PROF. V.B.

SHAH INSITUTE OF MANAGEMENT,

AMROLI, SURAT

COURSE: B.B.A
YEAR: S.Y.BBA (SEM –IV)
SUBJECT: Production & Operations
Management
Faculty: Dr. Swati Mehta & Dr. Tanvi Bhalala
UNIT 4: PRODUCTION PLANNING & QUALITY CONTROL MANAGEMENT
(25%)
4.1 Production Planning:
 Definition and Concept, Concept of Aggregate Production Planning,
 Master Production Schedule: Definition, Flow Chart, General Explanation,
Functions, Process,
 Material Requirement Planning: Definitions, Flowchart, Inputs and Outputs,
 Capacity Requirement Planning: Definition, Flow Chart, General Understanding,
Inputs and Outputs, Methods of Capacity Adjustments,
 Scheduling: Backward and Forward, Priority Sequencing Rules, Strategies,
 Assignment Problems (With Numerical), Johnson’s Rule (With Numerical)
4.2 Quality Control: (Theory Only)
 Definitions and Methods (Statistical Quality Control, Quality Circles, Genichi
Taguchi’s Quality Loss Function, TQM, Zero Defect Approach)
Prof. V. B. Shah Institute of Management

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4.1 PRODUCTION PLANNING

4.1.1 Definition of Production Planning
Production Planning can be defined as deciding in advance, the short term as well as long
term conversion of raw materials & other inputs into finished products or products to be used
as inputs for further production by enhancing the utility of inputs so as to satisfy the needs of
the customer timely.
Production Planning is that function of management, which decides about the resources that
will be required for future manufacturing & allocating these resources to produce desired
output at right time, in right amount, at right quantity and at least cost”
Levels of Production Planning
1. Strategic Planning
 Strategic Planning is a process of linking production planning with mission and
overall strategic planning of the business.
 The time horizon of Strategic Planning is of 4 to 5 years.
 It includes various aspects like decisions on production capacity, locations of
manufacturing units, types of machines & material handling system and technology
forecasting.
 These are long term decisions i.e. once taken then difficult to alter. E.g. Once the
location of production plant is selected, it is difficult to alter / change.
 These decisions require less mathematical skills, they are more unstructured and
hence require high degree of skills, experience and creativity.
2. Tactical Planning
 It is medium term planning.
 Time horizon for this is usually 6 to 8 months or up to 1 year.
 It is concerned with the best utilisation of existing facilities rather than creating new
facilities.
 It including costing & value analysis, make or buy decisions design of inventory policies.
 It includes preparing Aggregate Production Plan.
 E.g. For paint industry, it can be prepared for total quantity of paint to be manufactured
during this year.
 For refrigerator manufacturer, it can be prepared for number of units of refrigerator to be
manufactured during the year. Here in APP; color, size, thickness etc. are not decided.
3. Operational Planning
 It is known as Shop Floor Planning.
 The time horizon of operational planning is 1 to 3 months.
 In other words it is a short range planning.

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 The immediate sales forecast, availability of material and capacity, stock of finished
products, pending purchase orders, requirement of fresh raw material etc. are the scope of
operational planning.
 MPS, MRP and CRP are prepared for the Operational Planning purpose.

Concept of Aggregate Production Planning

Aggregate planning is an operational activity critical to the organization as it looks to balance
long-term strategic planning with short term production success.
Aggregate planning is a type of medium range capacity planning that typically covers a 3 to
18 month period of time. Used in a manufacturing environment and determines overall output
levels planned as well as appropriate resource input mix to be used for related groups of
products.
Aggregate planning is the process of developing, analysing, and maintaining a preliminary,
approximate schedule of the overall operations of an organization.
Aggregate planning is considered to be intermediate-term (as opposed to long- or short-term)
in nature. Hence, most aggregate plans cover a period of three to 18 months. Aggregate plans
serve as a foundation for future short-range type planning, such as production scheduling,
sequencing, and loading. The master production schedule (MPS) used in material
requirements planning (MRP) has been described as the aggregate plan "disaggregated."

4.1.2 Master Production Schedule

Definitions of MPS
“Master Production Schedule (also known as Master Schedule or MPS) formalizes the
aggregate production plan and converts it into specific material requirement and capacity
requirement plan.”
“MPS is a process of deciding amount & timing of all the items (end items) to be produced
over a specific planning horizon.”
Objectives of MPS
 To schedule end items to be completed promptly and as & when promised to customers.
 To avoid overloading & under loading of production facility.

General Explanation of MPS

Master Schedule is completely derived and prepared from Aggregate Production Plan. Here a
production manager decides monthly or weekly production of units of end products. MPS is
prepared for immediate planning horizon i.e. next coming month, coming quarter. MPS is the
next step after Aggregate Production Planning. The major difference between Aggregate
Production Planning is that Aggregate Planning determines the total output in units to be
produced over a specific time horizon (6 months to 18 months) whereas MPS determines the
unit of each end items to be produced over a specific planning horizon.
E.g. aggregate planning determines what total quantity of paint is going to be produced
during next year.

