Slides prepared

by John Loucks

2002 South-Western/Thomson Learning TM

Chapter 13

Production Planning

Overview

Production-Planning Hierarchy
Aggregate Planning
Master Production Scheduling
Types of Production-Planning and Control Systems
Wrap-Up: What World-Class Companies Do

Production Planning Hierarchy

Long-Range Capacity Planning
Aggregate Planning
Master Production Scheduling
Production Planning and Control Systems
Pond Draining
Systems

Push
Systems

Pull
Systems

Focusing on
Bottlenecks
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Production
Production Planning
Planning Horizons
Horizons
Long-Range Capacity Planning

Long-Range
(years)

Aggregate Planning

Medium-Range
(6-18 months)

Master Production Scheduling

Short-Range
(weeks)

Production Planning and Control Systems

Very-Short-Range
(hours - days)

Pond Draining
Systems

Push
Systems

Pull
Systems

Focusing on
Bottlenecks
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Production
Production Planning:
Planning: Units
Units of
of Measure
Measure
Long-Range Capacity Planning

Entire
Product Line

Aggregate Planning

Product
Family

Master Production Scheduling

Specific
Product Model

Production Planning and Control Systems

Labor, Materials,
Machines

Pond Draining
Systems

Push
Systems

Pull
Systems

Focusing on
Bottlenecks
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Aggregate Planning

Why Aggregate Planning Is Necessary

Fully load facilities and minimize overloading and

underloading
Make sure enough capacity available to satisfy
expected demand
Plan for the orderly and systematic change of
production capacity to meet the peaks and valleys of
expected customer demand
Get the most output for the amount of resources
available
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Inputs

A forecast of aggregate demand covering the selected

planning horizon (6-18 months)
The alternative means available to adjust short- to
medium-term capacity, to what extent each alternative
could impact capacity and the related costs
The current status of the system in terms of workforce
level, inventory level and production rate

Outputs

A production plan: aggregate decisions for each

period in the planning horizon about
workforce level
inventory level
production rate
Projected costs if the production plan was
implemented

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Medium-Term Capacity Adjustments

Workforce level
Hire or layoff full-time workers
Hire or layoff part-time workers
Hire or layoff contract workers
Utilization of the work force
Overtime
Idle time (undertime)
Reduce hours worked
. . . more

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Medium-Term Capacity Adjustments

Inventory level
Finished goods inventory
Backorders/lost sales
Subcontract

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Approaches

Informal or Trial-and-Error Approach

Mathematically Optimal Approaches
Linear Programming
Linear Decision Rules
Computer Search
Heuristics

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Pure Strategies for the Informal Approach

Matching Demand
Level Capacity
Buffering with inventory
Buffering with backlog
Buffering with overtime or subcontracting

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Matching Demand Strategy

Capacity (Production) in each time period is varied to

exactly match the forecasted aggregate demand in
that time period
Capacity is varied by changing the workforce level
Finished-goods inventories are minimal
Labor and materials costs tend to be high due to the
frequent changes

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Developing and Evaluating

the Matching Production Plan

Production rate is dictated by the forecasted

aggregate demand
Convert the forecasted aggregate demand into the
required workforce level using production time
information
The primary costs of this strategy are the costs of
changing workforce levels from period to period, i.e.,
hirings and layoffs

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Level Capacity Strategy

Capacity (production rate) is held level (constant)

over the planning horizon
The difference between the constant production rate
and the demand rate is made up (buffered) by
inventory, backlog, overtime, part-time labor and/or
subcontracting

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Developing and Evaluating

the Level Production Plan

Assume that the amount produced each period is

constant, no hirings or layoffs
The gap between the amount planned to be produced
and the forecasted demand is filled with either
inventory or backorders, i.e., no overtime, no idle
time, no subcontracting
. . . more

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Developing and Evaluating

the Level Production Plan

The primary costs of this strategy are inventory

carrying and backlogging costs
Period-ending inventories or backlogs are determined
using the inventory balance equation:
EIt = EIt-1 + (Pt - Dt )

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Aggregate Plans for Services

For standardized services, aggregate planning may be

simpler than in systems that produce products
For customized services,
there may be difficulty in specifying the nature and
extent of services to be performed for each
customer
customer may be an integral part of the production
system
Absence of finished-goods inventories as a buffer
between system capacity and customer demand

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Preemptive Tactics

There may be ways to manage the extremes of

demand:
Discount prices during the valleys.... have a sale
Peak-load pricing during the highs .... electric
utilities, Nucor

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Master Production Scheduling (MPS)

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Objectives of MPS

Determine the quantity and timing of completion of

end items over a short-range planning horizon.
Schedule end items (finished goods and parts shipped
as end items) to be completed promptly and when
promised to the customer.
Avoid overloading or underloading the production
facility so that production capacity is efficiently
utilized and low production costs result.

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Time Fences

The rules for scheduling

1-2
weeks

2-4
weeks
+/- 5%

+/- 10%

+/- 20%

Change

Change

Change

No Change

Frozen

4-6
weeks

6+
weeks

Firm
Full

Open
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Time Fences

The rules for scheduling:

Do not change orders in the frozen zone
Do not exceed the agreed on percentage changes
when modifying orders in the other zones
Try to level load as much as possible
Do not exceed the capacity of the system when
promising orders.
If an order must be pulled into level load, pull it
into the earliest possible week without missing the
promise.

