PRODUCTION PLANNING

AND CONTROL
UNIT III
MBA II SEM
OPERATIONS MANAGEMENT
Production Planning can be defined to as a technique of
forecasting every step in the long process of
production.
Each task has to be forecasted at right time and in the
right degree and to complete operations at the
maximum efficiency.
It is important because all other functional areas of
management i.e, financing, marketing, personnel
revolve around it.
It has mainly 3 considerations :
 what work shall be done
 how the work shall be done
 when the work shall be done

PRODUCTION PLANNING
To achieve coordination among various departments relating to
production.
To make adequate and appropriate arrangement of men, money,
materials, machines tools, implements and equipment relating to
production.
To decide about the production targets to be achieved by keeping in
view the sales forecast.
To keep production operation continuous.
To achieve desired share of the market.
To achieve the desired level of profit.
To make all arrangements to remove possible obstacles in the way of
smooth production.
To achieve economy in production cost and time.
To initiate production on modern lines.
 To operate the plant at planned level of efficiency.
 To develop alternative plans in order to meet any emergency or
contingency.

OJECTIVES OF PRODN. PLANNING

 According to Henry Fayol, “Production control is the art
and science of ensuring that all which occurs is in
accordance with the rules established and the
instructions issued”.
Steps:
 At the beginning planning the production in advance of
operations.
 Establishing the exact route of each individual item,
part of assembly is to be approached.
 setting the completion dates for each important item,
assembly and the finished products, and
 Releasing the necessary orders as well as initiating the
required follow-up to effective the smooth functioning of
the enterprises.

PRODUCTION CONTROL
Magnitude of operations
Nature of productions operations
Manufacturing process
Attitude of the management

FACTORS DETERMINING PLANNING

AND CONTROL
Better service to customer
Fewer rush orders
Better control of inventory
More effective use of equipment
Reduced idle time
Good public image
 Lower capital requirement

BENEFITS OF PRACTISING PRODN.

PLANNING AND CONTROL
Not Flexible
 Time consuming
Large number of employees are required.
Expensive. Hence may be difficult for
small firms
External factors can affect the prediction.
Unrealistic assumptions may be made.

LIMITATIONS
Proper co-ordination of the operations of
various sections/departments responsible
for production.
 Ensuring regular and timely supply of raw
material at the desired place and of
prescribed quality and quantity to avoid
delays in production.
Performing inspection of semi-finished and
finished goods and use quality control
techniques to ascertain that the produced
items are of required specifications.
ACTIVITIES UNDER PRODN.
CONTROL
It is also responsible for product design and
development.
Provision of raw material, equipment, machines
and labour.
 To organize production schedule in conformity
with the demand forecasts.
The resources are used in the best possible
manner in such a way that the cost of production
is minimized and delivery date is maintained.
Determination of economic production runs with a
view to reduce setup costs
Forecasting is an essential step.
It is hypothetical in nature but appropriate tools can
increase the accuracy of the assumption.

Factors to be considered while Forecasting

1. Select a method of forecasting. The moving average,
exponential smoothing and regression analysis are
some of the methods available.
2. Determine a time period to study. 
3. Choose reports on previous company activity to help
with projecting future production. Projecting for the
future requires looking into the past, and companies
can utilize previous production results to make
forecasts for the future.
4. Pick market trends to apply to the forecast.

FORECASTING IN PLANNING
Components of Forecasting:
1. Demand behavior: it can assume
different forms. It can be cyclical,
seasonal, trending.
2. The Time Frame: Consists of long term
and short term forecasts.
3. Forecasting Methods: Both Qualitative
like Delphi method as well as
Quantitative methods like regression
analysis , time series analysis are used
for forecasting.
IDENTIFY THE PURPOSE OF FORECAST

COLLECT HISTORICAL DATA

PLOT THE DATA AND IDENTIFY THE

PATTERN

SELECT THE APPROPRIATE

FORECASTING MODEL

DEVELOP THE FORECAST FOR THE

PERIOD OF THE HISTORICAL DATA
NO
Is the accuracy is
CHECK THE FORECAST ACCURACY acceptable?

