PRODUCTION PLANNING AND

CONTROL
• Meaning:- Production planning and control is concerned with
directing production along the lines set by the planning
department.

• Definition:- "Production planning and control is the co-

ordination of series of functions according to a plan which
will economically utilize the plant facilities and regulate the
orderly movement of goods through the entire
manufacturing cycle from the procurement of all materials to
the shipping of finished goods at a predetermined rate."
PHASES OF PRODUCTION PLANNING AND
CONTROL

• PRE – PLANNING PHASE

• PLANNING PHASE
• CONTROL PHASE
 PRE – PLANNING PHASE
• Micro planning
• Analysis of data
• Out line of basic planning (Demand , Market analysis,
and product design and development)
• Pre planning concern with 4’M’s Material, Machine,
Methods, Manpower
 PRE PLANNING
• Product development and design
• Process design
• Work station design
• Sales forecasting
• Estimating
• Factory outlet and location
• Equipment policy
• Pre – planning production
 PLANNING PHASE
• Analysis of 4’M’s (Material, Machine, Methods,
Manpower) to undertake the above “M”s
• Phase for Planning, Estimating, & Scheduling
• Short-term planning
• Long-term planning
 CONTROL PHASE
• This involves Dispatching, Inspection, Expediting, and
evaluation.
• Control of scrap, control of transportation.
• Feed back information for the corrective actions.
 Production Planning And Control
• PPC is aimed to achieving the efficient utilization
of resources (material, men , facility) in the
manufacturing organizations through planning ,
coordinating and control the production
activities that transform the raw materials in to
finished product
 Objectives Of PPC
• To design the production system to meet with minimum cost
and quality standard
• To ensure maximum utilization of resources
• To ensure production of quality products
• To maintain inventory controls
• To maintain flexibility in manufacturing
• To plan the plant capacities for future requirements
• To establish targets and checking them against performance
• To ensure effective cost reduction and cost control.
 PRODUCTION PLANNING
• Meaning:- Production planning involves management
decisions on the resources that the firm will require for its
manufacturing operations and the selection of these
resources to produce the desired goods at the appropriate
time and at the least possible cost.
• Definition:- "The planning of industrial operations involves
four considerations, namely, what work shall be done, how
the work shall be done and lastly, when the work shall be
done – (Kimball)
 OBJECTIVES OF PRODUCTION
PLANNING
• To determine the requirements of men, material and equipment.
• Arranging production schedules according to the needs of marketing demand.
• Arranging various inputs at a right time and in right quantity.
• Making most economical use of various inputs.
• To achieve coordination among various departments relating to production.
• To make all arrangements to remove possible obstacles in the way of smooth
production.
• To achieve economy in production cost and time.
• To operate plant at planned level of efficiency.
• Making efforts to achieve production targets in time.
• Providing for adequate stocks for meeting contingencies.
LEVELS OF PRODUCTION PLANNING
• Factory planning (Availability of machines, buildings, and goods)
• Process planning (Operations involved)
• Operation planning (Tools required)

• FACTORS DETERMINING PRODUCTION PLANNING

• Volume of production
• Nature of production process
• Nature of operations
 PRODUCTION CONTROL
• Meaning:- Production control guides and directs flow of
production so that products are manufactured in the best
way as per the planned schedule and are of the right quality.
Control facilitates the task of manufacturing and see that
every thing goes as per the plan.

• Definition:- "Production control refers to ensuring that all

which occurs is in accordance with the rules established and
instructions issued.“ -HENRY FAYOL
 OBJECTIVES OF PRODUCTION
CONTROL
• To implement production plans by issuing orders to those who are
supposed to implement them.
• To ensure that various inputs like men, machine, materials etc. are
available in the required quantity and quality.
• Making efforts to adhere to the production schedules.
• To ensure that goods are produced according to the prescribed
standards and quality norms.
• To undertake the best and most economic production policies.
• To introduce a proper system of quality control.
• To ensure rapid turnover of production and minimizing of inventories
of raw materials and finished products.
 SCOPE OF PRODUCTION CONTROL
• Control of planning
• Control of tooling
• Control of materials
• Control of activities
• Control of material handling
• Control of information
• Control of quantity
• Control of due dates
• Control of quality
• Control of manufacturing capacity
Steps in Production Planning and Control
• The four stages or steps in production planning and control are:

• Routing,
• Scheduling

• Dispatching
• Follow-up
 Routing
• Routing is the first step in production planning and control.
• Routing can be defined as the process of deciding the path (route) of
work and the sequence of operations.
• Routing fixes in advance:

• The quantity and quality of the product.

