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.
PRODUCTION SCHEDULING
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.
THE PRODUCTION PLANNING AND
PRODUCTION SCHEDULING INTERFACE
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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Production Plan
Nhãn: Production Schedule
Preparing Your Production Plan
What is a production plan?
A production plan is that portion of your intermediate-range business plan that your manufacturing / operations department is responsible for developing. The plan states in general terms the total amount of output that the manufacturing department is responsible to produce for each period in the planning horizon.
The output is usually expressed in terms of pesos or other units of measurement (e.g. tons, liters, kgs.) or units of the aggregate product (this refers to the weighted average of all the products in your company). The production plan is the authorization of your manufacturing department to produce the items at a rate consistent with your company's overall corporate plan.
This production plan needs to be translated into a master production schedule so as to schedule the items for completion promptly, according to promised delivery dates; to avoid the overloading or under loading of the production facility; and so that production capacity is efficiently utilized and low production costs result.
Why is it important to have a carefully developed production plan?
Production planning is one of the planning functions that a firm needs to perform to meet the needs of its customers. It is a medium-range planning activity that follows long-range planning in P/OM such as process planning and strategic capacity planning. Firms need to have an aggregate planning or production planning strategy to ensure that there is sufficient capacity to meet the demand forecast and to determine the best plan to meet this demand.
A carefully developed production plan will allow your company to meet the following objectives:
• Minimize costs / maximize profits
• Maximize customer service
• Minimize inventory investment
• Minimize changes in production rates
• Minimize changes in work-force levels
• Maximize the utilization of plant and equipment
How is a production plan prepared?
Activity 1 Determination of Requirements
The 1 st activity in Production Planning is the determination of the requirements for the planning horizon. Demand forecasting plays an important role in the conduct of these three tasks. Managers thus need to be aware of the various factors that would affect the accuracy of the demand and sales forecast.
Activity 1 involves the conduct of the following tasks:
ACTIVITY 1
Tasks
Description
1 Draw up the sales forecast for each product or service over the appropriate planning period
2 Combine the individual product / service demands into one aggregate demand
3 Transform the aggregate demand for each time period into staff, process, and other elements of productive capacity
There are company factors that could influence the level of demand for the firm's products. These internal factors include the company's marketing effort; the product design itself; the strategies to improve customer service; and the quality and price of the product.
There are also external factors or marketplace factors that significantly affect demand such as the level of competition or possible reaction by competitors to a firm's business strategy; the perception of consumers about the products and the consumer behavior as affected by their socio-demographic profile. Lastly, there are random factors that could affect the accuracy of demand forecasts such as the overall condition of the economy and the occurrence of business cycle.
Activity 2 How to Meet the Requirements
The next major activity involves the identification of the alternatives that the firm may employ to meet production forecasts as well as the constraints and costs involved. Specifically, this activity involves the following tasks:
ACTIVITY 2
Tasks
Description
1 Develop alternative resource schemes to meet the cumulative capacity requirements
2 Identify the most appropriate plan that meets aggregate demand at the lowest operating cost
Once the most appropriate plan has been selected, then the firm evaluates the plan and later on finalizes it for implementation. For more efficient and effective planning process, the formation of a production planning team composed of managers from manufacturing, marketing, purchasing and finance, is recommended.
What are the inputs to the production planning process?
To be able to perform the aggregate planning process, the following information should be available to this production planning team. These data include the following:
• Materials / purchasing Information
• Operations / manufacturing Information
• Engineering / process Designs
• Sales, marketing and distribution Information
• Financial and accounting information
• Human resources information
How do you address the demand fluctuations?
There are three basic production planning strategies that the company can choose from to address demand fluctuations. These are the (1) Chase Demand strategy, (2) Level Production strategy, and the (3) Mixed Strategy.