YES

FORECAST OVER THE PLANNING TIME

ZONE

ADJUST THE FORECAST BASED ON THE

ADDITIONAL INFORMATION

MONITOR THE RESULT AND MEASURE

THE FORECAST ACCURANCY
MOVING AVERAGE:
it is an  average of any subset of numbers.
For example if you have sales data for a twenty-year
period, you can calculate a five-year moving average, a
four-year moving average.
If the sales volume from 2005 to 2014 are given and a
five year moving average. Then the subsets for the
given data will be (2005-2009) (2006-2010), and so
on. The mean value of each subset is found. The last
subset will be (2010-2014).
There are two types of moving averages
1. Simple moving average
2. Weighted moving average

METHODS OF FORECASTING
Exponential Smoothing:
Exponential smoothing was proposed in the late 1950s.
It is generally used to make short term forecasts,
Forecasts produced using exponential smoothing
methods are weighted averages of past observations,
where the weights are decreasing exponentially as the
observation gets older.
If forecasting is to be done for a large number of items
exponential smoothing is the best option.
If there are no external information like causes and
effects then this method is suitable.
If you don't want to apply a lot effort this method can
used.
The biggest advantage is that we can always update our
forecast. Hence it is useful for tracking the trends,
seasonality etc.
New base =previous base(Demand-
previous base)
St= St-1+ α (Dt-St-1)
= αDt + (1- α) St-1
T is current tie period, t-1 is the previous time, α is
the smoothing constant values between O to 1. D
is the demand and S is the smoothing base.
St becomes the forecast of the next period.
There are three main methods to estimate exponential smoothing.
They are:
 Simple or single exponential smoothing
 Double exponential smoothing
 Triple exponential smoothing
Regression Analysis: Regression analysis is
a statistical technique for quantifying the
relationship between variables. In simple
regression analysis, there is one dependent
variable (e.g. sales) to be forecast and one
independent variable, the cause.
Y = a + bX ,
here Y is the dependent variable and X is the
independent variable.
Delphi Method: forecasting bases on
Expert opinion through survey and
questionnaire.
Aggregate planning is the process of developing, analyzing,
and maintaining a preliminary, approximate schedule of the
overall operations of an organization.
Aggregate planning is an operational activity critical to the
organization as it looks to balance long-term strategic planning
with short term production success.
The main purpose is to satisfy the demand forecast.

Aggregate planning is performed to minimize the effects of

shortsighted, day-to-day scheduling, in which small amounts of
material may be ordered one week, with an accompanying
layoff of workers, followed by ordering larger amounts and
rehiring workers the next week.

Aggregate planning is an attempt to balance capacity and

demand in such a way that costs are minimized.

AGGREGATE PLANNING
Aggregate planning is complicated in the service sector.
Services cannot be stocked or inventoried so they do
not have this option.
Service capacity can also be very difficult to measure.
When capacity is dictated somewhat by machine
capability, reasonably accurate measures of capacity
are not extremely difficult to develop.
Historically, services are much more labor intensive
than manufacturing

AGGREGATE PLANNING IN
SERVICES
Level Strategy: The focus of this strategy is to maintain a
steady production rate and workforce level.
• A level strategy allows a firm to maintain a constant level of
output and still meet demand.

Chase Strategy: This strategy implies matching demand and

capacity period by period. This could result in a considerable
amount of hiring, firing or laying off of employees; insecure and
unhappy employees; increased inventory carrying costs;
problems with labor unions

Hybrid Strategy: Tries to balance both the above strategies.

STRATEGIES OF AGGREGATE
PLANNING
Minimize cost ad maximize profits
Minimize inventory management
Minimize changes in workforce levels
Minimize changes in production rates
Maximize utilization of plant and
equipment.

OBJECTIVES OF AGGREGATE
PLANNING
MPS (Master Production Schedule) is a plan for
the production of individual final items. 
MPS is a plan for manufacturing.
It reflects the market needs and the capacity of
production
It forms the basis for calculating the capacity
and resources needed.
It also drives us to create a material
requirement planning system.
It has as input a variety of data, e.g. forecast
demand, production costs, inventory costs, etc.

