Unit-3

Production Planning & Control

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 Production Planning & Control

▪ The highest efficiency in production is obtained by manufacturing

the required quantity of the product, of the required quality, at the
required time, with the best and cheapest method.

PRODUCTION BRAIN Production Planning

SYSTEM & Control (PPC)
▪ Four Factors involve:
o Quantity
o Quality
o Time
o Price

▪ PPC regulates and controls “how”, “where”, and “When” work is to be

done.

Simple Sustainable Solutions

 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."

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Production Planning & Control
• There are three stages in PPC
• Production: It is the conversion process of raw materials into finished products or
final products. The whole task which involves a number of steps and processes
should be carried out according to a proper plan.
• Production planning is the planning of production and manufacturing system of
a plant, organization, or industry. It optimizes the resource assignment of activities
of employees, materials, and manufacturing capacity to serve various customers.
• Control: The monitoring of performance through a feed back by comparing the
results achieved with planned targets so that performance can be improved.

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 Levels of PPC
• Strategic Planning(Long range): It is process of thinking through organization’s
mission and setting a guide for future decisions and results.
e.g. Capital investment, location, and facility planning. Technology forecasting and
choice of appropriate technology for the long range time horizon.
• Tactical Planning(Intermediate Range): It is done over an intermediate term or
medium range time horizon by middle level management. These plans focus on
aggregate products rather than individual products.
e.g. Demand forecast and capacity planning
• Operational Planning(Short Range ): It is done over a short range time span
developed by junior level management. It is concern with utilization of existing
facilities rather than creation of new facilities.
e.g. day-to-day operations
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 Objectives of PPC
1. Systematic planning of production activities to achieve the highest efficiency
in production of goods/services.
2. To organize the production facilities like machines, men, etc., to achieve
stated production objectives with respect to quantity and quality time and
cost.
3. Optimum scheduling of resources.
4. Coordinate with other departments relating to production to achieve regular
balanced and uninterrupted production flow.
5. To conform to delivery commitments.
6. Materials planning and control.
7. To be able to make adjustments due to changes in demand and rush orders.
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 Production Planning & Control

Overview of Production / Operations Planning Activities:

Functions

Functions of PPC Production Planning Main Functions

• Routing • Forecasting
• Estimating • Aggregate planning
• Scheduling • Materials Requirement Planning
• Loading • Inventory Management
• Dispatching • Sequencing and Scheduling
• Expediting
• Evaluating
• Inventory Control
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 Routing

 Under this, the operations, their path and sequence are

established.
 To perform these operations the proper class of machines and
personnel required are also worked out.
 The main aim of routing is to determine the best and cheapest
sequence of operations and to ensure that this sequence is
strictly followed

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 Routing Procedure:-
 Deciding what part to be made or purchased
 Determining Materials Required
 Determining Manufacturing Operations and Sequences
 Determining of Lot Sizes
 Determining of Scrap Factors
 Analysis of Cost of the Product
 Preparation of Production Control Forms

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 Scheduling
 It mainly concerns with time element and priorities of a job.
 The pattern of scheduling differs from one job to another
 Production schedule: The main aim is to schedule that amount of work
which can easily be handled by plant and equipment without interference.
it takes into account following factors.
 (1) Physical plant facilities of the type required to process the
material being scheduled.
 (2) Personnel who possess the desired skills and experience to operate
the equipment and perform the type of work

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 Loading
 The next step is the execution of the schedule plan as per the
route chalked out it includes the assignment of the work to
the operators at their machines or work places.
 So loading determines who will do the work as routing
determines where and scheduling determines when it shall be
done.

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 Dispatching
 Dispatching involves issue of production orders for starting the operations.
Necessary authority and conformation is given for:
 Movement of materials to different workstations.
 Movement of tools and fixtures necessary for each operation.
 Beginning of work on each operation.
 Recording of time and cost involved in each operation.
 Movement of work from one operation to another in accordance with the route
sheet.
 Inspecting or supervision of work

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PROCEDURE:

1.Moving of materials from process to process.

