204 G C O S C M

Ope r a tio n s & Supply Chain Management

UNIT III

Prof. Sujeet Subhash Tambe

B.E(Chemical), M.M.S(Operations), UGC-NET(Management),
SET(Management), Ph.D (Pursuing)

Navsahyadri Group of Institutes,

Faculty of Management – MBA
Savitribai Phule Pune University
 Unit III
Production Planning & Control
 
(PPC)

Prof. Sujeet Tambe

Production planning and control :
It can be defined as
“Direction and coordination of firms resources
towards attaining the prefixed objectives of
production system”
Production system includes four factors:
1. Quantity
2. Quality
3. Cost
4. Time

Prof. Sujeet Tambe

Production Planning:
• It is the pre-production activity
• It is pre-determination of manufacturing
requirements
Definition:
“It is determination, acquisition and arrangement of
all facilities necessary for future production of items”

Prof. Sujeet Tambe

Production control:
“Control is to review the work progress, make
corrective actions and ensure programmed
production”
The essential steps in control activity are:
• Initiating production
• Progressing
• Corrective actions based on feedback
• Reporting back to production planning

Prof. Sujeet Tambe

Objectives or role of production planning and control
• Systematic planning of the production activities to
achieve highest efficiency in production
• To organize the production facilities
• Optimum scheduling of resources
• Coordinating the other departments for steady and
uninterrupted production flow

Prof. Sujeet Tambe

• To confirm the delivery commitments
• To inform the management of the difficulties that may
arise in achieving production targets
• To be able to make adjustments due to changes in
demand

Prof. Sujeet Tambe

Functions of production planning and control:
• Order preparation
• Materials planning
• Machines and equipments
• Process planning or routing
• Loading and scheduling
• Dispatching
• Progressing or follow up
• Expediting to rush up remaining operations

Prof. Sujeet Tambe

Production Planning Tools
Demand forecasting

Aggregate production planning

Master production schedule

Material requirement planning

Capacity requirement planning

Prof. Sujeet Tambe

Production Control Tools
Scheduling

Loading

Gantt Charts

Prof. Sujeet Tambe

 Why do we Forecast?
• Dynamic and Complex Environments:
control No over market forces and product
demand. E.g. FMCG products.
• Short term fluctuations in production: To
avoid knee-jerk E.g. Strikes of
effect.
transports
• Better Materials Inventor
Management:can be achieved. E.g. Restaurant
optimization y
purchasing manager will use forecast
2for
St ocking of grains.
16 Prof. Sujeet Tambe
 Why do we Forecast?
• Rationalized manpower decisions: Resource
allocation can be improved with the use of
forecasting tools. E.g. Event Management
• Basis for planning and scheduling: Planning
and scheduling on rational basis. E.g.
Purchasing decisions for seasonal business.
• Strategic Decisions: Unfolding future is a key
factor in decision making. E.g. Purchasing of
oil barrels on long term contract.
Prof. Sujeet Tambe
Crude oil Prices March 2013- February
2015-March 2020?

Prof. Sujeet Tambe

 Price Fluctuations
Appreciation and depreciation of USD-
INR
Date
1-Feb-15
Open
62.02
High
62.58
Low
61.56
Change %
0.27%
1-Jan-15 63.17 63.63 61.26 -1.61%
1-Dec-14 62.05 63.89 61.76 1.33%
1-Nov-14 61.5 62.25 61.29 1.31%
1-Oct-14 61.82 61.97 60.9 -0.86%
1-Sep-14 60.51 61.94 60.2 2.35%
1-Aug-14 60.74 61.76 60.35 -0.06%
1-Jul-14 60.07 60.56 59.53 0.82%
1-Jun-14 59.1 60.53 58.97 1.46%
1-May-14 60.26 60.27 58.25 -1.91%
1-Apr-14 59.93 61.19 59.57 0.55%
1-Mar-14 61.95 62.14 59.68 -2.88%
1-Feb-14 62.7 62.83 61.75 -1.42%
1-Jan-14 61.82 63.32 61.32 1.42%
1-Dec-13 62.35 62.53 60.83 -0.94%
1-Nov-13 61.5 63.9 61.5 1.26%
1-Oct-13 62.55 62.56 60.93 -1.54%
1-Sep-13 66.1 68.6 61.65 -4.74%
1-Aug-13 60.75 68.8 60.23 7.97%
1-Jul-13 59.46 61.21 58.69 2.22%
1-Jun-13 56.5 60.76 56.3 5.22%
1-May-13 53.8 56.76 53.63 5.39%
1-Apr-13 54.26 54.94 53.65 -1.11%
1-Mar-13
3/31/201 54.36 Prof. 55.13
Sujeet Tambe 53.89 0.00%
85
6
 Forecasting Time
Horizon