• The men, machines, materials, etc. to be used.
• The type, number and sequence of manufacturing operations, and
• The place of production.
• In short, routing determines What, How much, With which, How and
Where to produce.
 Scheduling
Scheduling is the second step in production planning and control. It
comes after routing.
• Scheduling means to:

• Fix the amount of work to do.

• Arrange the different manufacturing operations in order of priority.
• Fix the starting and completing, date and time, for each operation.
Scheduling is also done for materials, parts, machines, etc. So, it is like a
time-table of production. It is similar to the time-table, prepared by the
railways.
 Scheduling – Benefits
• Inventory reduction,
• Process change-over reduction
• leveling
• Reduced scheduling effort
• Increased production efficiency
• Labor load leveling
• Accurate delivery date quotes
• Real time information
 Dispatching
Dispatching includes the following:

• Issue of materials, tools, fixtures, etc., which are necessary for actual
production.
• Issue of orders, instructions, drawings, etc. for starting the work.
• Maintaining proper records of the starting and completing each job
on time.
• Moving the work from one process to another as per the schedule.
• Starting the control procedure.
• Recording the idle time of machines
 Follow-up
• Follow-up or Expediting is the last step in production planning and control.
It is a controlling device. It is concerned with evaluation of the results.
• Follow-up finds out and removes the defects, delays, limitations,
bottlenecks, loopholes, etc. in the production process. It measures the
actual performance and compares it to the expected performance. It
maintains proper records of work, delays and bottlenecks. Such records are
used in future to control production.
• Follow-up is performed by ‘Expediters’ or ‘Stock Chasers’.
• Follow-up is necessary when production decreases even when there is
proper routing and scheduling. Production may be disturbed due to break-
downs of machinery, failure of power, shortage of materials, strikes,
absenteeism, etc.
• Follow-up removes these difficulties and allows a smooth production
 Facilities Location
Growing importance

• Factors promoting globalization of operations

• Regulatory & economic reforms
• Factor Cost Advantages
• Expanding markets in developing countries
• Location issues have become more prominent in recent years
due to globalization
• Location decision pertains to the choice of appropriate
geographical site for locating manufacturing & service
facilities of an organization
 Location Decision in an Organization
Impact of Globalization

Saturation of High Cost Input

Developed Economies Legacy Cost Burden

Economic
Reforms Impact on Location
Choice for Organizations
High Growth of Huge Capabilities in
Newly Emerging Economies NEE constantly discovered
(NEE) & Exploited by the West

Multi-location (Globalized) Operations

Competitiveness of a location
Three tier model

Country Competitiveness
Govt. budget & regulation Quality of judicial &
political institutions

Labour Sector Competitiveness Qlty of

Mkt. Flexibility Infrastructure Openness to
Quality Intl. trade &
Company Competitiveness of Tech. finance
Ability to design, produce, & mkt products
superior to competitors, Qlty. of business mgmt.