2.Assigning of work to machines.
3.Issuing of tools to production departments.
4.Issuing of job orders.
5.Recording of time taken.
6.Ensuring necessary changes.
7.Having proper liaison with routing

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 FOLLOW UP AND EXPDITING

Follow up or expediting is that branch of production control procedure

which regulates the progress of materials and part through the
production process".
PROCEDURE:
1.Progress should be checked
2.Causes of differences should be ascertained
3.Helping in removing the deviations
4.Report with departments supplying materials.

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 Inspection
 This is mainly to ensure the quality of goods. It can be required as effective
agency of production control.

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 Corrective measures
 Corrective action may involve any of those activities of
 adjusting the route,
 rescheduling of work
 changing the workloads,
 repairs and
 maintenance of machinery or equipment,
 control over inventories of the cause of deviation is the poor performance of the
employees.
 Certain personnel decisions like training, transfer, demotion etc. may have to be
taken. Alternate methods may be suggested to handle peak loads.

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 Limitations of PPC
• PPC function is based on certain assumptions or forecasts of
customer’s demand, Plant capacity, availability of materials etc
• Employee may resist change in production levels set as per
production plans.
• This process is time consuming when we need to carry out routing
and scheduling function for large products.
• This function become difficult when environmental factors changes
rapidly.

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Forecasting:
“A prediction of future events used
for planning purpose”

Principles of Forecasting:
1. Forecasts Are Almost Always
Wrong (But They Are Still Useful)

2. Forecasts are more accurate for

shorter than longer time horizons

3. Forecasts are more accurate for

groups or families of items rather Objective: “Better futureForecast
than for individual items. by Minimizing the error (Actual
Vs Forecasted Demand)”

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Types of Forecasting Methods:
FORECASTING METHODS

Little or no quantitative ▪ Quantitative historical data available

data available ▪ Evidence of a relationship between the variable of
interest and some other variable(s)

Qualitative Techniques
Quantitative Techniques

o Market surveys
o Delphi method Time Series Models: “Future Causal Models: “Future is a
o etc. is a function of time” function of ‘any other factors’
o Moving Average other than time ”
o Weighted Moving Average o Linear Regression
o Multiple Regression

https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique 22
Forecasting Methods – Demand Patterns Over Time:

(a) Level or Horizontal Pattern: Data follow (b) Trend Pattern: Data are progressively
a horizontal pattern around the mean increasing (shown) or decreasing
Quantity

Quantity
Time
Time
(c) Seasonal Pattern: Data exhibit aregularly (d) Cycle: Data increase or decrease over time
repeating pattern (Data patterns created by economic fluctuations)

Quantity
Quantity

Time (Quarters) Time (Quarters) 23

Delphi Technique of Qualitative Forecasting
Description:
• Delphi is a method in which individuals focus on debate issues
anonymously.
• Typically conducted by mail or e-mail utilizing several rounds of
questionnaires.
• Results of each round are collected, collated and analyzed by a design
team.
• Questions for the next round are based on the previous responses.
Generally provides convergence of opinions.
Advantages within Delphi
• Anonymity
• More accurate representation of expert opinions
• No group meetings are required.
• Allows participants to be geographically scattered.

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Inputs
Respondents should:
– Have special experience or knowledge to share.
– Represent a cross-section of opinions.
– Be motivated to participate.
• Questionnaire should:
– Be as short as possible
– Be adapted to the language most familiar to the participants area of
expertise

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Process of Delphi
1. Develop the basis for a Delphi
2. Design Questionnaire #1
3. Collect response for questionnaire #1
4. Analyse questionnaire #1
5. Design questionnaire #2
6. Collect response for questionnaire #2
7. Analyse questionnaire #2
8. Design questionnaire #3
9. Collect response for questionnaire #3
10. Analyse questionnaire #3
11. Design questionnaire #4
12. Collect response for questionnaire #4
13. Analyse questionnaire #4
14. Closure 27
 Production Planning & Control

Time–Series Forecasting Methods: Level or Horizontal Pattern…

AVERAGING TECHNIQUES:
Simple Moving Average: Technique that averages a number n

of the most recent actual values in generating a forecast. A t −i

Ft = MA =
t
i=1
n

Weighted Moving Average: The most

recent values in a time series are given Ft=wnAt−n +wn−1At−(n−1) +... +w1At−1
more weight in computing a forecast.