Source: Operations Management: Theory and Practice, B.Mahadevan , Page Number

398

Prof. Sujeet Tambe

 Forecasting as a planning tool
• Every organization engages in annual planning
exercise wherein HoD’s of various
departments (Marketing, Finance,
Production, Materials etc.) share the data as
an input.
• Managerial decision making is often
complicated due to an element of uncertainty
in the variables affecting the decision making
process. E.g. Whenever the restaurant opens
start offering new cuisine the demand for its
p r oduct is not known with certainty.
201 6 Prof. Sujeet Tambe
 Forecasting as a planning tool
• Forecasts are estimates of the timing and
magnitude of the occurrence of future event.
• Since these decisions involves cash flow and
time, accurate estimates of the future events
for which decision has been made is crucial.
• Forecasting is the branch of (OM) operations
management that addresses these issues and
provides the manager with a set of tools and
techninuques for Estimation process.
Prof. Sujeet Tambe
 Functions of
Forecasting
 An Estimation Tool.
A way of addressing complex and uncertain
environment surrounding business decision
making.
A tool for predicting events related to
operations planning and control.
A vital pre-requisite for planning process in
organization.

Prof. Sujeet Tambe

Design of Forecasting
Systems
Develop the forecasting logic by identifying the
purpose, data and models to be used.

Establish control mechanisms to obtain reliable

forecasts

Incorporate managerial consideration in using the

forecasting system.

Prof. Sujeet Tambe

Methods of Forecasting the Level

Naïve Forecasting
Simple Mean
Moving Average
Weighted Moving Average
Exponential Smoothing

Prof. Sujeet Tambe

 Naïve
Forecasting
Next period
forecast = Last
Period’s
actual:

 At
Ft  1
Prof. Sujeet Tambe
 Naïve
Month Period Orders (A) Forecast
January 1 122
February 2 91 122
91
March 3 100
April 4 77 100

May 5 115 77

June 6 58 115

July 7 75 58
75
August 8 128
128
September 9 111
October 10 88 111
88
November 11 Prof. Sujeet Tambe
Simple Average
(Mean)
Next period’s forecast =
average of all historical
data

At  .........
Ft    At  1  At  2
1 n . ..

Prof. Sujeet Tambe

 Simple Avg
Month Period Orders (A) Forecast
January 1 122
February 2 91 122
107
March 3 100
April 4 77 104

May 5 115 98

June 6 58 101

July 7 75 94
91
August 8 128
96
September 9 111
October 10 88 97
97
November 11 Prof. Sujeet Tambe
An arithmetic average of a certain number n of the
most recent observations. As each new observation is
added, the oldest observation is dropped. The value of
n (the number of periods to use for the average)
reflects responsiveness versus stability in the same
way that the choice of smoothing constant does in
exponential smoothing.

Prof. Sujeet Tambe

 Moving
Average
Next period’s forecast = simple average of the last N periods

At  .........  A t  N  1
Ft   A t1
N
1

Prof. Sujeet Tambe

 Moving Avg. (N=3)
Month Period Orders (A) Forecast
January 1 122
February 2 91
March 3 100
April 4 77 104

May 5 115 89

June 6 58 97

July 7 75 83

August 8 128 83
87
September 9 111
October 10 88 105
109
November 11 Prof. Sujeet Tambe
 Moving Avg. (N=5)
Month Period Orders (A) Forecast
January 1 122
February 2 91
March 3 100
April 4 77
May 5 115
June 6 58 101

July 7 75 88

August 8 128 85
91
September 9 111
October 10 88 97
92
November 11 Prof. Sujeet Tambe
Weighted Moving
Average
Whereas the simple moving average gives equal
weight to each component of moving average
database, a weighted moving average allows any
weights to be placed on each element, providing, of
course, that the sum of all weights equals 1.
F t= w1A t - 1+ w2 A t - 2 +.....+ wn A t - n
where wi = Weight to be given to the actual occurrence for the period
(t – n)
n = Total number of periods in the forecast.
∑ n i= 1 = 1, The sum of all the weight must equal 1.
Prof. Sujeet Tambe
 Weighted Moving
Avg. (N=3), .2,.3,.5
Month Period Orders (A) Forecast
January 1 122
February 2 91
March 3 100
102
April 4 77
May 5 115 87
101
June 6 58
July 7 75 79

August 8 128 78
98
September 9 111
October 10 88 109
103
November 11 Prof. Sujeet Tambe
Exponential
Smoothing
A type of weighted moving average forecasting techniques in which
past observations are geometrically discounted according to their
age. The heaviest weight is assigned to the most recent data.
The techniques makes use of a smoothing constant to apply the
difference between the most recent forecast and the critical sales
data.