Extent to which a business sector offers potential for growth

and attractive return on investment

Development
of financial Mkt. Extent to which a national environment is
Conducive or detrimental to business
 Location Decision
Relevant Factors

Market related issues Cost related issues

Market for products and services Wage rates
Raw Material availability Transportation costs
Number and proximity of suppliers Taxes and other tariff issues
Availability of skilled labour
Quality of Infrastructure
Regulatory & Policy issues Other issues
Government & Economic stability Culture
Quality of legal and other institutions Climate
Trading blocks and trading agreements Quality of Life
 Special Economic Zones
Another dimension to location choices
• The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which
received Presidential assent on the 23rd of June, 2005
• Land for the 270 notified SEZs where operations have since commenced involved is
approximately over 31,405 hectares
• Every SEZ is divided into a processing area where alone the SEZ units would come up and
the non-processing area where the supporting infrastructure is to be created
• Benefits of SEZs include employment generation, increased exports, development of
quality infrastructure
• Nokia and Flextronics electronics hardware SEZs in Sriperumbudur providing
employment to 14,577 and 1,058 persons respectively.
• Hyderabad Gems SEZ for Jewellery manufacturing in Hyderabad has already employed
2,145 persons
• Apache SEZ being set up in Andhra Pradesh will employ 20, 000 persons to
manufacture 1 million pairs of shoes every month
 Location Planning Methods

• One facility – Multiple Candidates

• Location factor rating
• Centre of Gravity Method
• Load Distance Method
• Multiple Facility – Multiple Candidates
• Transportation Model
 Location factor rating
Steps
• Identify and list down all the relevant factors for the location
decision
• Establish the relative importance of each factor in the final decision
• Rate the performance of each candidate location using a rating
mechanism
• Compute a total score for each location based on its performance
against each factor and rank them in the decreasing order of the
score
 PROBLEM
A manufacturer of garments is actively considering five alternative locations for
setting up its factory. The locations vary in terms of the advantages that it provides
to the firm. Hence the firm requires a method of identifying the most appropriate
location. Based on a survey of its senior executives the firm has arrived at six factors
to be considered for final site selection. The ratings of each factor on a scale of 1 to
100 provide this information. Further, based some detailed analysis of both the
qualitative and quantitative data available for each of the location, the rating for the
locations against each factor has also been arrived at (on a scale of 0 to 100). Using
this information obtain a ranking of the alternative locations.
Factor Ratings
Rating of each locations against the factors
Factors Rating
Availability of infrastructure 90
Size of the market 60
Factors Location 1 Location 2 Location 3 Location 4 Location 5
Industrial relations climate 50
Availability of infrastructure 20 40 60 35 55
Tax benefits and concessions 30 Size of the market 30 30 40 60 80
Availability of cheap labour 30 Industrial relations climate 80 30 50 60 50
Nearness to port 65 Tax benefits and concessions 80 20 10 20 20
Availability of cheap labour 70 70 45 50 50
Nearness to port 20 40 90 50 60
 Solution
Relative
Factors Rating weights
Availability of infrastructure 90 0.28
Size of the market 60 0.18
Industrial relations climate 50 0.15 Overall rating for location 3 = 60*0.28 +
Tax benefits and concessions 30 0.09
Availability of cheap labour 30 0.09
40*0.18 + 50*0.15 + 10*0.09 +
Nearness to port 65 0.20 45*0.09 + 90*0.20 = 54.77

Sum of all factor ratings 325 1.00

Relative
Factors weights Location 1 Location 2 Location 3 Location 4 Location 5
Availability of infrastructure 0.28 20 40 60 35 55
Size of the market 0.18 30 30 40 60 80
Industrial relations climate 0.15 80 30 50 60 50
Tax benefits and concessions 0.09 80 20 10 20 20
Availability of cheap labour 0.09 70 70 45 50 50
Nearness to port 0.20 20 40 90 50 60

Overall score for the locations 41.23 37.54 54.77 46.46 56.15
Ranking of the locations 4 5 2 3 1
 11-31

Plant Location Methodology: Centre of Gravity

(Centroid) Method

• The centroid method is used for locating single

facilities that considers existing facilities, the
distances between them, and the volumes of
goods to be shipped between them
• This methodology involves formulas used to
compute the coordinates of the two-dimensional
point that meets the distance and volume criteria
stated above
 11-32

Plant Location Methodology: Centroid Method Formulas

Cx =
d V ix i
Cy =
d V
iy i

V i V i

Where:
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
 11-33
Plant Location Methodology: Example of Centre of gravity
Method

