Production Planning System

Introduction to
MATERIALS MANAGEMENT
CHAPTER 2
Production Planning
System
Introduction to Materials Management

Introduction 7th Edition
to Materials 8e2012, 2008, 2004,Copyright
Management, © 2001, 1998, 1996 by
© 2017 Pearson Education,
Pearson Upper
Education, Inc.Saddle River, NJ 07458.
Arnold, Chapman, Clive All Rights Reserved.
Chapman, Arnold, Gatewood, and Clive 1 All Rights Reserved
Introduction
 Manufacturing is complex
 Large number of products in many firms
 Various processes, machinery, equipment,
labor skills, and material.
 To be profitable firms must organize
these factors to make the right goods at
the right time at top quality and do so
as efficiently as possible.
Introduction to Materials Management 7th Edition © 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
2
Planning System Questions
 What are we going to make?
 What does it take to make it?
 What do we already have?
 What do we need to get?
 These questions can be linked to priority
and capacity.
3
Planning System Questions
 These questions can be linked to
priority and capacity.
 Priority: relates to what products are
needed, how many are needed, and
when the are needed.
 Capacity: is the capability of
manufacturing to produce goods and
services.
4
Key is to match
 Priority: What is needed, when, and how
much.
 Capacity: Capability to produce what is
needed and when.
Priority Capacity
(Demand) (Resources)
5
Major levels in the manufacturing
planning and control systems
 Strategic business plans
 Sales and Operations Plans (Production Plans
and Marketing Plans)
 Master Production Schedules
 Material Requirements Plans
 Purchasing and Production Activity Control
 Each level varies in purpose, time span, and level
of detail.
 As we move from up to down (general to specific),
(years to days), (general to individual components)
6
At Each Level, Need to Decide
 What are the priorities
 What to produce?
 How much?
 When?
 What is the available capacity?
 How can the differences between
priorities and capacities best be
resolved?
7
Planning Hierarchy
Strategic
Business Plan
Master
Production Plan
Plan
Planning
Master Production
Schedule
Material
Requirements
Plan
Production Activity Implementation

Control and
Purchasing
8
The strategic business plan
 Is a statement of the major goals and
objectives the company expects to
achieve in the next 2 to 10 years or
more.
 Broad direction of the firm
 It reflects long range forecast and involves
cross functional participation.
 Set by top management
 Level of detail is low
9
The strategic business plan cont..
 It is based on long-range forecasts and
includes participation from
 Marketing: analysing the marketplace and
deciding the firm’s response
 Finance: deciding the sources and uses of funds
available to the firm, cash flows, profits, return
on investment, and budgets.
 Production: using plants, machinery, equipment,
labour, and materials as efficiently as possible.
 Engineering: research, development, and design
of new products or modifications to existing ones.
10
11
• The level of detail in the strategic
business plan is not high.
• It is concerned with general market
and production requirements—total
market for major product groups,
perhaps—and not sales of individual
items.
• It is often stated in dollars rather
than units.
12
Production Plan
 Quantities of each product group to be
produced each period
 Projected/desired inventory levels
 Resources needed
 Equipment
 Labor
 Material
 Availability of needed resources
 The level of details is not high, 6-18 months
planning horizon.
13
The level of detail is not high. For
example, if a company manufactures
children’s bicycles, tricycles, and
scooters in various models, each with
many options, the production plan will
show major product groups, or
families: bicycles, tricycles, and
scooters.
14
Master Production Schedule
 It breaks down the production plan to show,
for each period, the quantity of each end
item to be made
 For example, it might show that 200 Model A23
scooters are to be built each week.
 Inputs to the MPS are the production plan, the
forecast for individual end items, sales orders,
inventories, and existing capacity.
15
Level of detail is
higher than the
Production Plan, End
items versus groups
of items
Time periods usually
shorter (e.g., weeks
versus months)
16
Material Requirements Plan
 It shows end item requirements broken down into
specific components – what to make or buy, and
when
 The level of detail is high. The material
requirements plan establishes when the

components and parts are needed to make each
end item.
 The planning horizon is at least as long as the
combined purchase and manufacturing lead times.
 As with the master production schedule, it usually
extends from 3 to 18 months.
17
Production Activity Control
 Purchasing and production activity control (PAC)
represent the implementation and control phase
of the production planning and control system.
 Production Activity Control
 Execution plan, detailing specific orders to produce
items from the Material Requirements Plan
 Purchasing
 Similar to Production Activity Control, only includes
items to be purchased rather than produced.
 The planning horizon is very short, perhaps
from a day to a month.
18
19
Capacity Management
 At each level in the manufacturing planning and
control system, the priority plan must be tested
against the available resources and capacity of the
manufacturing system.
 Must obtain the right resources or change the plan
 Inadequate resources = missed production
schedules
 Resources significantly exceed planned production
= idle resources and extra cost
20
Sales and Operations Plan
Strategic Annually
Business Plan
SALES AND OPERATIONS PLAN