Simple Sustainable Solutions 28

Simple Moving Average Calculation
The simple moving average (SMA) calculates an average of the last n prices,
where n represents the number of periods for which you want the average:
For example, a four-period SMA with prices of
Simple moving average = (P1 + P2 + P3 + P4 + ... + Pn) / n
1.2640,
1.2641,
1.2642, and
1.2641
gives a moving average of 1.2641 using the calculation
[(1.2640 + 1.2641 + 1.2642 + 1.2641) / 4 = 1.2641].

While knowing how to calculate a simple average is a good skill to

have, trading and chart platforms calculate this for you. Simply select the
SMA indicator from the list of charting indicators, apply it to the chart, and 29
Simple Moving Average
Month Orders per Month Three-Month Moving
Average
January 120 -
February 90 -
 Month Orders March 100 -
April 75 103.3
June 50 May 110 88.3
July 75 June 50 95
July 75 78.3
August 130 August 130 78.3
September 110 85
September 110 October 90 105
October 90 November - 110

 The moving average is computed from the demand for

orders for the prior three months in the sequence according
to the above formula:
 =
 = 110 orders for November
 Month Orders per Month Three-Month Moving
Average

January 120 -

February 90 -

March 100 -

April 75 103.3

May 110 88.3

June 50 95

July 75 78.3

August 130 78.3

September 110 85

October 90 105

November - 110

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 Description
• Moving averages are one of the core indicators in technical analysis, and there are a variety of different
versions.
• SMA is the easiest moving average to construct. It is simply the average price over the specified period.
• The average is called "moving" because it is plotted on the chart bar by bar, forming a line that moves along
the chart as the average value changes.

How this indicator works

• SMAs are often used to determine trend direction. If the SMA is moving up, the trend is up. If the SMA is
moving down, the trend is down. A 200-bar SMA is common proxy for the long term trend. 50-bar SMAs
are typically used to gauge the intermediate trend. Shorter period SMAs can be used to determine shorter
term trends.
• SMAs are commonly used to smooth price data and technical indicators. The longer the period of the SMA,
the smoother the result, but the more lag that is introduced between the SMA and the source.
• Price crossing SMA is often used to trigger trading signals. When prices cross above the SMA, you might
want to go long or cover short; when they cross below the SMA, you might want to go short or exit long.
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Exponential Moving Average Calculation
The exponential moving average (EMA) is a weighted average of the last n prices, where the
weighting decreases exponentially with each previous price/period.
In other words, the formula gives recent prices more weight than past prices.
Exponential moving average = [Close - previous EMA] * (2 / n+1) + previous EMA
For example, a four-period EMA with prices of
1.5554,
1.5555,
1.5558, and
1.5560,
with the last value being the most recent, gives a current EMA value of 1.5558 using the
calculation [(1.5560 - 1.5558) x (2/5) + 1.5558 = 1.55588].

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Weighted Moving Average Calculation
The weighted moving average (WMA) gives you a weighted average of the last n prices, where the
weighting decreases with each previous price. This works similarly to the EMA, but you calculate the WMA
differently.

Weighted moving average calculation = (Price * weighting factor) + (Price previous period * weighting
factor-)

WMAs can have different weights assigned based on the number of periods used in the calculation.

If you want a weighted moving average of four different prices, then the most recent weighting could be 4/10, the
period before could have a weight of 3/10, the period before that could have a weighting of 2/10, and so on.

The "10" in that scenario is a randomly chosen number. A weight of 4/10, for example, means the most recent price
will account for 40% of the value of the WMA. The price three periods ago only accounts for 10% of the WMA
value.