• Centroidmethod example
• Several automobile showrooms are located
according to the following grid which represents
coordinate locations for each showroom

Y S ho wro o m No o f Z-Mo b ile s

Q s o ld p e r mo nth
(790,900)

D
A 1250
(250,580)

D 1900
A
(100,200)
Q 2300
(0,0) X
Question: What is the best location for a new Z-Mobile
warehouse/temporary storage facility considering only distances and
quantities sold per month?
 Plant Location Methodology: Example of Centroid Method
(Continued): Determining Existing Facility Coordinates

Y
To begin, you must identify the Q
existing facilities on a two- (790,900)

dimensional plane or grid and D

(250,580)
determine their coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You must also have the s o ld p e r mo nth
volume information on the
business activity at the A 1250
existing facilities.
D 1900

Q 2300
 Plant Location Methodology: Example of Centroid Method (Continued):
Determining the Coordinates of the New Facility

You then compute the new coordinates using the formulas:

100(1250) + 250(1900) + 790(2300) 2,417,000
Cx = = = 443.49
1250 + 1900 + 2300 5,450
200(1250) + 580(1900) + 900(2300) 3,422,000
Cy = = = 627.89
1250 + 1900 + 2300 5,450

You then take the coordinates and place them on the map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New s o ld p e r mo nth
(790,900)
location
Z
D
(250,580) of facility A 1250
Z about
A D 1900
(100,200) (443,627)
(0,0) X Q 2300
 Other issues in location planning
• Recent trends in the international markets point to a shift towards fewer
facilities that could serve markets worldwide
– Example HP Desk Jet Printer, Dell PC
• These developments point to two areas which could affect the location
planning problem very significantly
– availability of good transportation infrastructure
– use of Internet and IT infrastructure
• Location planning in the overall context of just-in-time manufacturing
philosophy (suppliers located in the vicinity (20 – 40 Km radius) of the
manufacturer)
• Service quality depends on responsiveness of service delivery system.
Locating service outlets, close to the demand point is an important
requirement in a service system
36
 INVENTORY
Inventory is not only the final product manufactured
and ready to sell, but also the raw materials used
in production and the semi-finished goods in the
warehouse or on the factory floor.
Types of Inventory
Raw material
Purchased but not processed
Work-in-process
Undergone some change but not completed
A function of cycle time for a product
Maintenance/repair/operating (MRO)
Necessary to keep machinery and processes productive
Finished goods
Completed product awaiting shipment
Inventory Management- objectives
• Minimize investments in inventory
• Meet demand for products by efficiently
organizing production & sales operations

COSTS OF HOLDING INVENTORIES

• Ordering costs
• Inventory Carrying costs
• Opportunity costs of funds blocked
• Shortage
RISK OF HOLDING INVENTORY
• Price decline

• Product Deterioration

• Product Obsolescence
TOOLS & TECHNIQUES OF INVENTORY
MANAGEMENT/ CONTROL
• ABC Analysis
• Economic Ordering Quantity (EOQ)
• Order Point Problem
• Two Bin Technique
• VED Classification
• HML Classification
• SDE Classification
• FSN Classification
• Order Cycling System
• Just In Time (JIT)
ABC Analysis
CATEGORY NO. OF ITEMS(%) ITEM VALUE(%) MANAGEMENT
CONTROL

A 15 70 (HIGHEST) MAXIMUM

B 30 20(MODERATE) MODERATE

C 55 10(LEAST) MINIMUM

TOTAL 100 100

Economic Ordering Quantity (EOQ)

• Level of Inventory at which

• Total Cost* of Inventory is MINIMUM
*(Ordering and Carrying Cost)

Q= 2DS / H

Q = Economic Order Quantity

D = Annual usage/demand
S = Cost of Placing an order
H = Storage cost per unit per order
EOQ- Example
• A firm’s annual inventory is 1,600 units. The cost of placing an order is Rs 50,
purchase price of raw material/unit is Rs.10 and the carrying costs is expected to be
10% per unit p.a. Calculate EOQ?