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Whereas, MPS reveal that what quantity of Yellow Oil paint is to be manufactured + what
quantity of white exterior paint is to be manufactured?

Flow Chart of MPS

Process for Developing MPS

Step 1: Consider the sale projections and probable demand
The total demand for the end items (to be produced) is gathered from APP, market & demand
forecasts.

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For Standardized products, MPS should be made for ‘Few Outputs’ produced from ‘many
Inputs’. And for Intermittent production system, MPS should be made for ‘few inputs’ which
will produce ‘many outputs’

Step 2: Prepare tentative Master Schedule (Rough Cut Capacity Planning)

After gathering the information related to the demand and sale projections, next step is that
orders are now assigned to various production slots (Work centres and machines) and
delivery promises are made to customers tentatively.
As orders are slotted in the MPS, the effect of the production work centres is checked. This
process of preliminary checking of MPS is called as Rough Cut Capacity Planning (RCCP).
The main purpose of RCCP is to identify any week in the MPS where under loading or
overloading of the production capacity occurs & then to revise MPS if required.
Step 3: Check tentative MPS (RCCP) for material availability by MRP and capacity
adequacy by CRP
The prime purpose of MPS is to prepare MRP and CRP. Tentative MPS will check whether
adequate material are available or not and adequate capacity is available or not by comparing
tentative MPS with material and capacity requirements.
Step 4: If material and capacity requirements are not adequate, again MPS shall be revised
and try to prepare modified MPS.
Step 5: When both material and capacity requirements are adequate enough, MPS will be
finalised at this stage.

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Prof. V. B. Shah Institute of Management

Specimen of Master Production Schedule

Functions of MPS
1. Translate Aggregate Production Plans
2. Evaluate alternative Master Schedules
3. Generate Material Requirements
4. Generate Capacity Requirements
5. Facilitate Information Processing
6. Maintain Valid Priorities
7. Effectively utilize capacity
Let us see all these function in brief.
1. Translate Aggregate Plans
The master schedule translates APP into specific number of end items to be produced during
specific time periods. In short it means conversion of aggregate plan into specific end items
plan.
2. Evaluate alternative Master Schedules
Master Scheduling is a trial and error, work and rework activity. Nowadays there are many
computerised software are available in the form of simulation capabilities that provide many
alternative Master Schedules and help production managers to “trial-fit” the schedule. So, it
is advisable for a production manager to evaluate as many as possible MPSs.
3. Generate Material Requirements
MPS is the first input for MRP. MPS shows end items to be produced and this becomes
signal for MRP to generate further dependent items requirements of purchasing and
producing them on or before the due dates.

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4. Generate Capacity Requirements

MPS becomes prime requirement for capacity requirement planning. It reflects the
determination of labour and equipment requirement. If capacity requirements are
inappropriate, MPS needs to be revised.
5. Facilitate Information Processing
MPS also determines when deliveries are to be made both for make-to-order & for make-to-
stock items.
6. Maintain valid priorities
Priorities reflect absolute priorities or relative (ranking i.e. J4, J3, J1 & J2) priorities. This
means that due date specifies the actual time when the order is to be delivered. But,
sometimes it so happens that customers may change their orders, customers may change their
time, raw material are not available at last moments etc. In all such cases revision of MPS
will be helpful in determining the new & valid priorities.
7. Effective utilisation of Capacity
By specifying the end items requirements, the master schedule also establishes the load and
utilisation parameters for labour and equipment.

4.1.3 Material Requirement Planning

Before going to study the concept of MRP, let us first understand the concept of Dependent
Demand Items and Independent Demand Items.

 Independent Demand Items

Independent Demand Items are those finished goods, service parts and other end items
whose demand arises more directly from uncertain market environment. Independent
demand items need careful forecasting for demand estimation.
 Dependent Demand Items
Dependent Demand Inventory consists of raw material, components and subassemblies
that are used in the production of parent item/finished product. E.g. Demand for computer
keyboards, mouse, and mother boards depend on the demand of the parent item computer.
The demand for dependent demand item can be calculated.
In short demand for items that are subassemblies and components parts to be used in
manufacturing final products are dependent demand items.
Definition of Material Requirement Planning (MRP)
Material Requirement Planning (MRP) is a technique for determining the quantity and
timing for the acquisition of dependent demand items needed to satisfy master schedule
requirements.
MRP is a computer based information system that translate the finished product requirements
of MPS into time phased requirements of assemblies, subassemblies, components and parts &
other information to determine when to order and how much to order. Hence requirements of
end items generate requirements of further lower level components, which are broken down

