(Aggregate) Production Planning

1. (Aggregate) Production Planning Chapter 7

2. (Aggregate) Production Planning • Process for determining aggregate levels of production (i.e., at product line/group level) • Production plan links strategic goals to production and is coordinated with sales objectives, resource availabilities, and financial budgets • New term—Sales and Operations Planning

3. Role of Production Planning

4. Production-Planning Process • Begin with updated sales forecast covering the planning periods (usually one year or more) • Desired changes (increases or decreases) to inventory and backlogs are factored in • Periodic reviews and updates are conducted. • See forecast (Figure 7.3) and cumulative forecast/production plan (Figure 7.4)

5. Production Planning Formulas • Make-to-Stock Finished goods inventory = previous inventory + production - demand forecast • Make-to-order Backlog = customer orders + previous backlog - production • Assemble-to-order Semi-finished goods inventory = previous inventory + production - demand forecast

6. Production Planning Strategy • Chase strategy—production output is changed to chase sales. Incurs costs of changing the workforce level, hours worked, and subcontracting • Level strategy—production is at a uniform rate, with inventory buildups and depletions. Incurs inventory holding and backorder costs • Mixed (hybrid) strategy

7. Trade-offs • Aggregate output is converted into resource requirements by using a planning factor (e.g., converting aggregate sales dollars into labor requirements—see Figure 7.5) • Basic trade-offs: inventory accumulations, hiring and firing, under-time and overtime, and alternative capacity options such as subcontracting

8. Production Planning Methods • Trial-and-error method • Optimization methods • Heuristic Methods

9. Evaluating Alternatives • Establish cost data that relate to the alternative production-planning methods (See Figure 7.6) • Determine starting conditions (on-hand inventory, beginning workforce level) • Example—Figure 7.7

10. Management Obligations • Top management: force the resolution of trade-offs between functional areas • Functional roles (manufacturing, sales, engineering, finance, human resources): • Hit the plan. • Communicate when something will prevent hitting the plan, as well as provide continual feedback on performance versus the plan.

11. Potential Difficulties with Production Planning • Large number of products and product families • Complexity of planning models/methods • Unavailability of useable data • Lack of understanding and direction from top management • Lack of cooperation from other functions

12. Concluding Principles (VBW, p.302) • The production plan is not a forecast; it must be a managerial statement of desired output. • The production plan should be a part of the game planning process so it will be in complete agreement with other functional plans (sales plan, budget, etc.). • The trade-offs to frame the production plan must be made prior to final approval of the plan.

13. Concluding Principles • There must be top-management involvement in the game planning process, which should be directly related to strategic planning. • The MPC system should be used to perform routine activities and provide routine data, so management can address non-routine tasks. • The MPC system should be used to facilitate what-if analyses at the production-planning level.

14. Concluding Principles • Reviews of performance against production plans and sales forecasts are needed to prompt re-planning when necessary. • The production plan should provide the MPS parameters. The sum of the detailed MPS must always equal the production plan. • The production plan should tie the company’s strategic activities directly through the MPS to the execution modules.

15. Homework Assignments • Problems 7.2, and 7.3 • Due Tuesday, Sept. 17 • We will do problem 7.1 in class. Problems 7.2 and 7.3 are variations using the same framework.