Strategy Description
Demand Chase Strategy Matches the production rate to the order or demand rate through the hiring and firing of employees as the order rate varies
Level Production Strategy Maintains a stable workforce working at a constant production rate with the shortages and surpluses being absorbed by any of the following: • Changing the inventory levels • Allow order backlogs (commit to the customer that you will deliver the product (s) at a much later date) • Employ marketing strategies (e.g. promotional activities)
Mixed Strategy The strategies here could include combination of any of the following: • Having a stable workforce but employ variable work hours (e.g., increase no. of shifts, flexible work schedules or overtime) • Subcontracting / outsourcing
• Changing inventory levels
Source: Dilworth, James B. Production and Operations Management: Manufacturing and Services . Fifth Edition. McGraw-Hill, Inc. 1993
What are the important considerations in selecting the production planning strategy?
Demand Chase Strategy
Specific Methods Costs Remarks
Hire additional workers as demand increases Employment costs for advertising, travel, interviewing, training, and others
Shift premium costs if additional shift is added Skilled workers may not be available when needed
Layoff workers as demand decreases Cost of severance pay & increases in unemployment insurance costs The company must have adequate capital investment in equipment for the peak work force level
Level Production Strategy
Specific Methods Costs Remarks
Produce in earlier period and hold until product is needed Cost of holding inventory Service operations cannot hold service inventory
Offer to deliver the product or service later, when capacity is available Delay in receipt of revenue, at minimum; company may lose customers Manufacturing companies with perishable products often use this method
Exert special marketing efforts to shift the demand to slack period Advertising costs, discounts, other promotional programs Exemplifies the inter-relationship
among functions within an organization
Mixed Strategy
Specific Methods Costs Remarks
Work additional work hours without changing the workforce size Overtime premium pay The time available for maintenance work without interrupting production is reduced
Staff for high production levels so that overtime is not necessary Excess personnel wages during period of slack demand Work force may be used for deferred maintenance during periods of low demand
Subcontract work to outside firms Continuing company overhead; subcontractor's overhead and profits The capacity of other firms can be utilized, but there is less control of schedules and quality levels
Revise make-or-buy decisions to purchase items when capacity is fully loaded Waste of company skills, tooling and equipment unutilized in slack periods These methods require capital investments sufficient for the peak production rate, that will be underutilized in slack periods
How can you monitor effectiveness of your production plans?
The important considerations in monitoring the effectiveness of your production plan are shown below:
Systems and Procedures
Consideration Present? Remarks
(if any)
Yes No
• Is there a current documentation of production planning and control systems and procedures? Has this been communicated to all concerned?
• Does production planning and control have a formal monitoring system to maintain and update master scheduling records?
• Is there a system of coordination between sales forecasts to be prepared in sufficient detail so that these maybe readily translated to specific production plans?
Production Planning
Consideration Present? Remarks
(if any)
Yes No
• Does production planning and control prepare a master production schedule with all the production assignments and time allocation?
• Do the production schedules permit adequate planning of purchases and inventory levels?
• Are there signs of significant lost time or low rate of worker productivity? Are the numbers of such orders appear to be significant?
Production Control
Consideration Present? Remarks
(if any)
Yes No
• Can the status of any order or work in progress be readily determined?
• Do actual production levels deviate significantly in comparison with planned schedules?
• Do actual shipments of orders almost always occur according to schedule?
• Are essential production control records and reports maintained to cover current and future production loads?
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What is a production plan?
A production plan is that portion of your intermediate-range business plan that your manufacturing / operations department is responsible for developing. The plan states in general terms the total amount of output that the manufacturing department is responsible to produce for each period in the planning horizon.
The output is usually expressed in terms of pesos or other units of measurement (e.g. tons, liters, kgs.) or units of the aggregate product (this refers to the weighted average of all the products in your company). The production plan is the authorization of your manufacturing department to produce the items at a rate consistent with your company's overall corporate plan.
This production plan needs to be translated into a master production schedule so as to schedule the items for completion promptly, according to promised delivery dates; to avoid the overloading or under loading of the production facility; and so that production capacity is efficiently utilized and low production costs result.
Why is it important to have a carefully developed production plan?
