Production Planning System - v11

Basics of Supply Chain Management
Session 2
Production Planning System
Axia Consulting™
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Course Outline
Session 1: Introduction to Supply Chain Management

Session 2: Production Planning System
Session 3: Master Scheduling
Session 4: Material Requirements Planning
Session 5: Capacity Management
Session 6: Production Activity Control
Session 7: Purchasing
Session 8: Forecasting
Session 9: Inventory Fundamentals
Session 10: Order Quantities
Session 11: Independent Demand Ordering Systems
Session 12: Physical Inventory and Warehouse Management
Session 13: Physical Distribution
Session 14: Products and Processes
Session 15: Just-in-Time Manufacturing
Session 16: Total Quality Management
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2 All Rights Reserved
Session 2 Objectives
1. Introduce The Manufacturing Planning and Control System Model

2. Explain how information systems support the MPC model
3. Detail the Sales and Operations Planning Process
4. Understand the difference among the chase, leveling and
subcontracting production strategies
5. Exemplify how to develop a production plan using different
production strategies
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1. Why Plan?
To achieve better results by satisfying customer demand through

efficient use of the available resources (people, machines, financial
resources)
Customers Resources
(Priority) (Capacity)
Demand Resources
Revenue Cost
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1. Planning Questions
What must
we get
and
when?
These are questions of priority and capacity.
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1. Manufacturing Planning and Control System (MPC)
Strategic Business Plan
Sales and Operation Plan Resource Requirements

Planning
Planning (RRP)
Master Production Rough-Cut Capacity

Schedule (MPS) Planning (RCCP)
Material Requirement Capacity Requirements

Planning (MRP) Planning (CRP)
Execution
Purchasing Production Distribution

Activity Control
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1. Strategic Business Plan
Business
Business Plan
Plan
S&OP
Marketing
MPS
Financial MRP
Plan Plan Purchasing PAC Distribution
Strategic
Business Plan
Engineering Production
Plan Plan
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1. Sales and Operations Planning (S&OP)
Business Plan
Strategic Business Plan Annual

S&OP
S&OP
MPS
MRP
Purchasing PAC Distribution
Sales and Operations Plan
Monthly
Marketing Production
Plan Plan
Detailed Master Production Weekly or

Sales Plan Schedule Daily
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1. S&OP: Definition
Definition
Sales and Operations Planning (S&OP) is process to
help companies:
give better customer service,
lower their inventories,
shorten customer lead time,
stabilize production rates,
give top management a real handle on the
business,
and build teamwork between Sales, Operations,
Finance and Product Development.
Source: APICS – Educational Society for Resource Management
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1. S&OP: Balancing Demand and Supply
Sales Actual Production Purchase
Forecast Orders Orders Orders
Demand Supply
Inventory level balanced to provide the established

service level
Prices variation according to planned
Distribution costs balanced to provide the required
replenishment frequency
Production setup costs balanced to provide the required
distribution frequency
Low variation in Planned x Actual profit margins
ase Sale
Purch s More stable production rates Fore s Ac t u
ction Orde
r cast a
Produ rs Orde l
l Orde rs Prod
Actua ‘ uc
er s Orde tion Purc
Sales t Or d Dem rs ha
Forec
as
Supp
ly an d ‘ Orde se
rs
nd
Dema Sup
ply
Inventories increase
Customer Service is affected Production rates are cut
Layoffs become a possibility and the morale is
Customer lead times stretch out as the backlog builds
affected
Costs increase Profit margins get squeezed.
Business is lost as customers go elsewhere Prices are cut, deals and promotions become more
Quality often “gets lost in the shuffle” frequent and necessary.
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1. Demand Plan
Business Plan
S&OP
S&OP
MPS
MRP
Executive S&OP
meeting Single
Financial requirements
company-
Pre S&OP
Management targets meeting wide
Planning scenarios game
evaluated
Recommendations
Capacity information and Agenda for plan
exec. S&OP
New process info Supply
Workforce availability Planning Capacity constraints identified
Planning scenarios generated
Management Demand
targets Planning Unconstrained demand plan
Historical demand
Demand
Market intelligence Statistical forecast
Forecast
Forecast accuracy Field sales forecast
New product info Marketing forecast
End of the month
Generate
Field
Sales Forecast
Consolidate and
Run Prepare
Statistical for Demand
Forecast Consensus Meeting
Generate
Marketing
Forecast
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2. Supply Planning
Business Plan
S&OP
S&OP
MPS
MRP
Executive S&OP
meeting Single
Financial requirements
company-
Pre S&OP
Management targets meeting wide
Planning scenarios game
evaluated
Recommendations
Capacity information
Supply and Agenda for plan
exec. S&OP
New process info
Capacity constraints identified
Workforce availability Planning Planning scenarios generated
Historical demand Production plan developed
Management
Market intelligence Demand
Forecast accuracytargets Planning Unconstrained demand plan
New product info
Demand
Forecast Statistical forecast
Field sales forecast
Marketing forecast
End of the month
Generate Identify Critical

