PRODUCTION PLANNING

Production is a process which combines and transforms various resources used in production and operations sub system of the organization into value added products or services.

Mgmt decisions -3 levels of categories

strategic planning Tactical planning Operational planning

Strategic planning

Strategic planning- deciding and developing strategic plans to achieve strategic objectives.

Top level decisions having long term implications.

High risk and uncertainty.

Tactical planning

Involves resource acquisitions and utilizations to achieve organizational goals.

Middle level decisions having 1-2 years medium term implications.

Tactical plans cover shorter time frames Less uncertainty and lower risk

Operational planning

Routine decisions ,plans to establish actions necessary for achieving operational goals.

Within year No or very little uncertainty or risk.

PRODUCTION PLANNINGEffective production planning is the key to successful operations in a production System (Medium range planning).

The operation managers develop the medium range plans of how they will Produce Product for next several month.- Aggregate planning

These plans specify the amount of labor, sub-contracting and other sources of Capacity to be used.

Next – operations managers also engage in master production scheduling.

Short range production plans, which finished product to be produced in next several Weeks (Short range planning).

Major concepts of issues and techniques of aggregate planning: Definition : Aggregate plan is a statement

of the companies production rates, work force levels ,inventory holdings based on estimates of customer requirements and capacity Limitation.

Aggregate planning is the development of medium range capacity plans for production system.

(Ex) Whirlpool Corporation

A service firms aggregate plan is called a staffing plan, centers on staffing and other Labor related factors.

Manufacturing firms aggregate plan, called a production plan focuses on production rates of inventory plan.

The purpose of Aggregate plan: The Aggregate plan is useful because it

focuses on a general course of Action, consistent with the company’s strategic goals and objectives.

Process Planning

Strategic Capacity Planning

Aggregate Planning

Master Production Scheduling

Material Requirements Planning

Order Scheduling Weekly Workforce &Customer Scheduling

Daily Workforce &Customer Scheduling

LongRange

MediumRange

ShortRange

Manufacturing Services

4©The McGraw-Hill Companies, Inc., 1998

Managerial Implication of Aggregate plan:Managerial Inputs: What types of information that managers

from various functional areas should supply to aggregate plans.

Necessary for cross- functional co-ordination.

Create a committee of cross functional representative, chaired by G.M, the committee overall responsibility is to see whether company policies are followed, conflicts are revolved and final plan is approved.

Fundamentals of aggregate planning

Aggregate planning is key to managing change in patterns of customer demand .

Provides plans for production resources adapt to those changes.

Need For Aggregate planning:

Minimizes over loading and under loading,

thus reduces production costs. Adequate production capacity to meet

expected aggregate demand. A plan for the orderly and systematic

change of production capacity To meet the peaks and valleys of expected

customer demand. Getting more output for the amount of

resource available.

Aggregate Demand:- Individual product forecasts into aggregate demand.

Dimensions of production capacity For aggregate planning, comprehensive

understanding of each production system is needed.

How much of each production resources is available

How much capacity is provided by each type of resource

At what step in production do we determine capacity

How much does it cost to scale capacity up or down.

Sources of Medium range production capacity (for the period of 6 to 18 months )

Several variables are alerted to change in medium range production capacity

Straight time labor- work force adjustment- overtime Labour

Anticipation Inventory Sub-contracting Backlogs, Backorders and Stock outs

Aggressive alternatives: Complementary products Creative pricing

Traditional Aggregate Plan:-

To match demand plan & the level of capacity plan in conjunction

Inventory backlog, overtime, part time labor, temporary employee or sub- contracting are used.

Matching Demand

In matching demand type of aggregate plan, production capacity in each time period varied should exactly match the forecasted demand in that time period.

This approach varies the level of

workforce in each time period by hiring new workers or laying of workers

Advantage: This plan almost no finished good inventory

is needed Carrying inventory is avoided Labor and material cost are higher (up and

down)

LEVEL CAPACITYProduction level capacity is constant over the planning

horizon

The difference between the constant production rate and the varying demand rate is matched up inventory, backlog, over time labor , temporary employees or sub contracting

Buffering with inventory

Production capacity

demandInventory will be increased

Inventory will be decreased

1 2 3 4

Production capacity

demand

Backlog will be reduced

Backlog will be increased

Buffering with backlog

1 2 3 4

Buffering with overtime, part time labor or sub contracting

Production capacity

demand

Demand capacities

1 2 3 4

The chief advantage of level capacities with inventories

Low production cost The cost of hiring and training and lay off workers and using

over time are practically eliminated Stable employment level Reduced turnover and absenteeism Improved quality levels Increased employees commitment to common goal

Drawbacks

Higher finished good inventory Additional carrying cost Trade off between additional carrying cost and saving labor

and material cost results in level capacity in aggregate plan

BUFFERING WITH BACKLOG: ( Produce- to- order)

In produce- to – order firms, backlog serves the purpose of buffering the Difference between varying demand rate to a constant production rate.

Backlog of customer orders in simply to slack of customer order that have been received but not yet produced or shipped.

During first quarter, backlog could fall because demand is less than production capacity.

Remaining quarters, backlog would rise because exceeds production capacity.

Pros:- Level capacity with backlog is preferred by PM, for

same reason as level capacity with inventory. Low production cost Consistent product quality Dependable production rate Produce custom- designed product.

Cons:- Difficult in developing aggregate capacity plan

because of product diversity. Firm needs a large back- log of customer orders. Because products can be designed and production

can be planned for enough in advance that aggregate production capacity can be planned.