Production planning is one of the planning functions that a firm needs to perform to meet the needs of its customers. It is a medium-range planning activity that follows long-range planning in P/OM such as process planning and strategic capacity planning. Firms need to have an aggregate planning or production planning strategy to ensure that there is sufficient capacity to meet the demand forecast and to determine the best plan to meet this demand.
A carefully developed production plan will allow your company to meet the following objectives:
• Minimize costs / maximize profits
• Maximize customer service
• Minimize inventory investment
• Minimize changes in production rates
• Minimize changes in work-force levels
• Maximize the utilization of plant and equipment
How is a production plan prepared?
Activity 1 Determination of Requirements
The 1 st activity in Production Planning is the determination of the requirements for the planning horizon. Demand forecasting plays an important role in the conduct of these three tasks. Managers thus need to be aware of the various factors that would affect the accuracy of the demand and sales forecast.
Activity 1 involves the conduct of the following tasks:
ACTIVITY 1
Tasks
Description
1 Draw up the sales forecast for each product or service over the appropriate planning period
2 Combine the individual product / service demands into one aggregate demand
3 Transform the aggregate demand for each time period into staff, process, and other elements of productive capacity
There are company factors that could influence the level of demand for the firm's products. These internal factors include the company's marketing effort; the product design itself; the strategies to improve customer service; and the quality and price of the product.
There are also external factors or marketplace factors that significantly affect demand such as the level of competition or possible reaction by competitors to a firm's business strategy; the perception of consumers about the products and the consumer behavior as affected by their socio-demographic profile. Lastly, there are random factors that could affect the accuracy of demand forecasts such as the overall condition of the economy and the occurrence of business cycle.
Activity 2 How to Meet the Requirements
The next major activity involves the identification of the alternatives that the firm may employ to meet production forecasts as well as the constraints and costs involved. Specifically, this activity involves the following tasks:
ACTIVITY 2
Tasks
Description
1 Develop alternative resource schemes to meet the cumulative capacity requirements
2 Identify the most appropriate plan that meets aggregate demand at the lowest operating cost
Once the most appropriate plan has been selected, then the firm evaluates the plan and later on finalizes it for implementation. For more efficient and effective planning process, the formation of a production planning team composed of managers from manufacturing, marketing, purchasing and finance, is recommended.
What are the inputs to the production planning process?
To be able to perform the aggregate planning process, the following information should be available to this production planning team. These data include the following:
• Materials / purchasing Information
• Operations / manufacturing Information
• Engineering / process Designs
• Sales, marketing and distribution Information
• Financial and accounting information
• Human resources information
How do you address the demand fluctuations?
There are three basic production planning strategies that the company can choose from to address demand fluctuations. These are the (1) Chase Demand strategy, (2) Level Production strategy, and the (3) Mixed Strategy.
Strategy Description
Demand Chase Strategy Matches the production rate to the order or demand rate through the hiring and firing of employees as the order rate varies
Level Production Strategy Maintains a stable workforce working at a constant production rate with the shortages and surpluses being absorbed by any of the following: • Changing the inventory levels • Allow order backlogs (commit to the customer that you will deliver the product (s) at a much later date) • Employ marketing strategies (e.g. promotional activities)
Mixed Strategy The strategies here could include combination of any of the following: • Having a stable workforce but employ variable work hours (e.g., increase no. of shifts, flexible work schedules or overtime) • Subcontracting / outsourcing
• Changing inventory levels
Source: Dilworth, James B. Production and Operations Management: Manufacturing and Services . Fifth Edition. McGraw-Hill, Inc. 1993
What are the important considerations in selecting the production planning strategy?