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Developing an MPS

Using input information

Customer orders (end items quantity, due dates)
Forecasts (end items quantity, due dates)
Inventory status (balances, planned receipts)
Production capacity (output rates, planned
downtime)
Schedulers place orders in the earliest available open
slot of the MPS
. . . more

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Developing an MPS

Schedulers must:
estimate the total demand for products from all
sources
assign orders to production slots
make delivery promises to customers, and
make the detailed calculations for the MPS

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Example: Master Production Scheduling

Arizona Instruments produces bar code scanners
for consumers and other manufacturers on a produceto-stock basis. The production planner is developing
an MPS for scanners for the next 6 weeks.
The minimum lot size is 1,500 scanners, and the
safety stock level is 400 scanners. There are
currently 1,120 scanners in inventory. The estimates
of demand for scanners in the next 6 weeks are shown
on the next slide.

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Example: Master Production Scheduling

Demand Estimates
WEEK

CUSTOMERS

500 1000 500 200 700 1000

BRANCH WAREHOUSES

200 300 400 500 300 200

MARKET RESEARCH
PRODUCTION RESEARCH

50

10

10

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Example: Master Production Scheduling

Computations

WEEK

CUSTOMERS

500 1000 500 200 700 1000

BRANCH WAREHOUSES

200 300 400 500 300 200

MARKET RESEARCH
PRODUCTION RESEARCH

50

10

10

TOTAL DEMAND

710 1350 900 700 1010 1200

BEGINNING INVENTORY

1120 410 560 1160 460 950

REQUIRED PRODUCTION
ENDING INVENTORY

1500 1500

1500 1500

410 560 1160 460 950 1250

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Example: Master Production Scheduling

MPS for Bar Code Scanners

WEEK

1
SCANNER PRODUCTION

1500 1500

4
0

1500 1500

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Rough-Cut Capacity Planning

As orders are slotted in the MPS, the effects on the

production work centers are checked
Rough cut capacity planning identifies underloading
or overloading of capacity

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Example: Rough-Cut Capacity Planning

Texprint Company makes a line of computer
printers on a produce-to-stock basis for other
computer manufacturers. Each printer requires an
average of 24 labor-hours. The plant uses a backlog
of orders to allow a level-capacity aggregate plan.
This plan provides a weekly capacity of 5,000 laborhours.
Texprints rough-draft of an MPS for its printers is
shown on the next slide. Does enough capacity exist
to execute the MPS? If not, what changes do you
recommend?
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Example: Rough-Cut Capacity Planning

Rough-Cut Capacity Analysis

WEEK
1
PRODUCTION

100 200 200 250 280

TOTAL
1030

LOAD

2400 4800 4800 6000 6720 24720

CAPACITY

5000 5000 5000 5000 5000 25000

UNDER or OVER LOAD

2600 200 200 1000 1720

280

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Example: Rough-Cut Capacity Planning

Rough-Cut Capacity Analysis

The plant is underloaded in the first 3 weeks
(primarily week 1) and it is overloaded in the last 2
weeks of the schedule.
Some of the production scheduled for week 4 and
5 should be moved to week 1.

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Demand Management

Review customer orders and promise shipment of

orders as close to request date as possible
Update MPS at least weekly.... work with Marketing
to understand shifts in demand patterns
Produce to order..... focus on incoming customer
orders
Produce to stock ..... focus on maintaining finished
goods levels
Planning horizon must be as long as the longest lead
time item
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Types of Production-Planning
and Control Systems

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Types of Production-Planning
and Control Systems

Pond-Draining Systems
Push Systems
Pull Systems
Focusing on Bottlenecks

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Pond-Draining Systems

Emphasis on holding inventories (reservoirs) of

materials to support production
Little information passes through the system
As the level of inventory is drawn down, orders are
placed with the supplying operation to replenish
inventory
May lead to excessive inventories and is rather
inflexible in its ability to respond to customer needs

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Push Systems

Use information about customers, suppliers, and

production to manage material flows
Flows of materials are planned and controlled by a
series of production schedules that state when batches
of each particular item should come out of each stage
of production
Can result in great reductions of raw-materials
inventories and in greater worker and process
utilization than pond-draining systems

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Pull Systems

Look only at the next stage of production and

determine what is needed there, and produce only that
Raw materials and parts are pulled from the back of
the system toward the front where they become
finished goods
Raw-material and in-process inventories approach
zero
Successful implementation requires much preparation

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Focusing on Bottlenecks

Bottleneck Operations
Impede production because they have less capacity
than upstream or downstream stages
Work arrives faster than it can be completed
Binding capacity constraints that control the
capacity of the system
Optimized Production Technology (OPT)
Synchronous Manufacturing

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Synchronous Manufacturing

Operations performance measured by

throughput (the rate cash is generated by sales)
inventory (money invested in inventory), and
operating expenses (money spent in converting
inventory into throughput)
. . . more

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Synchronous Manufacturing

System of control based on:

drum (bottleneck establishes beat or pace for other
operations)
buffer (inventory kept before a bottleneck so it is
never idle), and
rope (information sent upstream of the bottleneck
to prevent inventory buildup and to synchronize
activities)

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Wrap-Up: World-Class Practice

Push systems dominate and can be applied to almost

any type of production
Pull systems are growing in use. Most often applied
in repetitive manufacturing
Few companies focusing on bottlenecks to plan and
control production.

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End
End of
of Chapter
Chapter 13
13

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