F t= α A t-1+ ( 1 - α ) F t-1
where Ft = New forecast.
A t- 1 = Latest demand.
F t- 1 = Previous forecast.
α = Smoothing factor. (0
≤ α ≤ 1)
Prof. Sujeet Tambe
 Exponential
Smoothing
Month Period Orders (A) (α= 0.2) Forecast
January 1 122 122

February 2 91 122

March 3 100 116

April 4 77 113

May 5 115 106

June 6 58 108
98
July 7 75
August 8 128 93

September 9 111 100

October 10 88 102

November 11 99
Prof. Sujeet Tambe
Time Series Problem
Solution Simple Simple Weighted Exponential Exponential
Naïve Simple Moving Moving Moving Smoothing Smoothing
Perio Orders(A) Forecast Average Average Average(N=5) Average (=0.2) (=0.5)
d (N=3) (N=3)
1 122 122 122
2 91 122 122 122 122
3 100 91 107 116 107
4 77 100 104 104 102 113 104
5 115 77 98 89 87 106 91
6 58 115 101 97 101 101 108 103
7 75 58 94 83 88 79 98 81
8 128 75 91 83 85 78 93 78
9 111 128 96 87 91 98 100 103
10 88 111 97 105 97 109 102 107

11 88 97 109 92 103 99 98
Prof. Sujeet Tambe
Causal
Forecasting
Causal forecasting assumes that demand is related
to some underlying factor for factors in the
environment.
Causal forecasting methods develop forecasts after
establishing and measuring an association between
the dependent variable and one or more
independent variables.

Prof. Sujeet Tambe

Prof. Sujeet Tambe
Casual Models

Often, leading indicators hint can help predict

changes in demand
Causal models build on these cause-and-
effect
relationships
A common tool of causal modeling is linear
regression:

Y  a b
x Prof. Sujeet Tambe
Regressio
n
A method of fitting an equation to a data set. Simple
regression involves one independent variable and one
dependent variable. Least squares is the most common
method of regression.

Prof. Sujeet Tambe

Linear
Regression
▶Identifydependent (y) and
independent (x) variables
 X  Y 
▶Solve for the slope of the
XY 
b 

 X 2  X  X

 line
 nXY
b 
 XY 2
 nX
 X2
▶Solve for the y intercept
a  Y  bX
▶Develop your equation for the
trend line
Y=a + bX

Prof. Sujeet Tambe

Linear Regression Problem: A maker of golf shirts has been tracking the
relationship between sales and advertising dollars. Use linear regression to
find out what sales might be if the company invested $53,000 in advertising
next year.
Adv.$ Sales $ XY X2 Y2
(X) (Y)
1 48 130 4240 2304 16,900
2 52 151 7852 2704 22,801
3 50 150 7500 2500 22,500
4 55 158 8690 3025 24964
53 153.85
Tot 205 589 30282 10533 87165
Avg 51.25 147.25

b 
3028 2  4  5 1 . 2 5  1 4 7 . 2 5   3 . 5
1 0 5 3 3  4 5 1 . 2 5 2
8
a  Y  b X  1 4 7 . 2 5  3 . 5 8 5 1 .

b   X Y2  nXY
2 25 
a  -36.20

 X  nX
Prof. Sujeet Tambe
Y  a  bX  -36.20  3.58x
Y 5  - 3 6 . 2 0  3 . 5 8 5 3   1 5 3 . 5
4
 Formulas to Calculate Forecast errors

For Second Period

Forecast errors=114-118=-4
SFE=11-4=7
Absolute Deviation= I-4I =4
Cumulative Absolute deviation=11+4=15
MAD=15/2=7.5
Absolute Error= Actual-Forecast/ Actual =114-118/114= 3.5%
MAPE=(9.17%+3.5%)/2= 6.35%
Squared Error= 4 X 4 =16
MSE =(121+16)/2 = 68.5
TS= SFE/MAD =7/7.5=0.93 Prof. Sujeet Tambe
 Accuracy of
Forecasts
Forecasting model predicted the demandas
2500 units.
Case I: Actual demand 3500 Units-
Shortages , Last minuteSevere
rescheduling of
production, rush purchasing and expediting
deliveries.
Case II: Actual demand 1000 Units- Excessive
build up of raw materials and non-moving
inventory.
Prof. Sujeet Tambe
 Accuracy of
Forecasts
Forecast Error (FE): Forecast error for period t
έi = Dt-Ft ( Period 1: 100-50, Period 2: 100-145)