For the following example, assume prices of 90, 89, 88, 89, with the most recent price first.
You would calculate this as
((90 x (4/10)) + (89 x (3/10)) + (88 x (2/10)) + (89 x (1/10)) = 36 + 26.7 + 17.6 + 8.9 = 89.2

You can customize the weighted moving average more than the SMA and EMA. The most recent price points are usually given more weight,
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but it could also work the other way, where you give historical prices more weight.
Time–Series Forecasting Methods:
Linear Trend Pattern
(b) Trend Pattern: Data are progressively Techniques for Trend:
increasing (shown) or decreasing ▪ Linear Regression equation
▪ Linear Exponential Smoothing:Exponential smoothing is a
Quantity forecasting technique that extrapolates historical patterns
such as trends and seasonal cycles into the future
o Exponential trend equation
(Trend-Adjusted Exponential Smoothing)
Time ▪ Non-linear trends

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http://cpdftraining.org/downloads/Levenbach_ExpSm2017.pdf
 Production Planning & Control

Time–Series Forecasting Methods: Seasonality Pattern…

Case Study:

The graph exhibits long term trend

The graph exhibits seasonality pattern

Simple Sustainable Solutions 17

Reorder Point (ROP)-Know When to Reorder

• You have a great new product on the shelves, and it’s selling fast.
Every customer purchase means more revenue, but also brings your
inventory levels lower. Of course you’ll reorder before it goes out of
stock, but if you order too early, you’ll need to spend more on storing
these excess items. If you order too late, you’ll be facing disappointed
customers who’ll look to your competitors.

• The question then is: When is the right time to order more stock?

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How to calculate reorder point ?

• 1. Calculate your lead time demand in days.

• 2. Calculate your safety stock in days.
• 3. Sum your lead time demand and your safety stock to determine your
Reorder Point.

• To understand the maths behind our reorder point calculator, let’s break this
formula down.
• You’ll need to know the lead time demand, because that’s how long you’ll
have to wait before new stock arrives - you’ll want to have enough to satisfy
your customers while you wait! And you’ll need to know your safety stock,
because that’ll protect you against any unexpected occurrences. Add your
lead time demand to your safety stock… and voila! Once your stock levels
hit the total, it’s time to place a new order to replenish your supply.
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 Lead time demand - • New stock doesn’t arrive immediately. Even if your
Shipping’s not instant! products are in stock, it’ll take your supplier time to
pack your order and even more time to ship it over to
you. This waiting time is what’s known as “lead time”.
• So let’s put things into perspective. Imagine a business
(let’s call it J Timewear) in the United States sells
watches manufactured in China. Assuming the supplier
is always in stock and has a warehouse full of watches
ready to ship at a moment’s notice, it’ll probably take
the supplier a couple of days to pick and pack the
watches. After that, the watches spend another five days
in a truck to the port, and from there, it takes about 30
days for a ship to travel from China to the U.S.. Once
the watches arrive, they spend another week in customs,
and then another three days travelling to J Timewear’s
warehouse.
Calculating the lead time is easy: Just add everything up!
2 + 5 + 30 + 7 + 3 = 47 days of sales

Since it takes J Timewear 47 days to get a new shipment of watches, they’ll

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need to have enough stock on hand to cover these 47 days of sales.
So the lead time demand for J • But knowing the lead time alone
Timewear is (47 x 10 = 470)...
meaning J Timewear will need isn’t enough. You’ll also need to
470 watches to tide them over figure out the demand during this
until their next shipment period. Assuming J Timewear sells
arrives, if nothing unexpected
happens. an average of 310 watches a month
(310/31 = 10), they’d be selling
about 10 watches a day.

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 • And here’s where safety stock comes in. Safety stock is
buffer stock you carry as a last defense against
Safety Stock - When unpredictable events that either deplete your stock
(surge in demand), or unexpected manufacturing time
things go wrong (your lead time skyrockets because the supply chain
breaks down).
• Let’s continue the story of J Timewear. On an average
But sometimes, unexpected things happen. day, they sell 10 watches. But during weekends, they
This can take the form of a sudden surge in can sell as many as 15. As for lead times, their usual
demand after some unexpected celebrity lead time is 47 days, but during typhoon season (yes, in
endorsement, and now your product is selling China, they have typhoons) , it can go up to as high as
fast. Or perhaps your supplier’s factory has 54 days.
experienced a breakdown and it’ll take a
week for them to replace the damaged
• (15 x 54) - (10 x 47) = 340
component and get their machine up and • This means J Timewear needs to have about 340 units of
running again. safety stock on hand to guard against the unexpected
(especially during typhoon season). Therefore, with 340
units in safety stock, selling about 80 watches on a good
Here’s a simple formula that you can week (10 per day on weekdays and 15 on weekends), J
calculate based off your purchase and sales Timewear will have enough stock to last a little over 4
orders history: weeks.

