Supply Chain Planning - Production Planning PDF

Supply Chain Planning: Production Planning
Introduction
Why is Production Planning Important?
The goal of production planning is to support the manufacturing process by determining the
resources and sequence of operations required to build a product. During the production planning
process, a company generates the detailed production schedule required to build a product. The
production schedule must be tightly linked with a detailed materials plan to ensure the raw
materials are available when needed. The planning process also communicates required
materials to the purchasing department.
The primary business issues addressed by production planning include:
Ensuring machines and materials are available for production when needed
Maximizing throughput and utilization of factory resources
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How is a Production Planning Integrated with Supply Chain Planning?
Production planning is one component of the supply chain planning process. Supply chain
planning is an integrated process that allows companies to plan and integrate the supply chain
functions of procurement, manufacturing, and fulfillment.
Demand, supply, production, and fulfillment planning operate as interdependent supply chain
planning functions. The goal is to integrate these processes so that all the plans are synchronized
with one another. Plans generated during one process are used by one or more of the other
processes. In other words, planners need to know:
What to do with the information generated

How the different processes relate to one another
Specifically, a materials planner may wonder, "What if my suppliers can't deliver to our requested
quantities and timing?" There are many ways to resolve this issue. One viable option is to delay
the production of some of the items until materials are available, and inform fulfillment planning
about the delay in meeting customer requirements. Another option may be to work with
Procurement to determine if the finished goods could be sourced from another vendor.
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Objectives
After completing this module, you should be able to:

Discuss the purpose, objectives, and benefits of production planning
Describe the different components of production planning, the business problems it
solves, and the key capabilities production planning offers
Identify key inputs, constraints, and other considerations for the components of
production planning
Describe the measurements and metrics for production planning
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Introduction to Production Planning
Overview
Once a company has developed demand and supply plans, it must plan how to manufacture the
product. Production planning (sometimes referred to as factory planning) includes two
components:
Production Schedule - Determine the resources required (labor and machines) and the
sequence (time frame) of the manufacturing operations. In some cases, the production
schedule specifies the start times for the different items; it is occasionally referred to as
the start plan.
Materials Plan - Identify the materials needed (raw materials or sub-components) to
meet manufacturing requirements, along with the time and factory floor location where
the material will be needed. This differs in the level of detail from the materials plan
generated during supply planning.
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Production Planning Constraints
Production planning is limited by capacity and materials constraints. For example, a machine can
produce a maximum number of items per hour, or is scheduled to run a set number of times per
week. This differs from supply planning in the level of detail. An example of a supply planning
constraint is the daily production capacity of one line, while an example of a production planning
constraint is the production capacity for one station on the entire manufacturing line. The
production capacity may be stated as either the number of items processed per time unit, or the
processing time required per item.
Similarly, there could be materials constraints that affect production. The materials plan
generated during supply planning considers only key components, while the materials plan
generated during production planning considers all materials required for manufacturing the
products.
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Components of Production Planning
Production planning consists of the following two components:
Production Scheduling
Materials Planning
Important Note
Many companies conduct production scheduling simultaneously with materials planning. For
simplicity, however, we have explicitly differentiated between production scheduling and materials
planning. Furthermore, depending on the industry, a company could implement one or both
processes.
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Production Planning in Different Industries
Planning emphasis on the different production planning components can vary by industry. For
example, capacity constraints are very important in the semiconductor industry, while materials
planning is very important in the computer industry.
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Production Planning in Different Industries - Semiconductor
The semiconductor industry is a capacity constrained industry. In addition, very few

manufacturers produce product without orders from their customers. A new factory can cost in
excess of $2 billion. In addition, while wafers are made of sand (a negligible material cost), it may
take several weeks to manufacture a wafer. Thus, manufacturers have limited capacity to satisfy
customer orders, and demand often exceeds supply. Some of the challenges of the
semiconductor industry are:
Maximizing product throughput