Positive value of έi will indicate underestimation

of demand and vice versa.
Sum of errors: Sum of errors during the period
of consideration. Even when system is not
performing well SFE value will be near to 0.
SFE= Σ έi (limits for i is from 1 to n)
Prof. Sujeet Tambe
 Accuracy of
Forecasts
Mean Absolute Deviation: (MAD) Take the
absolute value of έt and average it over
the n periods to get alternate and better
picture of the forecast.
Mean Absolute % error : (MAPE) Each
absolute error term could be expressed
as a percentage of the demand and new
measure computed.
Prof. Sujeet Tambe
 Accuracy of
Forecasts
Mean squared error: (MSE) This measure
is obtained by taking mean of the
squares of the error terms.
Tracking Signal :(TS) It is the ratio of SFE
and MAD.

No numerical is expected on the topic of

forecasting. Refer to Excel Link
Prof. Sujeet Tambe
 Planning Hierarchies in
Operations

Source: Operations Management: Theory and Practice, B.Mahadevan , Page

Number 430
Prof. Sujeet Tambe
 Sources of
Data
• Forecasting is often only as good as the
quality and quantity of data available.
• Extrapolative methods of forecasting make
use of past data to prepare future estimates.
Eg. Analyzing the demand pattern.
• Casual methods of forecasting analyze the
data from the view point of cause and effect
relationship. E.g. increase in repo rate and
effect on stock prices.
Prof. Sujeet Tambe
 Sources of
Data
•Sources of data for forecasting are:
• Sales Force Estimates: Field executives will give input on actual/ factual
demand.
• Point of sales (POS) data: ITES and bar-coding enables organizations e.g.
Wal-Mart, Big Bazaar to capture real time data.
• Forecast from supply chain partners: Supply chain partners provide
critical info on market

trends, competitors performance, market

s e ntiments and projections etc.
20 16 Prof. Sujeet Tambe
 Sources of
Data
Sources of data for forecasting are:
• Trade Industry association/ journals: The
journals provides syndicated and researched
data on industry trends and forecasts.
http://www.asa.in/pdfs/surveys-reports/auto-
and-auto-ancillaries-sector-in-india.pdf
• B2B Portals / Market places: Digital
versions of Trade Industry
association publications/ journals.
http://indiaautoreport.com/category/forecast
-update/
Prof. Sujeet Tambe
 Sources of
Data
Sources of data for forecasting are:
• Economic Surveys and Indicators: E.g. Mobile
data traffic be forecasted joint
research based with on TRAI
can
http://www.cisco.com/assets/sol/sp/vni/forec
and Cisco
ast_highlights_mobile/index.html
• Subjective Knowledge: Experience and
knowledge of senior management should be
used as insights for planning
Prof. Sujeet Tambe
 Capacity Planning
(No numerical is expected)
• Demand=250
• Hours/ unit of production= 100
• Demand (hours)=250 X100 =25000
• No. of Working days=23
• No. of Workers =125
• Capacity Available= 125 X 23 x 8 =23000
• Supply –Demand=23000-25000=I -2000 I
• Calculate for Q= 350, Q=100.
Prof. Sujeet Tambe
Aggregate Production Planning
Aggregate Production Planning (APP)
decisions deals with the amount of resources
to be committed, the rate at which goods and
services need to be produced during the
period, the inventory to be carried forward
form one period to the next.
APP exercise is done in an organizations to
match the demand with the supply on a
period by period basis in a cost effective
manner
Prof. Sujeet Tambe
 The Need for Aggregate Production
Planning
• Demand Fluctuations
• Capacity Fluctuations
• Difficulty level in altering production rates
• Benefits of multi period Planning
Resources Production Inventory Aggregate

June to 100 Operators 100 Carry 5% Manpower?

September one shift only Engines/Days
October to 100 Operators 150 Engines/ Carry 10% Inventory?
January two shifts Day

February to May 100 240 Engines/ Carry 20% Production?