D=1600, S= Rs. 50, H= .10 x Rs.10=Rs.1

EOQ = 2 x 1600 x 50
1

= 400 units
Order Point Problem
• The re-order point is that level of inventory when a fresh order should be
placed with suppliers. It is that inventory level which is equal to the
consumption during the lead time or procurement time.
• Re-order level = (Daily usage × Lead time) + Safety stock.
• Minimum level = Re-order level – (Normal usage × Average delivery time).
• Maximum level = Re-order level – (Minimum usage × Maximum delivery
time) + Re-order quantity.
• Average stock level = Minimum level + (Re-order quantity)/2.
• Danger level = (Average consumption per day × Lead time in days for
emergency purchases).
Two Bin Technique
• Control of Category ‘C’ inventories
• Two Bins/Groups
First Bin- just enough to last from the date a new order is placed
until it is received for inventory.
Second Bin- enough to meet current demand over the period of
replenishment.
VED Classification
• Specifically used for Classification of SPARE PARTS

V- part is VITAL( high stock level)

E- part is ESSENTIAL (moderate stock level )

D- part is DESIRABLE (minimum stock level )

HML Classification
• Material classified on the basis of UNIT VALUE

 H- HIGH VALUE
 M- MEDIUM VALUE
 L – LOW VALUE
FSN Classification
• Inventory is classified based on the MOVEMENT OF INVENTORIES
from stores
• Inventory technique used to AVOID OBSOLESCENCE
 F- Fast moving
 S- Slow moving
 N- Non moving
ORDERING CYCLING SYSTEM
• Periodic reviews are made
• of each item of inventory
• & orders are placed
• to restore stock
• to a prescribed stock level
 JUST-IN-TIME (JIT) INVENTORY CONTROL
• The JIT control system implies that the firm should
maintain a minimal level of inventory and rely on
suppliers to provide parts and components ‘just-in-time’
to meet its assembly requirements.

• JIT also known as Zero Inventory Production

Systems(ZIPS), Zero Inventories(ZIN), Materials as
Needed(MAN), or Neck of Time(N0T)
CAPACITY

• CAPACITY IS THE AMOUNT OF OUTPUT A SYSTEM IS CAPABLE OF

ACHIEVING OVER A SPECIFIC PERIOD OF TIME
CAPACITY PLANNING
Capacity planning is central to the long-term success of an organization.
Capacity plans are made at two levels:
(i) Long-term capacity plans which deal with investments in new
facilities and equipment's covering the requirements for at least two
years into the future and
(ii) Short-term capacity plans which focus on work-force size, overtime
budgets, inventories etc.
LONG-RANGE CAPACITY PLANNING
A long term strategic decision that establishes a firm’s overall
resources.
Three major capacity decisions are:
i. How much capacity to be installed,
ii. When to increase capacity and
iii. How much to increase.
 TYPES OF CAPACITY
Production capacity: Maximum rate of production or
output of an organization.
Design capacity: The maximum output that can possibly
be attained.
Effective capacity: The maximum output given a product
mix, scheduling difficulties, machine maintenance, quality
factors, absenteeism etc.
Maximum capacity: The maximum output that a facility
can achieve under ideal conditions. Also known as peak
capacity.
 Capacity Fluctuations
Predictable Unpredictable
Fluctuations Fluctuations

• Planned increase • Absenteeism

• Planned decrease • Machine breakdown
 Planning and Managing Capacity
• Managing demand which is often uncertain
• Anticipating future is difficult as often forecasts are
not accurate
• Need to plan for both long-term as well as day-to-
day schedules
• Planning for alternative ways of providing capacity
• Need to control activities to the plan
Ways of reconciling capacity and demand

How do you cope with

fluctuations in demand?

Absorb Adjust output Change

demand to match demand
demand
Level Demand
capacity management
Chase
demand
 Level Capacity Plan

Absorb demand
Units

500,000
Capacity
400,000

300,000 Demand

200,000

100,000

Time
 Chase Demand

Adjust capacity to match demand

Hire Fire

Temporary labour Lay-off

Overtime Short time

Subcontract 3rd party work