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 • To complete the story of J Timewear, their reorder point
The reorder point would be:
formula • 470 (Lead time demand) + 340 (safety stock) = 810
• So once their stock hits 810 watches, J Timewear will
need to place a new order with their supplier. At 810
If your product is seasonal, like school watches, they’ll have enough to last them as they wait
supplies, you’ll have to adjust your safety
stock level to cater to peak season demand. for new stock to arrive (470), while holding enough
Once the peak season’s passed, it’s time to stock (340) as a buffer against an unexpected surge in
reduce your safety stock levels again, as more demand or supply chain problems.
safety stock = higher carrying costs. After all,
people are a lot less likely to be buying a new • Planning reorder points are a crucial part of inventory
set of school stationery in the middle of management. Setting your reorder point to the optimum
summer holidays as opposed to right before a amount lets you cut down on excess spending, while
new semester begins.
ensuring you’ll have enough stock for your customers
even when things take an unexpected turn.

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 Production Planning & Control

What is Aggregate Operations Planning?

Suppose the figure to the right represents
forecast demand in units.

Now suppose this lower figure represents

the aggregate capacity of the company to
meet demand.

What we need to do is to balance out the

demand and the capacity supply?

▪ Balancing Aggregate Demand and Aggregate Production Capacity – to specify

the optimal combination of:
o production rate; workforce level; inventory on hand …

A poor aggregate plan can result in lost sales, lost profits, excess inventory, or
excess capacity
 Production Planning & Control
Aggregate Operations Planning:
Inputs, Outputs & Goal
▪ Product group ((or) family) or broad category (aggregation)
▪ Intermediate-range planning period: 6-18 months
▪ Resources
o Workforce
▪ Policy statements
o Subcontracting ▪ Total cost of a plan
o Overtime
▪ Production/operation plan
o Inventory levels
o Back orders o Projected levels of:
▪ Demand forecast
Aggregate • Inventory
Planning • Output
▪ Costs • Employment
o Inventory carrying
o Back orders • Subcontracting
o Hiring/firing • Backordering
o Overtime
o Inventory changes
o subcontracting

▪ Goal: Specify the optimal combination (tradeoff) of “Production rate, workforce level,
overtime production, subcontracting (i.e. outsourced capacity), inventory / backlog”
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 Production Planning & Control

Aggregate Operations Planning: Procedure (Process Steps)

1. Develop the aggregate sales forecast and aggregate planning value.
2. Translate the sales forecast into resource requirements.
3. Generate alternative production plans.
Aggregate Planning value: The term aggregate refers to a line of products (i.e.
Product family), not just one individual product. An aggregate unit is some kind of an
“average” unit.
▪ Example: A firm produces 6 different models of washing machines
Model Working Hours Total
Number Required Sales (%) The manager dec ides to define an aggregate
A5532 4.2 32% unit of productio n as a machine requiring tal
K4242 4.9 21% some weighted to working hours where the
L9898 5.1 17% weights are taken from the total sales (%).
L3800 5.2 14%
M2624 5.4 10% Aggregate Plann ing value = (0.32)(4.2) +
M3880 5.8 6% (0.21)(4.9) + ( 0.17)(5.1) + (0.14)(5.2) +
(0.10)(5.4) + (0.06 )(5.8)
= 4.856 hours per aggregate unit
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 Production Planning & Control
Aggregate Operations Planning:
Procedure (Process Steps)…
1. Develop the aggregate sales forecast and aggregate planning value.
2. Translate the sales forecast into resource requirements.
3. Generate alternative production plans.

Example: ABC Electrical performs

three services: cable TV installations,
satellite TV installations, and digital
subscriber line (DSL) installations.