Three Shifts Day

Prof. Sujeet Tambe

 Framework for APP
Exercise

Alternatives to managing demand: Reservation

of capacity, Influence Demand

Prof. Sujeet Tambe

 Alternatives for Managing
supply
• Inventory based alternatives:
 Build Inventory
 Back log / Shortage
• Capacity adjustments:
 Hiring/ Lay off of workers
 Varying shifts
 Varying Working Hours
• Capacity augmentation:
 Subcontract/ Outsource
 De-bottleneck
 Add new capacity
Prof. Sujeet Tambe
Basic strategies for APP
Exercise
Beyond the syllabus

Do not disturb
existing production
system

Mismatch is addressed
by variety of capacity
related alternatives

Prof. Sujeet Tambe

 Master Production Schedule
Master Production Schedule (MPS) is the
process by which disaggregation of varieties is
done.
At APP level forecast demand is normally
taken for the purpose of estimating the
capacity required however actual orders when
received gives better visibility for planning.
MPS uses actual and most recent information
while revisiting the planning problem and
ensures specific resources available.
Prof. Sujeet Tambe
 Master Production Schedule
As customers get amended and/or cancelled,
marketing dept. is interested to know scope
for accepting new enquiries and delivery
commitment.
 MPS module serves the important purpose of
computing capacity available to promise.
 MPS determines what needs to be ultimately
produced and not what is demanded.

Prof. Sujeet Tambe

 Master Production Schedule
First Stage: Update the projected demand
based on earlier forecast and current market
information.
Second Stage: Disaggregation of product
information and relating it to specific material
and capacity requirements.
Based on this, plans are re-worked in iterations
and executable/ viable plan is prepared.

Prof. Sujeet Tambe

 Product Structure
Level 0

Level 1

Level 2

Level 3

Levels of product Bill of Materials

Can you discuss levels of Car, Mobile as a product?

Prof. Sujeet Tambe

 http://dowap.eu/drp/

Prof. Sujeet Tambe

 Dependant Demand
• The Product structure depicts the dependency
relationships among various items that make
up the final product. E.g. Demand for pens is
independent demand while demand for refills
required for a pen is dependant demand.
• Due to causal relationship with other items in
the system demand estimation can be done
through simple planning methodologies. Due
to uncertainty independent demand items
can not be made available to 100% service
Prof. Sujeet Tambe
 MR
•
P
Material requirement planning is a structured
approach that develops schedules for
orders for materials in
launching
manufacturing system and ensures an
availability of these at right time and at y
the right place. the

Prof. Sujeet Tambe

 CR
P
• Capacity requirement planning is a technique
that applies the MRP logic to address the
capacity issues in an organization. ( Refer slide
of capacity planning)
• Inputs for this are capacity status, process
plans, planned orders released by MRP.
• Outcome of this activity is loading schedule
for each resource.

Prof. Sujeet Tambe

 DR
P
• DRP exercise will help organizations and their
supply chain partners to jointly plan and
reduce investment in the supply chain, they
will be in position to respond to changes in
the demand (surges and drops) and have a
cost effective operations.

Prof. Sujeet Tambe

 MRP
II
• MRP II (1980) is extended version of MRP and
consists of different modules related to
different business functions.
• Manufacturing Resourse Planning

Prof. Sujeet Tambe

Overview of MRP

Prof. Sujeet Tambe

Sr. NO. MRP MRP-II

1 Material Requirement Planning Manufacturing resource planning 

2 It focuses on materials availability  It is integrated system which integrates all the

modules for decision making ( Finance, HR and
Marketing requirements) 

3 MRP is the predecessor of MRPII MRPII is expansion of MRP

4.  MRP is narrower in focus  MRPII is a broader concept 

Prof. Sujeet Tambe

 Scheduling and
Loading
 Job Shops and
 Scheduling of Flow Shops
 Loading
 Johnson’s Rule Self Study Topics
 Gantt Charts

Prof. Sujeet Tambe

Scheduling
Process of arranging, controlling and optimizing work and workloads in
a production process or manufacturing process.
Allocate plant and machinery resources, plan human resources, plan
production processes and purchase materials.
Minimize the production time and costs, by telling a production facility
when to make, with which staff, and on which equipment. Production
scheduling aims to maximize the efficiency of the operation and reduce
costs.

Prof. Sujeet Tambe

Loading
A load means the quantity of work, and allocating the
quantity of work to the processes necessary to
manufacture each item is called loading.

Prof. Sujeet Tambe

Gantt Chart
A Gantt chart, or harmonogram, is a type of bar chart that illustrates a
project schedule.
This chart lists the tasks to be performed on the vertical axis, and time
intervals on the horizontal axis.
The width of the horizontal bars in the graph shows the duration of
each activity.
Gantt charts illustrate the start and finish dates of the terminal
elements and summary elements of a project..

Prof. Sujeet Tambe

Prof. Sujeet Tambe
Thank you