may be constraints on the degree of change (amount of increase or decrease).
The production plan also provides direct communication and consistent dialogue between the operations function and upper management, as well as between operations and the firm's other functions. As such, the production plan must necessarily be stated in terms that are meaningful to all within the firm, not just the operations executive. Some firms state the production plan as the dollar value of total input (monthly, quarterly, etc.). Other firms may break the total output down by individual factories or major product lines. Still other firms state the plan in terms of total units for each product line. The key here is that the plan be stated in some homogeneous unit, commonly understood by all, that is also consistent with that used in other plans.
The production schedule is derived from the production plan; it is a plan that authorized the operations function to produce a certain quantity of an item within a specified time frame. In a large firm, the production schedule is drawn in the production planning department, whereas, within a small firm, a production schedule could originate with a lone production scheduler or even a line supervisor.
Production scheduling has three primary goals or objectives. The first involves due dates and avoiding late completion of jobs. The second goal involves throughput times; the firm wants to minimize the time a job spends in the system, from the opening of a shop order until it is closed or completed. The third goal concerns the utilization of work centers. Firms usually want to fully utilize costly equipment and personnel.
Often, there is conflict among the three objectives. Excess capacity makes for better due-date performance and reduces throughput time but wreaks havoc on utilization. Releasing extra jobs to the shop can increase the utilization rate and perhaps improve due-date performance but tends to increase throughput time.
Quite a few sequencing rules (for determining the sequence in which production orders are to be run in the production schedule) have appeared in research and in practice. Some well-known ones adapted from Vollmann, Berry, Whybark and Jacobs (2005) are presented in Operations Scheduling.
There are fundamental differences in production planning and production scheduling. Planning models often utilize aggregate data, cover multiple stages in a medium-range time frame, in an effort to minimize total costs. Scheduling models use detailed information, usually for a single stage or facility over a short term horizon, in an effort to complete jobs in a timely manner. Despite these differences, planning and scheduling often have to be incorporated into a single framework, share information, and interact extensively with one another. They also may interact with other models such as forecasting models or facility location models.
It should be noted that a major shift in direction has occurred in recent research on scheduling methods. Much of what was discussed was developed for job shops. As a result of innovations such as computer-integrated manufacturing (CIM) and just-in-time (JIT), new processes being established in today's firms are designed to capture the benefits of repetitive manufacturing and continuous flow manufacturing. Therefore, much of the new scheduling research concerns new concepts and techniques for repetitive manufacturing-type operations. In addition, many of today's firms cannot plan and schedule only within the walls of their own factory as most are an entity with an overall supply chain. Supply chain management requires the coordination and integration of operations in all stages of the chain. If successive stages in a supply belong to the same firm, then these successive stages can be incorporated into a single planning and scheduling model. If not, constant interaction and information sharing are required to optimize the overall supply chain.

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