Estimated labor hours per installation: Estimated supply costs per installation:
0.4* 2 + 0.4 * 3 + 0.2 * 4 = 2.8 hours 0.4 * $15 + 0.4 * $90 + 0.2 * $155 = $73
ABC expects (i.e. forecasted) total installations for the next three months to be 150,
175, and 200, respectively.
Estimated Resource Requirements at ABC’s Electrical

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 Production Planning & Control

Aggregate Operations Planning: Procedure (Process Steps)…

1. Develop the aggregate sales forecast and aggregate planning value.
2. Translate the sales forecast into resource requirements.
3. Generate alternative production plans.

CASE STUDY: XYZ Cabinets Manufacturing Company

XYZ is a manufacturer of several different lines of kitchen and bathroom cabinets that
are sold through major home improvement retailers. XYZ’s marketing vice president
has come up with the following combined sales forecast for the next 12 months:

XYZ Cabinets Manufacturing

Company; Sales Forecast

Case Study:

Simple Sustainable Solutions 48

 Production Planning & Control

Aggregate Operations Planning: Procedure (Process Steps)…

1. Develop the aggregate sales forecast and aggregate planning value.
2. Translate the sales forecast into resource requirements.
3. Generate alternative production plans.
Generate alternative production plans: Production Plan Strategies
▪ Pure Production Plan Strategies:
o Level production plan – in which production is held constant and inventory is
used to absorb the differences between production and the sales forecast.
o Chase production plan – in which production is changed in each time period
to match the sales forecast.

Simple Sustainable Solutions Hakeem-Ur-Rehman & Sajid Mahmood 26

 Production Planning & Control

Aggregate Operations Planning: Alternative Production Plan

Level vs. Chase Production Plan

Advantages: Advantages:
o Stable output rates and workforce o Labor utilization in high
Disadvantages: Disadvantages:
o Increased overtime and idle time o The cost of adjusting output rates
o Resource utilizations vary over and/or workforce levels
time

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Material Requirement Planning (MRP):
▪ Materials requirements planning (MRP) Computerized inventory control and
production planning system
▪ how do firms actually organize things to turn materials into finished products?

When to Use MRP?

✓ Dependent and discrete items
✓ Complex products
✓ Job shop production
✓ Assemble-to-order environments

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Material Requirement Planning System: Def., Inputs & Outputs
▪ Based on a master production schedule, a material requirements planning
system:
o Creates schedules identifying the specific parts and materials required to
produce end items
o Determines exact unit numbers needed
o Determines the dates when orders for those materials should be released,
based on lead times
INPUTS
Master Schedule OUTPUTS
Planned order releases
Bill of Materials Material o Work Orders
Requirement o Purchase Orders Master Production
Inventory Records Planning (MRP) o Rescheduling notices Scheduling
Bills of
▪ MRP process consists of four basic steps: Material
Material Requirements
o Exploding the bill of material Inventory
Planning
o Netting out the inventory Status
o Lot sizing Quantities and
o Time-phasing requirements Order Times
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 MRP
Responds to the fundamental manufacturing
equation:
– What are we going to make?
» Master production schedule.
– What does it take to make it?
» Bill of materials.
– What have we got?
» Inventory records.
– What do we have to get?
» Material Requirements plan: planned orders.

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Material Requirement Planning System: Inputs …
▪ MRP Inputs: 2. Bill of materials (BOM): A list of all of the items
1. Master Production Schedule needed to produce one unit of a product.
2. Bill of Material (BOM) o Product structure tree: Visual representation of
3. Inventory Record file BOM, where all components are listed by levels.
EXAMPLE # 1 (Product → Chair): BOM – Product Structure Tree
How many Legs we need
in order to produce 50
Chairs?

3. Inventory Record File: A database of information

on every item produced, ordered, or inventoried.
Gross requirements, Amount on hand, Lead times, &
more....
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 Master Scheduling (MPS)
• It forms the link between production planning and what
manufacturing will actually build.
• It forms the basis for calculating the capacity and
resources needed
• The MPS drives the material requirements plan
• It keeps priorities valid. The MPS is a priority plan for
manufacturing.
 Introduction
As the name implies, the MPS decides what products are manufactured and when. The
required raw materials are then identified by the finished goods BOM, the data from which is
then integrated with current inventory data to create the MRP for raw materials procurement.