Monthly
Marketing Production
Plan Plan
Detailed Master Weekly

Sales Plan Production or
Schedule Daily
21
Sales and Operations Planning
 Can be used to update the strategic plan
 Provides a tool to manage change
 Enforces functional plans to be realistic and
coordinated
 Represents a plan to achieve company
objectives
 Provides management visibility of production,
inventory, and backlogs.
22
Role of IT
 The manufacturing planning and control
system is becoming more computer-based.
 Due to the large amount of data
 Two popular systems
 Manufacturing resource planning (MRP II)
 Different from “material resource planning
 Enterprise resource planning
23
FIGURE 2.6 Manufacturing resource plan (MRP II).
Introduction to Materials Management, Seventh Edition © 2012, 2008, 2004, 2001, 1998 Pearson Education, Inc.,
J.R. Tony Arnold, Stephen N. Chapman, Lloyd M. Clive Upper Saddle River, New Jersey 07458 • All Rights Reserved
MRP II
• The system intends to be a
fully integrated planning and
control system.
• Top-down planning, feedback
bottom-up
25
ERP
• More advanced version of MRP II
• Faster, reliable, and more powerful.
• Not limited to manufacturing, the
whole enterprise is taken into
account.
• Integration of knowledge and
decision making internally and
externally.
26
Developing the Production
Plan
 Some key questions that must be
answered to develop an effective
planning strategy:
 How flexible are the resources, both in
quantity and timing?
 Are “outside” resources available
(subcontracting)?
 Can we utilize inventory to meet demand?
27
Basic strategies
• The production planning system has the
following characteristics:
• A time horizon of 12 moths.
• Production demand of one or few product
families.
• Demand is fluctuating
• Plant and equipment are fixed in specific
period
• A variety of business objectives are set.
• Low inventories
• Efficient plant and Good customer
service
Introduction to Materials Management 7th Edition
Arnold, Chapman, Clive 28
© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Basic Production Plan Strategies
 Chase – vary production rates to meet changes in
demand
 Often used when inventory cannot be used or when
resources are flexible and inexpensive to change
 Level – establish average demand level and set
production rate to that level
 Often used when resources difficult or very expensive to
change
 Subcontracting: always producing at the level of
minimum demand. And meeting any additional
demand through subcontracting.
 Hybrid – use a combination of some chase and some
level
29
Example Demand Pattern
No. of Units
Demand
Time
Introduction to Materials Management 7 Edition
th © 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
30
Chase Production:
No. of Units
Chase Production
Demand
Time
31
Level Production:
No. of Units
Level Production
Demand
Time
32
Level Production Plan
Production Rate = Sales - Open Inv + End Inv

# of Production Periods
33
Level Production Plan
Practice Problem
 Charlie’s Chairs has a forecast (in ‘000) of 50,
60, 70, 30 chairs for the next four quarters.
His opening inventory is 40 chairs but he
would like to reduce this to 30 by the end of
the year. How many chairs should he make
each quarter and what will be his ending
inventory.
34
Charlie’s Chairs - Solution
Sales = 210 chairs
Opening inventory = 40
Desired closing inventory = 30
Production rate = 210 – 40 + 30
4
= 50 chairs/ quarter
35
Level Production:
No. of Units
USE Inventory
Level Production
CREATE Inventory
Demand
Time
36
Hybrid Strategy
No. of Units
Hybrid
Demand
Time
37
Numerical Example:
Suppose the forecasted demand for a product family looks
like the table below. Assume the product family is a
Make-to-Stock family with a starting inventory of 100.
Period 1 2 3 4 5 6 Total
Forecast (Demand) 150 160 180 175 155 140 960
38
Production Plan Using a Level
Strategy
Forecast (Demand) 150 160 180 175 155 140 960
Planned
160 160 160 160 160 160 960
Production
Planned Inventory 110 110 90 75 80 100
39
Production Plan using Chase
Strategy
Forecast (Demand) 150 160 180 175 155 140 960
Planned
150 160 180 175 155 140 960
Production
40
Production Plan using a Hybrid
Strategy
Forecast
150 160 180 175 155 140 960
(Demand)
Planned
140 140 140 175 175 175 945
Production
41
Level production plan. Following is the
general procedure for developing a plan
for level production.
1. Total the forecast demand for the
planning horizon.
2. Determine the opening inventory and the
desired ending inventory.
3. Calculate the total production required as
follows:
Total Production = total forecast + back
orders + ending inventory – open inventory.
42
4. Calculate the production
required each period by dividing the
total production
by the number of periods.
5. Calculate the ending inventory
for each period.
43
44
45
46
Make-to-Order Production
Plans
 Products made to customer specifications
 The customer is willing to wait for completion
 Generally products more expensive to make
and/or store
 Often several options offered
 Company often uses a backlog of unfilled
customer orders rather than inventory
47
Backlog
 In a make-to-order environment, a company
does not build an inventory of finished goods.
Instead, it has a backlog of unfilled
customer orders.
 The backlog normally will be for delivery in
the future and does not represent orders that
are late or past due.
48
Following is a general procedure for developing
a make-to- order level production plan:
 Total the forecast demand for the planning horizon.
 Determine the opening backlog and the desired
ending backlog.
 Calculate the total production required as follows:
 Total production = total forecast + opening backlog
- ending backlog
 Calculate the production required each period by
dividing the total production by the number of
periods.
 5. Spread the existing backlog over the planning
horizon according to due date per period.
49
A local printing company provides a custom printing
service. Since each job is different, demand is forecast in
hours per week. Over the next 5 weeks, the company
expects that demand will be 100 hours per week. There is
an existing backlog of 100 hours, and at the end of 5
weeks, the company wants to reduce that to 80 hours.
How many hours of work will be needed each week to
reduce the backlog? What will be the backlog at the end of
each week?
50
51
52

Production Planning System

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Production Planning System

Uploaded by

Copyright:

Available Formats

Introduction to

Introduction to Materials Management

Production Activity Implementation

requirements plan establishes when the

SALES AND OPERATIONS PLAN

Detailed Master Weekly

Production Rate = Sales - Open Inv + End Inv

Forecast (Demand) 150 160 180 175 155 140 960

Forecast (Demand) 150 160 180 175 155 140 960

Planned Inventory 110 110 90 75 80 100

Forecast (Demand) 150 160 180 175 155 140 960

Planned Inventory 100 100 100 100 100 100

You might also like