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by planning periods. E.g. Requirements of ‘n’ units of Wheelbarrows (end-item) generates

the lower level requirements of Handle Assembly, Wheel Assembly, Box and Paints.
Objectives of MRP
1. To improve customers service by meeting delivery schedule on or before promised dates.
2. To reduce inventory costs by reducing inventory levels
3. To improve operating efficiency and capability of productive resources (man and
machines)

Flow Chart of MRP

Inputs & Outputs of MRP System

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Inputs to MRP:
Mainly there are 3 inputs of MRP.
1. Master Production Schedule
MPS specifies what end items are to be produced and when. Remember, MPS is a production
plan not necessarily a sales forecast.
MRP system accepts whatever the MPS requirements are and translates MPS end items into
specific component and parts requirements. Then with the help of simulation trial and error
method proposed master schedule requirements can be satisfied.
2. Product Structure File / Bill of Material
To plan for the production of an end item, an MRP system must plan for all the dependent
demand items i.e. materials, parts, components, subcomponents and parts that will go into
manufacturing final product.
A Bill of Material contains a listing of all the assemblies, sub-assemblies, parts and raw
materials that are needed to produce one unit of a finished product. Thus each end-item has
its own Bill of Material.
The bill of material is the computer system that provides this information of all sub products.
The BOM file identifies each part and sub-part by a unique number and facilitates further
explosion of end-item requirements. There are mainly two types of Bill of Materials: Single
Level BOM and Multi Level or Indented BOM.
PRODUCT STRUCTURE TREE (SPECIMEN)

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3. Inventory Status File

The inventory status file gives complete information regarding on-hand inventory, gross
requirements, scheduled receipts, and planned order releases for the item.
Moreover, inventory status file also includes information such as lot sizes, lead times, safety
stock levels and scrap allowances.
Inventory status file should be updated on regular bases i.e. as & when changes occur.

Let us first understand the each and every particular which is mentioned in inventory status
file.

 Gross Requirements: The total quantity of an item needed at the end of a period to meet
the planned output levels. Remember, it will not consider any availability of the item in
on hand inventory
 Scheduled Receipts: The quantity of an item that will be received at the beginning of the
time period to meet the net requirement for that time period.
 On-Hand Inventory: The quantity of a material, physically held in inventory at a point
of time. It may include safety stock plus allocated inventory.
On hand Inventory for ‘n’ period = (On hand inventory for the period ‘n-1’) +
(Scheduled Receipts for ‘n’ period) – (Gross Requirements for ‘n’ period)
 Planned Order Release: Number in planned order release row when (in which week)
the order should be placed to meet the requirements for the item. Time period at which

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the order should be placed can be found out by subtracting the lead time from the time of
‘net requirement’.
 Net Requirements: The amount of net requirements in any period can be found out by
subtracting the gross requirements for that period and any scheduled receipts for that
period and any quantity of on-hand-inventory.
Net Requirements for period ‘n’ = (Gross Requirement for period ‘n’) – (Scheduled
receipts for period ‘n’) – (On hand inventory at the end of period ‘n-1’)
Outputs to MRP:
1. Planned Orders: It is the schedule indicating the amount & timing of future orders.
2. Order Releases: It shows implementation of planned orders.
3. Performance Control Reports: It is report showing evaluation of system operation,
including deviations from the plan and cost information
4. Exception Reports: Shows attention to major discrepancies like late and overdue
orders, excessive scrap rates, reporting errors and requirements of non-existence parts.
5. It facilitates modification in MPS if needed.

4.1.4 Capacity Requirement Planning

Definition of Capacity
Capacity is a measure of the productive capacity of a facility per unit of time.
Definition of Capacity Requirement Planning (CRP)
CRP is techniques for determining what personal and equipment capacities are needed to
meet the production objectives mentioned in master schedule and material requirement plan.
Flow Chart of CRP

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General Understating of CRP Process

1. End-items requirements are reflected in and extracted from APP and MPS.
2. The CRP system (computer system) will then convert orders to be released and
processed into standard Labour Hours and Machine Hours of load. This information is
given in work centre status and shop routing file. In short CRP system will convert
orders into standard time of load on Work Centre.
Here, one point is to be remembered is that, when the orders are initially converted into
the loads, it will consider Infinite Loading for the initial loading process. The process of
loading work centres with all the loads without seeing the actual capacity is known as

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infinite loading. Infinite loading is important for planners because it provides idea for
capacity adjustments like using overtime, using alternative routings, delaying selected
orders etc.
3. The output will be a Load Projection Report by a work centre. If work centre capacities
are adequate then planned order releases are verified by MRP system and released orders
become purchase or shop orders (Remember: Purchase Order from vendor and shop order
for in-house production).
4. Workload Reports are also made for use in Capacity Control. (In case of Finite Loadings)
5. If Load Projection Reports reveal inadequate capacities, either capacity must be adjusted
or MPS should be revised.
Inputs and Outputs of CRP

 Inputs of CRP
1. Planned orders and Planned order releases from MRP system.
2. Loading information from work centre status file.
3. Routing information from Shop Routing File
4. Changes which will modify the capacity either by adjusting capacity or by making
changes in MPS.