Since demand exceeds supply in this industry, maximizing product throughput becomes
extremely important. Companies strive to develop "optimal" production schedules that maximize
machine utilizations and product throughput. Furthermore, because different products are
processed on the same resource (i.e., machine), the resource requires a certain amount of
"changeover" time (e.g., tool changes, cooling down). The amount of changeover time required
depends on what product was just processed and which will be processed next. As a result, the
sequence in which products are processed on resources is also very important.
Inaccurate due date promises

Manufacturers must ensure that they can provide accurate order promise dates to their
customers. Unfortunately, most manufacturers provide promise dates for customer orders based
on predetermined lead-times that do not always reflect reality. With accurate production planning
information (when product will be manufactured), manufacturers can quote more accurate order
due dates to customers.
Industry Sector Production Planning

High-Tech - Semiconductor Maximize product throughput
o Maximize machine utilization
o Minimize changeover and other "down" times
o Develop "optimal" production schedules
Ability to quote due dates accurately
The semiconductor industry thus tends to focus on production scheduling.
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Production Planning in Different Industries - Computer
In contrast to the semiconductor industry, the computer industry is not capacity constrained at all,
i.e., there is sufficient capacity to meet all customer demand. However, the profit margins for
computer manufacturers are thin, and customers demand customized configurations. Thus,
ensuring that sufficient material is available (without incurring excessive inventory costs) is very
important in this industry. Challenges in the computer industry include:
High fluctuations in demand

Consumers want new and improved products. As a result, demand often hits a peak very
soon after a new product is introduced and declines rapidly after that. If the company
carries too much material, they could be left holding obsolete inventory.
Increasing customer demand for customized products

Customers want to customize their computer products; this makes it difficult for
manufacturers to forecast demand for end products accurately. At the same time, the
manufacturer must be able to assemble a computer relatively quickly. Hence, they must
plan for material to be available when needed. By creating production schedules quickly
and for short time horizons, manufacturers can communicate with their materials suppliers
to provide material just in time for production.
Industry Production Planning

Sector
Computer Ability to plan for customized configurations
Ability to create production schedules quickly
Ability to create materials plan for a short time horizon and communicate with
suppliers
The computer industry thus tends to focus on materials planning.
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Production Planning in Different Industries - Automotive
The automotive industry is an example in which production scheduling and materials planning are
both very important. Each car requires several thousand parts; therefore, material coordination is
extremely important. At the same time, manufacturers must ensure that assembly lines are
balanced and assembly stations are not over or under-utilized (idle). Some challenges of the
automotive industry are:
Production Flexibility
Every car traveling down an assembly line is different from the preceding or succeeding car.
Despite this, the assembly line must remain in balance to ensure minimal disruptions to
production.
High Number of Parts

Despite the fact that automotive makers use an extremely high number of partsa typical car
manufacturer uses approximately 1.5 million parts every daythey must ensure that the right
parts with the right quality are available at the right place, at the right time.
Maintaining Inventory
Due to the large number of parts, manufacturers cannot afford to keep a high inventory of each
part. They must therefore minimize their inventory for parts and ensure availability.
Collaboration with Suppliers

To maintain a low inventory of parts, manufacturers must communicate effectively, i.e.,
collaborate, with their suppliers. Manufacturers receive parts just in time for production. To ensure
this, they must share their production schedules with their suppliers. The best manufacturers
provide their suppliers a daily (and sometimes hourly) delivery schedule four to 10 days ahead of
delivery.
Industry Sector Production Planning
Automotive Balance assembly line

Coordinate material availability
o Provide a four - 10 day rolling delivery schedule to suppliers
o Collaborate with suppliers
Maintain low inventory
o Provide a four - 10 day rolling delivery schedule to suppliers
o Collaborate with suppliers
Both production scheduling and materials planning are thus critical in the automotive industry.
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Topic Summary
What is it? Key output