Buffering with overtime (or) sub- contracting:-

Next approach to aggregate capacity planning is to use straight line labor to provide production capacity that equals the minimum forecasted demand rate during the planning horizon.

Sub-contracting is used to supply any demand above minimum.

This approach is used to either product- to- order firms.

Advantage:- No finished goods inventory is carried. No hiring, lay-off, or recalling of workers. Low inventory, stable employment levels for

the work force.

Disadvantage:- The amount of overtime available may be

insufficient to meet the demand peaks too high.

Continual use of overtime can exhaust workers.

Leads to detoriating morale problems with product and service, quality, etc.,

Aggregate plan for services:- Aggregate planning may be even simpler

than in system that produce products. Service system, supply standardized service

to customer. Straight- forward aggregate planning

situation in service systems are restaurants, airlines and banks.

In service system, that supply customized services to customer experiences, the same difficulty as job shop in specifying the nature and extend of services to be performed for each customer.

DEMAND FORECASTING

The first step in planning is therefore Forecasting

o Estimating the future demand for products and services and the resources necessary to produce these output

o These are commonly called as sales forecast

o Which are the starting point for all other planning in operations management

TYPES OF FORECASTING

LONG RANGE FORECAST- (Years)

To make strategic decision about production process and facilities- new product line, factory capacities

SHORT RANGE FORECAST- (months)

To assist them in making decisions about operations about operation issues that spans for few weeks- product groups, work force, inventories, purchased materials

MEDIUM RANGE FORECAST- (weeks)

To assist in making decision usually span for few months – specific product, labor-skill classes, machine capacities.

FORCASTING AS AN INTEGRAL PART OF BUSINESS PLANNING

INPUTSMARKET CONDITIONSCOMPETITORS ACTIONCONSUMER TASTEPRODUCT LIFE CYCLESEASONCONSUMER PLAN

ECONOMIC OUTLOOKBUSINESS CYCLELEADING INDICATOR- STOCK,PRICE,MONEY SUPPLY ,UNEMPLOYMENT

OTHER FACTORSLEGALPOLITICALSOCIOLOGICALCULTURAL

FORECASTING METHODS OR

MODELS

OUTPUTSESTIMATED DEMANDFOR EACH PRODUCT

IN EACH TIMEPERIOD

OTHER OUTPUTS

MANAGEMENT TEAMPROCESSOR

SALESFORECAST

FORECAST OF DEMAND FOR EACH

PRODUCTIN EACH TIME PEROID

PROCEDURE FOR TRANSLATING SALES FORECAST

INTO PRODUCTIONRESOURCESFORECAST

BUSINESS STRAREGYMARKETING PLANPRODUCTION PLANFINANCE PLAN

PRODUCTION RESOURCE FORECAST

LONG RANGE MEDIUM RANGE SHORT RANGEFACTORY CAPACITIES WORK FORCE LABOUR BY SKILL CLASSCAPITAL FUND DEPARTMENT CAPACITIES MACHINCE CAPACITIES

TYPES OF FORECASTING

LONG RANGE FORECASTING

SHORT RANGE FORECASTING

TECHNIQUES OF FORECASTING

QUALITATIVE METHOD JUDGMENTAL METHODS

QUANTITATIVE METHOD CASUAL METHODS

QUALITATIVE METHOD

QUALITATIVE METHODS ARE CALLED AS JUDGEMENTAL METHOD

NEED FOR JUDGEMENTAL METHOD

Forecast from quantitative methods are possible only when there is adequate historical data often called as history file

Historical files may be non-existent when a new product is introduced or when technology is expected to change

Judgmental methods are the only practical way to make the forecast

Judgmental methods are used to make quantitative methods to be more reliable

JUDGMENTAL TECHNIQUES

SALES FORCE ESTIMATE EXEUTIVE OPINION MARKET RESEARCH DELPHI METHOD GUDIELINES FOR USING JUDGMENT FORECAST

Adjust quantitative forecast when their track record is poor and decision makers has important contextual knowledge

Make adjustment to quantitative forecast to compensate for specific events

QUANTITATIVE METHODS

QUANTITATIVE METHODS ARE CALLED AS CASUAL METHODS

NEED FOR CASUAL METHODS

Casual methods are used when historical data are available and the relationship between the factors to be forecasted and other internal and external factors

Provides sophisticated production tools Predicting turning points in demand Preparing long range forecast

PRODUCT LIFE CYCLE

An important part of business strategy is to plan for new product and services to be designed, developed and introduced

Operation strategy is directly influenced by products and service plan

As products are designed , all the detailed characteristics of each product is established

Each products characteristics directly affects how the product can be or produced

How the product is made determine the design of production system, which is the heart of operations strategy

Product life cycle

INTRODUCTIONSTAGE

GROWTHSTAGE

MATURITYSTAGE D

ECLINE

DEE

DECLINE

STAGE

INTRODUCTION STAGE Sales begins, production and marketing are

developing and profits are negative Custom products, very low volume, process focused

GROWTH STAGE Where sales grow dramatically, marketing efforts

intensifies, production concentrates on expanding capacities, profits begins up with demand

Slightly standardizes product, low volume, process focused ,to order small batch Standardized product, high volume, product focused, production line to stock, large batch

MATURITY STAGE Production concentrates on high volume, efficiency to low

cost, marketing shifts to competitive sales, promotion aims at increasing market share, profits are at peak