Analyze Prepare planning
operations Resources
Load and Capacity scenarios
plan Constraints
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1. Master Production Schedule
The MPS is a breakdown of the production plan (The anticipated build or buy schedule) for the production of
individual end items
Planning horizon usually extends from three to 18 months, but primarily depends on the purchasing and
manufacturing lead times
Plans are usually reviewed and changed weekly or monthly
Used in the order promising process
Business Plan
S&OP
MPS
MPS
MRP
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1. S&OP is not the Master Schedule
Sales and Operations Plan Master Schedule

Anticipated Build or
Definition Supply Rate by production Group
Buy Schedule
End Item or
Planned Item Product Family
Specific Level in Bill of Material
Cumulative Lead-time for
Planning Horizon Longest Lead-time Resource
components
Constraints Resource capacity Material/Capacity/S&OP
Time Periods Monthly Weekly or Daily
Planning focus Product Volume Product Mix
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1. Material Requirements Planning
Plan for the production and purchase of the components used in making
the items in the Master Production Schedule (MPS)
Shows quantities needed and when manufacturing intends to make or

use them
High level of detail
Planning horizon at least as long as the combined purchase and

manufacturing lead times
Business Plan
S&OP
MPS
MRP
MRP
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1. Purchasing and Production Activity Control
Purchasing and Production Activity Control (PAC) represent the

implementation and control phase of the production planning and
control system
Purchasing is responsible for establishing and controlling the flow of raw
materials into the factory
PAC is responsible for planning and controlling the flow of work through
the factory
Planning horizon very short, from a day to a month
High level of detail, concerned with individual components,
workstations, and orders
Business Plan
Plans reviewed daily S&OP
MPS
MRP
Purchasing PAC
PAC Distribution
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1. Level of Detail versus Planning Horizon
PAC
MRP
Level of Detail
(Aggregation
MPS
Level)
Production
Plan Strategic
Business
Plan
Planning Horizon (Time)
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1. Capacity Management
Strategic Business
Plan At each level in the MPC system, the
priority plan must be tested against
Resource
Sales and Operation
Requirements
the available resources and capacity
Planning
Plan
Planning (RRP) of the manufacturing system
Rough-Cut
Master Production
Capacity Basically, it involves calculating the
Schedule (MPS)
Planning (RCCP)
capacity needed to manufacture the
Capacity priority plan and finding methods to
Material Requirement
Requirements
Planning (MRP)
Planning (CRP)
make that capacity available
Determining the capacity required,

comparing it to available capacity,
Implementation
Purchasing Distribution and making adjustments must occur

at all levels of the manufacturing
Production
Activity Control planning and control system
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2. System Support to MPC Process
Evolution
1960 - MRPI 1980 - MRPII 1990 - ERP
Material Manufacturing Enterprise

Requirements Resource Resource
Planning Planning Planning
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2. Manufacturing Resource Planning (MRP II)
Business Plan
Sales and Operation Plan