Production schedule
Determine how to manufacture the product (i.e.,
what resources will be used, what materials are Detailed materials plan
required, and in what sequence (and time) the
manufacturing operations will be performed)
Determine what materials will be required to meet
the manufacturing requirements
Sample business problems addressed Key capabilities

Scheduling and sequencing production activities
Ensure that machines/materials are available for
production when needed Defining material requirements
Maximize resource utilization Communicating purchase order
recommendations to purchasing
Managing exceptions
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Production Scheduling
A Manufacturing Facility
In a typical organization, a manufacturing facility (factory) is capable of manufacturing multiple

items. The factory also has many resources available for manufacturing products.
Consider a simple factory that is capable of manufacturing three products, Products A, B, and C.
The factory has four machines, Machines M1, M2, M3, and M4. Furthermore, many different raw
materials (RM1, RM2, RM3, and RM4) are required for manufacturing the products. Click on
Product A, Product B, and Product C to view the routes through the manufacturing facility.
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Introduction to Production Scheduling
The master production schedule (MPS) created during supply planning defines what must be
produced in the factory to meet customer demand. The MPS now needs to be converted into a
production schedule that is used to drive manufacturing on the factory floor. The production
schedule will determine the resources required and the sequence in which operations will be
performed on each resource to manufacture the product. The production scheduling process
strives to respect the capacity constraints of each resource and reflect cycle times. This is
inherently a very complex process because planners generate the schedule while considering
dozens of business rules and constraints.
In many cases, a company will have many different products to manufacture and could do so in a
variety of ways. For effective production scheduling, a company must implement key capabilities,
including the ability to:
Schedule production activities

Convert the MPS into a production schedule that specifies the sequence in which the product is
processed on multiple resources, as well as the processing times (or starting and stopping times
of each operation) for each operation. This also includes matching work in process (WIP) and
manufacturing orders (supply/demand match).
Consider different constraints

Two types of constraints are generally considered during production schedulingcapacity
constraints and materials constraints. The production schedule generated must ensure that
sufficient capacity is available on each resource, and that the materials are available when
required.
Evaluate multiple scenarios

Certain orders must be processed, or expedited, through the factory quickly. This may affect the
completion date of other orders. The company must be capable of understanding the impact of
expediting one or more orders on other orders, as well as evaluating multiple production
schedules and their impact on customer order completion dates.
Production schedulers use the production schedule to drive production through the factory shop
floor. They will usually receive a report that specifies the sequence and start times for each item
to be manufactured during a given day or shift. They may also use specialized software to
evaluate multiple scenarios before making a final decision on the production schedule for the day.
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Production Scheduling Stakeholders and Business Issues
We have established the outputs from and the capabilities required for production scheduling.
During production scheduling, companies strive to:
Maximize throughput
The MPS process during supply planning considers high-level capacity constraints and creates a
daily schedule for production scheduling to follow. The goal of the production scheduling process
is to ensure that manufacturers can produce maximum product using available resources.
Maximize resource utilization

Since factory resources are very expensive and require large capital expenditures, a company
must ensure that they utilize such resources effectively to obtain a high return on investment. Idle
resources are resources not fully utilized; in other words, the factory may not be operating to its
optimal capacity.
Minimize changeover times and costs