DEVELOPMENT OF MPS
The Production plan
Forecast of individual end items
Actual orders from the customers and the stock
replenishments.
Inventory levels of the end products
Capacity restraints
Outputs:
The staffing needs
The quantity to be produced
The inventory levels maintained called as
ATP(Available to promise)
Projected available balance

Components and outputs of MPS

To maintain the desired level of customer
service by maintaining finished-goods
inventory levels or by schedule to meet
customer delivery requirements.
To make the best use of material, labor
and equipment.
To maintain inventory investment at the
required levels.

OBJECTIVES OF MPS
Capacity is the maximum amount of work that an
operation can do over a specific period of time. It can also
be defined as the maximum output rate of the firm.
Two important questions while considering the
capacity:How much? How long?

Capacity of an organization consists of many elements:

 Facilities
 Equipments
 Human Resource Skills
So, make a balance between capacity and demand is the
most important function of operations management.

CAPASITY PLANNING
Cost effectiveness
Revenue generation
Schedule working capital
Increase quality
Increase speed
Increase dependability
Increase flexibility

OBJECTIVES OF CAPASITY
PLANNING AND CONTROL
1. Design capacity ( Max. Capacity ) is the maximum
theoretical output of a system.
It is normally expressed as a rate.
2. Effective capacity: is the capacity a firm expects to
achieve given is the capacity a firm expects to
achieve given current operating constraints.
Often lower than design capacity.
Under ideal conditions.
3. Actual output(Capacity used): is rate of output
actually achieved. Cannot exceed effective capacity.
4. Utilization: is the percent of design capacity
achieved .
Utilization = Actual Output/Design Capacity

TERMINOLOGIES IN CAPASITY
PLANNING
5. Efficiency is the percent of effective
capacity achieved
Efficiency = Actual Output/Effective
Capacity
6. Bottleneck operations: A bottleneck is a
point of congestion in a production
system hat occurs when workloads arrive
too quickly for the production process to
handle.
LEAD STRATEGY: Manufacturers plan to increase their
capacity in advance even before the actual demand increases. 
It involves an upfront investment in more capacity that is
needed
It is one of the most aggressive approaches used.

Reasons for using the strategy:

 takes care of anticipated demand increases.
 to gain market share against competitors. 
 when competitors are prone to inventory shortages especially
when demand skyrockets.

Risk of using the strategy:

if the actual demand does not match the predicted demand,
manufacturers are left with excess inventory to be stored.

STRATEGIES IN CAPASITY
PLANNING
LAG STRATEGY:
The Lag Strategy is much more conservative
than the Lead Strategy.
it waits until the current capacity is stretched
to its limits before adding more capacity.

Reasons for using the strategy:

manufacturers respond to an actual increase
in demand.
after the current operation runs in full steam.

Risk of This strategy: They may lose their

customers or business to the competition.
MATCH STRATEGY:
The Match Strategy usually adopts a mid
way between the Lead and Lag strategies. 
 Instead of boosting demand ahead of
time or increasing demand after the
existing capacity is exhausted, this
strategy uses smaller incremental changes
to the manufacturers’ capacity. 

Reasons for using the strategy:

This is done based on the fluctuating
conditions in the marketplace. 
DYNAMIC STRATEGY:
This strategy is a much more safer forecast
driven strategy. 
It is a data driven method.
based on actual demand and sales forecast
figures.
it proves to be much more accurate for
manufacturers to plan their capacity targets
and avoids wastage or shortage of capacity. 
However, this type of strategy does depend
on good capacity planning tools which can
drive accurate forecasts.
 Capacity Planning Using Overall Factors: The data obtained from work
centers and volumes of finished in specific time periods are used to predict
capacity needed for future work. 

CapacityBills: This technique uses the bill of materials used and parts
produced along with the work center setup and actual run times to
compute capacity.

Resource Profiles: The resource profile includes the hours required to

complete each operation while integrating lead time information to
indicate when jobs should begin if they are to be completed on time.