▪ The Master Production Schedule forms the basis of communication between sales and
manufacturing. Using the MPS as a contract between sales and production means that
sales can make valid order promises.
▪ MPS is not a rigid plan.
▪ MPS is a dynamic plan and can be changed when there are changes in demand or capacity.

What are the functions of Master Production Schedule?

▪ The MPS strives to form a detailed plan that fulfils the following objectives:
▪ Achieve desired customer service levels
▪ Make the most efficient use of resources
▪ Maintain a desirable level of inventory
 Master Production Scheduling techniques
• The MPS needs to plan for what will be manufactured at the most efficient level. If the MPS covers
too many items, it will be difficult to put the plan into action, effectively. Whereas, if the plan is not
detailed enough, the production will suffer. As a general rule, master scheduling should happen where
the smallest number of product alternatives exists.
• In make-to-stock environments, a limited number of items are assembled from a larger number of
components, for example, video recorders or computers. The MPS should in this case be a schedule
of finished goods items.
• In a make-to-order environment, many different finished goods can be produced from a relatively
small number of raw materials. A great example of this process would be how cars are manufactured.
The subassemblies for many cars will be the same but the different models of cars manufactured
differ in specific options such as color, stereo, sunroof, and electric windows. The MPS in a make-to-
order environment is a schedule of the actual customer orders.
• Assemble to order environments make use of raw materials to form basic components and complete
subassemblies. These components and subassemblies make up a variety of finished products. The
Master Production Schedule should therefore take place at the subassembly level. For example,
omelet, vacation packages, cars built to customer’s specs

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Master Scheduling: Def. & Linking with APP
▪ Master Production Schedule (MPS): Time–phased plan Aggregate Plan
specifying how many and when the firm plans to build each (Product Groups)
end item
▪ tracks production output and matches this output to MPS
actual customer (Specific End Items)

▪ In Reality
o Demand and Production numbers in the
master schedule are unlikely to match
the sales and operations plan exactly.

o Actual capacity requirements might not

Breaking by Week & by Product
match the planning values.

▪ safety stock, Product–A

▪ schedule overtime, or Product–B
▪ take other measures to make up
difference between the plan and reality. Product–C
Master Scheduling Process & Its Linkages:
INPUTS OUTPUTS
Beginning Inventory Projected Inventory
Forecasted MASTER
Demand SCHEDULING Master Production
Customer Order Schedule
(Booked Order)

Master production schedule

linkages:

Simple Sustainable Solutions 59

 Bill of materials (BOM):
A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a
product.
• Each finished product has its own bill of materials.

• The BOM identifies, how each end product is manufactured, specifying all subcomponent items, their
sequence of buildup, their quantities in each finished unit, and which work centers perform the buildup
sequence in the facility.
• This information is obtained from product design documents, work flow analysis, and other standard
manufacturing and industrial engineering documentation.
Modular BOM: BOMs that displays the assembly or sub-assembly
Configurable BOM: used by industries that have multiple options and highly configurable products (e.g.
telecom systems, data-center hardware (SANS, servers, etc.), PCs, cars)
Multi-level BOM: that lists the assemblies, components, and parts required to make a product in a parent-child,
top-down method. It provides a display of all items that are in parent-children relationships. When an item is a
sub-component, of a (parent) component, it can in-turn have its own child components, and so on.
60
61
Inventory records:

• Includes information on the status of each item by time period:

• Gross requirements
• Scheduled receipts
• Expected amount on hand
• Lead time
• Lot size policy
• And more …

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 MRP Outputs
• Planned orders - Schedule indicating the amount and timing of future
orders.
• Order release - Authorization for the execution of planned orders.
• Changes - revisions of due dates or order quantities, or cancellations
of orders.
 Benefits of MRP
◼ Low levels of in-process inventories.
◼ The ability to keep track of material requirements.
◼ The ability to evaluate capacity requirements generated by a given master schedule.
◼ A means of allocating production time.
Problems of MRP
❑ Training: The workers have to be trained to learn and become proficient with a new system
and its processes.
❑ Integration and testing: Integrating the computer systems associated with different areas of
the firm and testing the links between various corporate areas and systems.
❑ Data conversion and data analysis
❑ Consultant fees
64
❑ Solving implementation problems on an ongoing basis
❑ Dealing with disappointing short-term results
❑ Competition for high quality workers especially in the IT field .
 Manufacturing Resources Planning (MRP II):
Manufacturing resource planning (MRP II) is defined as a method for the effective planning of all resources
of a manufacturing company.