Many resources can be used for manufacturing multiple products. In many instances, when a
resource is switched from manufacturing one type of product to another, there is some
changeover time and cost. Generally, machines are not usable during changeover periods,
leading to lost capacity. One of the goals during production scheduling is to minimize such
changeover times and costs.
Minimize lateness
Orders scheduled in the factory have a due date, i.e., a date prior to which they must be
completed. In many cases, sufficient capacity and/or materials are not available to meet all due
dates. During the detailed scheduling process, manufacturers strive to minimize late orders.
Minimize earliness
Orders scheduled in the factory have a due date, i.e., a date prior to which they must be
completed. In many cases, sufficient capacity and/or materials are not available to meet all due
dates on the exact date specified, and items may be manufactured ahead of that date. Early
completion means incurring undesirable inventory-carrying costs. During the detailed scheduling
process, manufacturers strive to minimize early orders.
Manufacturing uses the output from the production scheduling process to ensure that machines,
labor, and materials are available when required. Fulfillment may use the production schedule as
an input to determine when transportation is needed to move the product from the factory to the
distribution centers and/or customers. Customer service may use the production plan to
determine whether orders will be met on time or late.
Production scheduling is typically performed for one to seven days, and updated daily. Some
advanced companies update their schedules more frequently, e.g., a high-volume discrete
manufacturer has a four-hour scheduling horizon.
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Key Inputs, Outputs, and Considerations
A key concept related to production scheduling is the concept of production scheduling

algorithms, including:
Shortest process time

Earliest due date
Minimum total manufacturing time
Additional considerations include:
Business objectives
Customer prioritization
Supply prioritization
Alternate production routes
The figure illustrates the key inputs and outputs for production scheduling.
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Key Outputs - Production Schedule
The production schedule specifies what items are started on which resources at what times. The
schedule considers capacity constraints and manufacturing cycle times while trying to ensure
maximum utilization of resources and maximum throughput of product.
Example
Consider the example of a cookie manufacturer that bakes two types of cookieschocolate chip
(CC) and peanut butter (PB).
The CC cookies are baked at 275 degrees F for one hour, and the PB cookies are baked
at 350 degrees F for one hour.
The company only has one oven in which to bake these cookies.
If the oven is already set at 275 degrees, it requires another 15 minutes for it to heat up
to 350 degrees, whereas if it has been set at 350 degrees, it takes 45 minutes for it to
cool down to 275 degrees (both of these times are analogous to changeover times).
Due to the capacity constraints of the oven, the company can bake a maximum of 15 CC
cookies or 10 PB cookies at one time.
The baker (and hence the oven) works from 7 a.m. to 3:30 p.m.
According to the Cookie Delivery Schedule, the company needs to produce 30 CC
cookies and 50 PB cookies.
Quantity Due Time

Chocolate Chip 10 10 a.m.
10 12 noon
10 2 p.m.
Peanut Butter 20 11 a.m.
30 4 p.m.
Solution Approach
The following information is required to create a solution:
Identify the factory resources required - an oven is the only resource that is required.
Understand the manufacturing process/routes - in this case, the process and the
route is very simple. Put the cookies in the oven at the appropriate temperature and bake
for the required time period.
Define the raw materials required to make the cookies - the dough for each type of
cookie is premixed.
Identify the constraints - the constraint for baking cookies is that only one oven is
available from 7 a.m. to 3:30 p.m., and the set-up time to change the temperature from
275 degrees to 350 degrees is 15 minutes, while the set-up time to change the
temperature from 350 degrees to 275 degrees is 45 minutes. The company can bake a
maximum of 15 CC cookies or 10 PB cookies at one time.
Determine when the items are demanded - the schedule of demand for the cookies is
identified in the problem description.
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Key Outputs - Production Schedule - continued
There are many ways to go about determining a feasible production schedule. One approach is
trial and errortry a sequence of activities and determine if the resulting sequence satisfies all
the constraints. If it does, you have a solution. If it does not, you then must modify some aspect of
the sequence, and try again until you reach a feasible solution.
Determine which of the following sequences provides a feasible production schedule. Be sure to
consider the Cookie Delivery Schedule and Capacity Constraints. Click the button below to
review the schedule and constraints.
Sequence A Sequence B Sequence C