Marketing Production
Plan Plan
Feedback
Resourc No
es OK?
Sales Plan
Closed Loop MRP
Yes
Master Schedule
Material Requirements Plan
Resourc No
Feedback
es OK?
Yes
Production
Purchasing Activity Control
Performance Measures
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3. Inputs and Outputs to the Production
Planning Process
Strategic
Business Plan
Input Output
•Quantities of each product family or
Master
•Strategic Business Plan Production group to be produced
•Marketing Plan•Desired inventory levels
•Finance
Plan
•Production •All resources needed (equipment,
•Engineering Planningin each period
labor, material...)
•Availability of the resources needed
Master Production
Schedule
Material
Requirements Plan
Implementation
Production Activity
Control and Purchasing
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3. Making the Production Plan
Definition:
“...sets the general levels of production and inventories over the
planning horizon.”
 —Arnold, J.R.T., Introduction to Materials Management, 4th edition
Production planning is concerned with
Planning for each product family
Meeting desired inventory levels
Determining resources needed
Comparing with available resources
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3. Typical Characteristics of the Production Plan
12-month time horizon

Fluctuating or seasonal demand
Plan made for product families
Variety of management objectives
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3. Establishing Product Groups
Manufacturing looks at products in terms of processes, and therefore

firms need to establish product groups based on the similarity of
manufacturing processes
Product groups are useful for capacity planning at aggregate levels,

when it is not possible to define exactly what will be produced. They are
used to calculate, on an average basis, how much capacity will be
necessary in order to achieve the plan
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4. Basic Strategies to be used when developing a
Production Plan
Three basic strategies can be used:

Match/chase
Level
Combination/hybrid
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4. Chase Strategy
Production
Demand
Units
J F M A M J J A S O N D
Period
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4. Level Production Strategy
Demand
Demand
Production
Time
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4. Combination Strategy
Demand
Demand
Production
Time
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4. Subcontracting
Meet demand by
Advantages:
subcontracting  No excess capacity
 Level production
Disadvantage:
 Costs of subcontracting
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5. Developing a Make-to-Stock Production Plan
Goods are put into inventory and sold from inventory
Used when
 Demand is constant and predictable
 Only a few product options exist
 Delivery times are shorter than time

needed to make the product
Information needed
Forecast by time period for the planning horizon
Opening inventory
Desired ending inventory
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5. Ending inventory calculation
Example data:
 Opening inventory = 400 units
 Production = 1,300 units
 Demand = 1,100 units
Formula
Ending inventory = opening inventory + production – demand
 For the example data: Ending Inv. = 600 units
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5. Production Plan using Level Production Strategy
Period 1 2 3 4 5 Total
Forecast Demand 55 60 65 60 60
Production
Ending Inventory
Example: Opening inventory = 50 units

Desired ending inventory = 40 units
Total production needed = total forecast demand + ending inventory – opening inventory
= _____ + _____ – _____ = _____ units
Production each period = _ units = _____ units
Ending inventory for period 1 = opening inventory + production – forecast demand

= _____ + _____ – ____
= _____ units
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5. Production Plan using Level Production Strategy
(Solution)
Forecast Demand 55 60 65 60 60 300
Production 58 58 58 58 58 290
Ending Inventory 53 51 44 42 40
Example: Opening inventory = 50 units

Desired ending inventory = 40 units
Total forecast demand = 55 + 60 + 65 + 60 + 60 = 300
Total production needed = total forecast demand + ending inventory – opening inventory
= _____
300 + _____
40 – _____
50 = _____
290 units
Production each period 290 units = _____

= _____ 58 units
5
Ending inventory for period 1 = opening inventory + production – forecast demand
58
50 + _____
= _____ – ____ 53 units
55 = _____
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5. Production Plan using Chase Strategy
Produce exactly what is needed each period

Example:
Forecast (cases) 150 140 160 150 140 740
Planned
Change
Ending inventory
Cost of plan: $20 per unit to change production level