Expanded MRP with emphasis placed on integration

– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing
Chapter3 65
 Aggregate Customer
Forecast production plan orders

Manufacturing Resource Planning

No
Feasible?

(MRP II) Yes

Master production
schedule

Material requirements
planning

Capacity requirements
planning

No
Feasible?
Feedback

Yes

Purchase Work
orders orders

Shop floor
Inventory control

Manufacture
Manufacturing Resource Planning
(MRP II) Forecast Aggregate
production
plan
Customer
orders

No
Feasible?

Aggregate Customer
Forecast
production orders Yes
plan Master production
schedule

Material requirements
planning

No Capacity requirements
planning
Feasible?
No
Feasible?
Feedback

Yes Yes

Purchase Work
orders orders
Master
production
Shop floor
schedule Inventory
control

Manufacture
Manufacturing
Resource Planning
Aggregate Customer
Forecast
production orders
plan

(MRP II) No
Feasible?
Master production schedule
Yes
Master production
schedule

Material requirements planning Material requirements

planning

Capacity requirements
planning

Capacity requirements planning

No
Feasible?
Feedback
Yes

No Purchase Work
orders orders
Feasible?
Inventory Shop floor
control

Yes Manufacture
Manufacturing Resource Planning
(MRP II) Forecast Aggregate
production
Customer
orders
plan

No
Feasible?

Yes
Master production
schedule
Purchase Work
orders orders Material requirements
planning

Capacity requirements
planning

Shop floor control

Inventory No
Feasible?
Feedback
Yes

Purchase Work
orders orders

Manufacture
Inventory Shop floor
control

Manufacture
Distribution Requirements Planning (DRP I)
DRP is the application of MRP principles to the distribution environment. It
integrates the, special needs of distribution. It is a dynamic model which
looks at a time-phased plan of events that affect inventory.

• DRP provides the basis for integrating supply chain inventory information
and physical distribution activities with the Manufacturing Planning and
Control system.
• Managing the flow of materials between firms, warehouses, distribution
centers.
• DRP helps manage these material flows. Just like MRP did in
Manufacturing.
• Links firms in the supply chain by providing planning records that carry
demand information from receiving points to supply points and vice versa.
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 Gantt chart
Gantt chart provides a graphical illustration of a schedule that helps to plan, coordinate, and track specific tasks in a project.

71
 Enterprise Resource Planning
(ERP)
➢ The next step in the evolution that began with MRP and
evolved into MRP II

➢ ERP system is a computer system that integrates application

programs in accounting, sales, manufacturing, human
resources and other functions in the firm.
➢ ERP provides a system to capture and make data available
in real time do decision makers and other users in the
organization
 ERP
➢MRP II with ties to customers and suppliers (connects with
supply-chain and customer management applications)

➢Integrates financial, manufacturing and human resources on a

single computer system.

➢Provides tools for planning and monitoring various business

processes
 Enterprise Resource Planning (ERP)
➢ Attempts to integrate all departments and functions across a
company onto a single computer system that can serve all
those different departments’ particular needs
➢ Organizes and manages a company’s business processes by
sharing information across functional areas
➢ Standardized record-keeping permit information sharing and
communication throughout the organization
 ERP
ERP allows companies to:
1. Automate and integrate many of their business processes
2. Share a common database and business practices throughout
the enterprise
3. Produce information in real time

ERP systems also include:

1. Supply Chain Management software and
2. Customer Relationship Management software
ERP Modules
 ERP’s Central Database
Finance &
Accounting

Sales Production &

& ERP Data Materials
Marketing Repository Management

Human
Resources
ERP Strategy Considerations
➢High initial cost
➢High cost to maintain
➢Future upgrades
➢Training