Capacity Requirements Planning(CRP): is the process of determining

whether the company has enough capacity to meet the production goals. 
starts by determining the overall workload from the demand and then
analyzing the current available capacity to see if the demand can be met. 
CRP combines information such as required materials, machine production
time, varying run rates, labor requirements, sequence-dependent
changeover time, and more to create the capacity requirements plan.

TECHNIQUES OF CAPASITY
PLANNING
Waiting Line Model: if there is a high
customer contact. The arrival time of the
jobs and customers and the processing
time may vary from customer to
customer. The method uses probability
distributions to provide the estimates of
the average customers handled per day or
or average waiting time etc.
Simulation Model: using the actual
conditions to experiment. it can help to
identify demand patterns, production
constraints, predictable changes etc.
MODELS OF CAPASITY PLANNING
Decision Trees: it is most commonly used and
most effective tools in capacity planning.
A decision tree is a diagram that models the
alternatives being considered and the possible
outcomes.
Decision trees contain the following information:
a) Decision points. These are the points in time
when decisions, such as whether or not to
expand, are made. They are represented by
squares, called “nodes.”
b) Decision alternatives. Buying a large facility
and buying a small facility are two decision
alternatives. They are represented by
“branches” or arrows leaving a decision point.
Analyse the present capasity
Forecast the demand
Develop alternative plans
Evaluate each capasity plans
Select the best capasity plan and
implement it.

CAPASITY PLANNING PROCESS

Components of shop floor:
Materials, Machinery, staffs, Information Technology and
Inventory, Quality control.
Shop Floor Control (SFC): It is a system that has
methods and tools, which are used to track, schedule
and report progress of the work in a manufacturing unit.
The better the shop floor control, the better the
inventory and operations control, and the better is the
productivity of the workers. Performance and ROI of a
manufacturing business varies directly in proportion to
the shop floor control.

SHOP FLOOR CONTROL

It is a software system used to track,
streamline and report the work progress
in a manufacturing unit.

Shop Floor Control System (SFCS)

Routing may be defined as the selection of path
which each part of the product will follow while
being transformed from raw materials to finished
products. 
Path of the product will also give sequence of
operation to be adopted while being manufactured.
STEPS:
 Type of work to be done on product or its parts.
 Operation required to do the work.
 Sequence of operation required.
 Where the work will be done.
 A proper classification about the personnel required
and the machine for doing the work.

PRODUCTIION ROUTING
1. Route card: This card always accompanies with the job
throughout all operations.
 This indicates the material used during manufacturing and their
progress from one operation to another.
 In addition to this the details of scrap and good work produced
are also recorded
 Also known as job card.
2. Work sheet: It contains specifications to be followed while
manufacturing.
 Instructions regarding routing of every part with identification
number of machines and This sheet is made for manufacturing as
well as for maintenance.
 Route sheet: It deals with specific production order. Generally
made from operation sheets. One sheet is required for each part
or component of the order. This includes the following:

TECHNIQUES OF ROUTING
 ◦ Number and other identification of order.
◦ Symbol and identification of part.
◦ Number of pieces to be made.
◦ Number of pieces in each lot if put through in lots.
◦ Operation data which includes:

 List of operation on the part.

 Department in which operations are to be performed.
 Machine to be used for each operation.
 Fixed sequence of operation, if any.

Move order: Move orders are requests for the movement of material within
a single organization.
Though this is document needed for production control, it is never used for
routing system. Move order is prepared for each operation as per
operation sheet. On this the quantity passed forward, scrapped and to be
rectified are recorded. It is returned to planning office when the operation
is completed.
Scheduling is the last of the planning
functions.
It determines when an operation is to be
performed, or when work is to be
completed; the difference lies in the detail
of the scheduling procedure.
Master scheduling is the detailed planning
process that tracks manufacturing output
and matches this against customer orders
that have been placed. 

PRODUCTION SCHEDULING
A Work Order is a task or job for a
customer that can be scheduled and
assigned to someone. 