 Outputs of CRP
Major output of CRP system is the verification of planned order of MRP system and load
report. Good load report are as follows:
1. They are complete (i.e. they have both planned and released orders.)
2. They are based on valid priorities.
3. They facilitate for future planning.
Methods for Capacity Adjustments
1. Overtime of Existing Workers
2. Work during vacations
3. Hiring casual workers
4. Outsourcing or Subcontracting some jobs
5. Adjustments in quantities during vacation season or peak season
6. Expansion of Capacity

4.1.5 Scheduling
Definition of Scheduling
It is defined as determining starting time and finishing time for each operation of production
and also the overall production process with a view to achieving the production targets to
meet is customer requirements and achieving optimum utilisation of resources. Thus, it is
lays down a time table for overall production and for detailed operations and other activities
of production.

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 “Scheduling is a process of organising a production line to produce products by using

least time and maximum utilisation of resources.”
 “Scheduling involves assigning specific jobs to each work centre for the planning
periods.”

Objectives
 To meet the customer requirements on time.
 To utilise the resources (labour, equipment & materials) effectively.
 To avoid underloading and overloading of resources.
 To reduce the set up costs, inventory cost and cycle time.
 To translate aggregate plans into specific end items.
 To reduce idle time of labour and equipment.
 To maintain valid priorities.
 To fixed up delivery dates for various manufacturing activities and for finished products.

Types of Scheduling
Types of scheduling can be categorized as forward scheduling and backward scheduling.
1. Forward Scheduling
 Forward scheduling means scheduling starting from today.
 Forward scheduling is commonly used when customers place their order on “needed as
soon as possible” basis.
 Forward scheduling determines the start time and finish time for waiting jobs by
assigning them to the earliest available time slots at the machine / work centre.
 The purpose of forward scheduling is to complete the assigned jobs in shortest lead time.
 Forward scheduling deals with in what shortest time a job can be completed.

2. Backward Scheduling
 Backward scheduling is mainly used where the manager commits to complete the job on
specific due date to the customers.
 Backward scheduling means to start scheduling from backwards i.e. from due date.
 Backward scheduling deals with what latest job can be started and still can be completed
on due date.

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Scheduling Strategies
The scheduling strategies are classified in to following categories:
1. Detailed Scheduling
Detailed scheduling involves determination of start times, finish times and work assignments
for all jobs at each work centre. However, detailed scheduling is usually impractical (near to
impossible) in a manufacturing environment. Changes in orders, equipment breakdown, and
unforeseen events deviate the plans.
2. Cumulative Scheduling
Cumulative scheduling is the scheduling of total workload. Cumulative scheduling of total
work load is useful especially for long range planning of capacity needs. This may load the
current period excessively and under load future periods. It has some means to control the
jobs.
3. Cumulative detailed Scheduling
Cumulative detailed combination is both feasible and practical approach, if master schedule
has fixed and flexible portions. Cumulative work load projection made as job arrive, can be
used to plan for approximate capacity needs.
4. Priority decision rules: 
Priority decision rules are scheduling guides that are used independently and in conjunction
with one of the above strategies, i.e., first come first serve. These are useful in reducing
Work-In-Process (WIP) inventory.

Priority Sequencing Rules

Meaning of Sequencing
The order in which jobs pass through the machines or work stations is called sequencing.
Various priority sequencing rules are as follows:

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1. FCFS (First Come First Serve)

Jobs are scheduled for work in the same sequence in which they arrive at the facility or work
centre.
2. SPT (Shortest Processing Time)
The job which has the shortest processing time or operation time on the machine is given first
priority to be loaded as the next job for processing. This rule minimizes in process inventory
(Work-in-process).
3. LPT (Longest Processing Time)
The job which has the longest processing time / operation time on the machine is given first
priority to be loaded as the next job for processing.
4. LS (Least Slack)
The job which has the minimum slack period is given first priority to be processed.
SLACK = Available Time – Processing Time
5. EDD (Earliest Due Date)
This rule sequences the jobs waiting in the queue at the work centre or machine according to
their due dates and the jobs are processed according their due dates i.e. the job having earliest
due date is given highest priority while loading the job on the machine.
6. PCO (Preferred Customer Order)
Jobs belonging to a preferred customer are given a higher priority than other jobs.
7. RS (Random Selection)
Job is selected at randomly for the process.

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