Demand Chase Strategy
Specific Methods Costs Remarks
Hire additional workers as demand increases Employment costs for advertising, travel, interviewing, training, and others
Shift premium costs if additional shift is added Skilled workers may not be available when needed
Layoff workers as demand decreases Cost of severance pay & increases in unemployment insurance costs The company must have adequate capital investment in equipment for the peak work force level
Level Production Strategy
Specific Methods Costs Remarks
Produce in earlier period and hold until product is needed Cost of holding inventory Service operations cannot hold service inventory
Offer to deliver the product or service later, when capacity is available Delay in receipt of revenue, at minimum; company may lose customers Manufacturing companies with perishable products often use this method
Exert special marketing efforts to shift the demand to slack period Advertising costs, discounts, other promotional programs Exemplifies the inter-relationship
among functions within an organization
Mixed Strategy
Specific Methods Costs Remarks
Work additional work hours without changing the workforce size Overtime premium pay The time available for maintenance work without interrupting production is reduced
Staff for high production levels so that overtime is not necessary Excess personnel wages during period of slack demand Work force may be used for deferred maintenance during periods of low demand
Subcontract work to outside firms Continuing company overhead; subcontractor's overhead and profits The capacity of other firms can be utilized, but there is less control of schedules and quality levels
Revise make-or-buy decisions to purchase items when capacity is fully loaded Waste of company skills, tooling and equipment unutilized in slack periods These methods require capital investments sufficient for the peak production rate, that will be underutilized in slack periods
How can you monitor effectiveness of your production plans?
The important considerations in monitoring the effectiveness of your production plan are shown below:
Systems and Procedures
Consideration Present? Remarks
(if any)
Yes No
• Is there a current documentation of production planning and control systems and procedures? Has this been communicated to all concerned?
• Does production planning and control have a formal monitoring system to maintain and update master scheduling records?
• Is there a system of coordination between sales forecasts to be prepared in sufficient detail so that these maybe readily translated to specific production plans?
Production Planning
Consideration Present? Remarks
(if any)
Yes No
• Does production planning and control prepare a master production schedule with all the production assignments and time allocation?
• Do the production schedules permit adequate planning of purchases and inventory levels?
• Are there signs of significant lost time or low rate of worker productivity? Are the numbers of such orders appear to be significant?
Production Control
Consideration Present? Remarks
(if any)
Yes No
• Can the status of any order or work in progress be readily determined?
• Do actual production levels deviate significantly in comparison with planned schedules?
• Do actual shipments of orders almost always occur according to schedule?
• Are essential production control records and reports maintained to cover current and future production loads?
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Production plan
Nhãn: Production Schedule
The sales program (based on the sales forecast, once the marketing strategy is defined) is the starting point for the production plan.
Once you have information as to the quantities that are to be sold, you will have to foresee the quantities that will be produced and the level of stocks of raw materials and finished products. Broadly, the production plan describes how the company is going to produce its products or services and all critical decisions required by the process. Here you also predict production costs as well as the costs by each sold unit.
Basically, the production plan may be translated into the following chart:
Once you have information as to the quantities that are to be sold, you will have to foresee the quantities that will be produced and the level of stocks of raw materials and finished products. Broadly, the production plan describes how the company is going to produce its products or services and all critical decisions required by the process. Here you also predict production costs as well as the costs by each sold unit.
Basically, the production plan may be translated into the following chart:
The production plan also gives relevant information for the reader of the business plan since it identifies the production costs (which, when compared with the sales forecasts, allows you to assess profitability) and allows you to know which are the areas of possible cost reduction.
To list all production costs is essential in this plan because it will allow you to define the stocks policies (the relevant resources which must be ensured, even if it is necessary to "buy" in advance), the installed capacity (what should be produced at internal level and what should be contracted) and the price of each product (of course, according to the price policy, defined in the marketing mix).
The production plan should also identify the capacity threshold, that is, as from what quantities it is required to increase the capacity, that is, as from what point it is necessary to make new investments.
Finally, you should make a reflection on the possible constraints to production and to prepare contingency plans in order to face them (for instance, if a supplier does not deliver the raw-material in the agreed deadline, who can I contact in order not to delay the delivery to a client).
Once the production plan is finished, you should be able to fill in the following table, per product:
Sales Costs Product A Product B Product C
Cost of raw materials
Man's hours x hourly average wage
Other direct costs
Unit cost price
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