WORK ORDER
Value is a function of ‘Desired Performance’
and ‘Cost’.
Lawrence D. Miles defined VA/VE as” “Value
analysis is a problem-solving system
implemented by the use of a specific set of
techniques, a body of knowledge, and a group
of learned skills. It is an organized creative
approach whose purpose is the efficient
identification of unnecessary costs, i.e. cost
that provides neither quality nor use nor tool
life nor appearance nor customer features.”

VALUE ANALYSIS/VALUE
ENGINEERING
Value Analysis is a standardized, multi-
skilled team approach which aims at
identifying the lowest cost way and ensuring
the highest worth to accomplish the
functions of a product, process or service
Value Engineering refers instead to the
design stage. This approach is generally
used for new products, therefore the same
principles and techniques to pre-
manufacturing stages such as concept
development, design and prototyping are
applied.
 ANALYSIS
Indicates application on the
product that is into
manufacturing.
Workers, subcontractors and
engineers come together to make team (Engineers)
a team with experience and
knowledge
May change the present stage of
the product or operation
Worked out mostly with the help
of knowledge and experience
DIFFERENCE BETWEEN VA AND VE
ENGINEERING
Indicates application on the
product at its design stage
Done by a specific product design
Changes are executed at the
initial stages only
Requires specific technical
knowledge
Do not use a part that does not contribute to the value
of the product.
Do not use a part whose cost is not proportional to its
function/ usefulness.
Do not provide any features to the component or
finished product that are not absolutely required.
Accept change if part of required quality is made by a
process costing less than the alternative process.
Use standardized parts wherever possible.
Use proper manufacturing methods taking into account
the quantities.
Use the material best suited for the purpose.
Purchase the part instead of in-house manufacturing if
suitable supplier can provide the part of good quality at
a reasonable price
PRINCIPLES OF VALUE ANALYSIS
Products are losing their market share
and there is a decline in sales.
Products are priced higher than
competition in a price sensitive market or
product cost is > sales price of
competition.
 New designs to be undertaken.
Rising manufacturing costs.

APPLICATION OF VALUE ANALYSIS

Identify items to be analyzed.
Differentiate whether item or process to be
changed.
Identify internal and external customers.
Identify basic functions.
Identify secondary functions which support basic.
To prioritize determine value or importance to
customer of each function.
Break item/process into constituent components
by using flow chart.
Associate components with functions.
Look for components which can be modified or
eliminated.

VALUE ANALYSIS PROCEDURE

Scheduling is the process of arranging,
controlling and optimizing work and
workloads in a production process or
manufacturing process.
Scheduling is used to allocate plant and
machinery resources, plan human
resources, plan production processes and
purchase materials.

SCHEDULING
Master:
 If the project is chosen, a master schedule is
created.
 It has major events and dates such as the
starting date and the completion date. The
master schedule is often part of a contract.
 Changes to the master schedule must be
approved using a documented change process
with approval by the project sponsor and
client.

MASTER AND DETAILED

SCHEDULES
Detail:
 To execute the master schedule, the major activities
are broken down into smaller activities and
resources are assigned to those activities.
 The most detailed versions or portions of the
schedule may be developed a few weeks prior to the
execution of those activities and are called two-week
plans.
 Portions of the master schedule that affect particular
vendors might be sent to them so they can provide
detailed activities that they would perform.
A work order is usually a task or a job for a customer,
that can be scheduled or assigned to someone.
A work order may include one or more of the following:
 Instructions
 Cost estimates
 Forms
 Date and time to execute the work order
 Information about the location and entities to execute
the work order and
 The person to whom the work order is assigned

WORK ORDER
Contractors may use a single job work order and invoice
form that contains the customer information, describes the
work performed, lists charges for material and labor, and
can be given to the customer as an invoice.
A job order is an internal document extensively used by
projects-based, manufacturing, building and fabrication
businesses. A job order may be for products and/or
services. In a manufacturing environment, a job order is
used to signal the start of a manufacturing process and will
most probably be linked to a bill of material. Hence, the job
order will probably state:
 the quantity of the product to be manufactured, built or
fabricated
 the amount of raw material to be used, its price and amount
 the types of labour required, rate (per hour or per unit) and
amount
 the machine utilisation for each machine during the routing
process, its rate and amount