1. Bake 15 Chocolate 1. Bake 15 Chocolate 1. Bake 10 Peanut
Chip Cookies Chip Cookies Butter Cookies
2. Bake 15 Chocolate 2. Heat Oven to 350 2. Cool Oven to 275
Chip Cookies degrees degrees
3. Heat Oven to 350 3. Bake 10 Peanut 3. Bake 15 Chocolate
degrees Butter Cookies Chip Cookies
4. Bake 10 Peanut 4. Bake 10 Peanut 4. Bake 15 Chocolate
Butter Cookies Butter Cookies Chip Cookies
5. Bake 10 Peanut 5. Cool Oven to 275 5. Heat Oven to 350
Butter Cookies degrees degrees
6. Bake 10 Peanut 6. Bake 15 Chocolate 6. Bake 10 Peanut
Butter Cookies Chip Cookies Butter Cookies
7. Bake 10 Peanut 7. Heat Oven to 350 7. Bake 10 Peanut
Butter Cookies degrees Butter Cookies
8. Bake 10 Peanut 8. Bake 10 Peanut 8. Bake 10 Peanut
Butter Cookies Butter Cookies Butter Cookies
9. Bake 10 Peanut 9. Bake 10 Peanut
Butter Cookies Butter Cookies
10. Bake 10 Peanut
Butter Cookies
Schedule and Constraints
Cookie Delivery Schedule Capacity Constraints

Only one oven is available from 7 a.m. to 3:30 p.m. The
Quantity Due Time set-up time to change the temperature from 275 degrees
to 350 degrees is 15 minutes, while the set-up time to
Chocolate Chip 10 10 a.m.
change the temperature from 350 degrees to 275 degrees
10 12 noon is 45 minutes. The company can bake a maximum of 15
10 2 p.m. CC cookies or 10 PB cookies at one time.
Peanut Butter 20 11 a.m.
30 4 p.m.
Production Schedule Solution

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In most cases, a product would have to go through multiple resources before it is completely
manufactured. To simplify this example, we considered only one resource.
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Key Concepts - Production Scheduling Algorithms
Generating a production schedule is extremely difficult, especially in cases where the goods must
be processed on multiple machines and can have multiple routes through the manufacturing
facility. Commonly used methods for solving such scheduling problems include:
Shortest Process Time

On a given machine, complete the job that has the shortest process time first, and the job with the
longest process time last. This ensures that short jobs move through the manufacturing facility
more quickly than long jobs. This tends to reduce congestion.
Earliest Due Date

Order jobs according to their due dates, with the earliest due date first and the latest due date
last. This minimizes the maximum lateness of any one job. This approach will also allow the
manufacturer to finish all jobs on time if it is possible to do so.
Minimum Total Manufacturing Time

Minimize the time to complete n jobs through m machines in a manufacturing facility. While this is
a well-known and well-researched problem by practitioners and researchers, obtaining an optimal
solution for this is extremely difficult. One possible heuristic approach is used to schedule jobs
using their latest possible start times (LPST) for each machine, which allows manufacturers to
take into consideration the due dates for the jobs and the manufacturing lead-times. To
accomplish this, planners use a job and its due date, then subtract the manufacturing lead-time
for the last operation (in its manufacturing sequence) to determine its LPST for the last operation.
They continue this process backwards until they determine the start time for the first operation.
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Inputs for Production Scheduling
There are several inputs required for production scheduling. The most common and important
inputs are classified into three typesdemand inputs, supply inputs, and static inputs (inputs that
seldom change).
Demand Inputs
Customer Orders
Orders placed by customers and given top priority for scheduling to ensure that due
dates are met.
Manufacturing Orders
Generated during distribution planning and master production scheduling, and used as
the key input for developing the production schedule.
Stock Orders
Requests to increase inventory (demand) at certain locations. Stock orders are not
customer specific, but placed according to inventory location (e.g., distribution centers)
and are not tied to any specific customers.
Supply Inputs
On-hand Inventory
Inventory of materials currently available; this information is used to determine the net
material requirements.
Scheduled Receipts
Inventory of materials that has been shipped and is en route to the appropriate location;
this information is used to determine the net material requirements.
Work in Process (WIP)