Changing production level = 50 x $20 = $1,000
Inventory carrying cost = 0
Total cost of the plan = $1,000
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5. Production Plan using Chase Strategy (solution)
Produce exactly what is needed each period

Example:
Forecast (cases) 150 140 160 150 140 740
Planned 150 140 160 150 140 740
Change 0 10 20 10 10 50
Ending inventory 0 0 0 0 0
Cost of plan: $20 per unit to change production level

Changing production level = 50 x $20 = $1,000
Inventory carrying cost = 0
Total cost of the plan = $1,000
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Summary
Planning is one of the most important activities in a company, and

should be done considering all departments of the company in order to
achieve global optimization
The planning and control processes in the MPC model differ in terms of
aggregation level, time horizon, planning frequency and purpose
Three basic questions must be answered at all planning levels: what are
the priorities? What capacity is available? How can differences be
resolved?
The Production Plan is the product of the Sales and Operations Planning
Process. Its planning horizon usually extends for a year, and the plan is
made for product families.
Three basic strategies can be used to develop a production plan: chase,
leveling production and subcontracting
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Exercises
1. Which of the following are primary activities of manufacturing planning

and control?
a. Inventory management and cost information
b. Sales support and cost information
c. Production planning and inventory management
d. Sales support, implementation, and control
2. For the purposes of production planning, product families should be

established on the basis of
a. Market segments
b. Similarity of manufacturing process
c. The availability of materials
d. The availability of machinery
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Exercises
3. Which basic production planning strategy will build inventory and avoid
the costs of excess capacity?
a. Chase strategy
b. Level production strategy
c. Cycle counting strategy
d. Demand matching strategy
4. Under which of the following circumstances will firms generally make to

stock?
a. Demand is unpredictable
b. Many product options exist
c. Required delivery times are shorter than the time needed to make the product
d. Customers require special engineering
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Production Planning System - v11

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Basics of Supply Chain Management

Session 1: Introduction to Supply Chain Management

1. Introduce The Manufacturing Planning and Control System Model

To achieve better results by satisfying customer demand through

These are questions of priority and capacity.

Strategic Business Plan

Sales and Operation Plan Resource Requirements

Master Production Rough-Cut Capacity

Material Requirement Capacity Requirements

Purchasing Production Distribution

Plan Plan Purchasing PAC Distribution

Strategic Business Plan Annual

Purchasing PAC Distribution

Sales and Operations Plan

Detailed Master Production Weekly or

Inventory level balanced to provide the established

End of the month

End of the month

Generate Identify Critical

Purchasing PAC Distribution

Sales and Operations Plan Master Schedule

Constraints Resource capacity Material/Capacity/S&OP

Time Periods Monthly Weekly or Daily

Planning focus Product Volume Product Mix

Shows quantities needed and when manufacturing intends to make or

High level of detail

Planning horizon at least as long as the combined purchase and

Purchasing PAC Distribution

Purchasing and Production Activity Control (PAC) represent the

Plans reviewed daily S&OP

Planning Horizon (Time)

Determining the capacity required,

Purchasing Distribution and making adjustments must occur

1960 - MRPI 1980 - MRPII 1990 - ERP

Material Manufacturing Enterprise

Sales and Operation Plan

Material Requirements Plan

12-month time horizon

Manufacturing looks at products in terms of processes, and therefore

Product groups are useful for capacity planning at aggregate levels,

Three basic strategies can be used:

Goods are put into inventory and sold from inventory

 Demand is constant and predictable

 Only a few product options exist

 Delivery times are shorter than time

Example: Opening inventory = 50 units

Production each period = _ units = _____ units

Ending inventory for period 1 = opening inventory + production – forecast demand

Example: Opening inventory = 50 units

Production each period 290 units = _____

Produce exactly what is needed each period

Cost of plan: $20 per unit to change production level

Produce exactly what is needed each period

Cost of plan: $20 per unit to change production level

Planning is one of the most important activities in a company, and

1. Which of the following are primary activities of manufacturing planning

2. For the purposes of production planning, product families should be

4. Under which of the following circumstances will firms generally make to

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