Work that has already started and is partially completed. The WIP may be used during
the calculation of net material requirements.
Static Inputs
Run Rates
The rate at which resources manufacture goods, e.g., a machine may be capable of
manufacturing 30 units of Product A per hour, or 20 units of Product B per hour. Its run
rate would then be 30 units per hour for Product A, and 20 units per hour for Product B.
Cycle Times
The time it takes to manufacture an item.
Set-up Times
Some resources may require an initial set-up time before they can become operational
for production. Set-up time is usually defined in units of time, e.g., 30 minutes or two
hours.
Transfer Times
The amount of time required to move product from one factory resource to another. As
product is moved from one resource to another, there may a time lag between the time
the product is finished being processed by one resource and started on the next
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resource.
Capacities
The manufacturing capacity of a resource.
Batch Sizes
The number of items that can be simultaneously processed on a resource. There are
numerous resources that can produce many units of a product at the same time. A
conventional oven able to bake several cookies simultaneously is one such example
(e.g., 15 chocolate chip cookies or 10 peanut butter cookies per oven batch).
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Additional Considerations
In developing production schedules, companies may account for additional considerations, such
as:
Business Objectives - In addition to maximizing product throughput and resource

utilization, a company may consider additional business objectives at this time, e.g.,
minimizing the cost of production, or minimizing the cost of goods sold.
Customer Prioritization - Some customers are more important than others, and
companies go to great lengths to satisfy this customer base (e.g., meeting delivery dates).
Companies develop production schedules that accomplish this even if it means slippage
in delivery dates to some other customers.
Supply Prioritization - A company may have multiple sources of supply for certain raw
materials, or sub-assemblies and components, and they will typically specify the primary
source and a secondary source of supply for each of these items. They will use
secondary sources only if the primary source is unable to meet requirements.
Alternate Production Routes - In many instances, a product can follow more than one
manufacturing route through a factory. In such cases, the company may be able to
specify a primary route and one or more alternate routes. The alternate routes may be
used in cases of insufficient capacity and/or materials.
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Organizational Implications
Currently, many organizations create production schedules manually, e.g., by using spreadsheets,
pegboards, and/or whiteboards. Consequently, they cannot consider all the possible inputs and
constraints. To use and benefit from the production scheduling process, companies must
implement scheduling software that, in turn, leads to fundamental changes in the process,
including:
Centralized Decisions - Often there is a central schedule coordinator who works with
schedulers from each manufacturing line or factory to coordinate all production schedules
and ensure that the business objectives of the organization are met.
Team-based Decisions - Decisions made by the schedulers are team-based, preventing
individual schedulers from making isolated decisions.
Coordinated Decision Support - The schedule coordinator, who provides coordinated
decision support to all schedulers, now coordinates any changes and decisions that must
be made in the production schedules.
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Organizational Implications - continued
Such changes to the production scheduling process also lead to several organizational changes
within the company:
Decreased Number of Schedulers - The use of advanced software usually leads to a

decrease in the number of schedulers required to create production schedules. In many
cases, it may even lead to centralized scheduling in which schedules for multiple plants
are handled by one scheduler. With increased responsibility for the centralized scheduler,
other associates and planners may interpret it as an increase in power.
Different Performance Metrics - Measurement of individual performance will likely
change. For example, while in the past a scheduler may have been measured on
resource utilization, they may now be measured on the ability to achieve the goals set
forth in the production schedule.
Different Skill Requirements - Skill requirements for the scheduler change, e.g., ability
to manage multiple schedules simultaneously, increased analytical capability, and the
ability to manage more complexity. This may lead to retraining or even a new job grade.
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A Production Scheduling Example
We will now consider a complex example by taking into account work in progress (WIP) and
alternate routes.
Example
A company manufactures two productsProduct A and Product B. It has three machines

Machine 1, Machine 2, and Machine 3.
Product B has only one routeprocess on Machine 3 for 30 minutes and then on
Machine 2 for 30 minutes
Product A has two routes; the primary route is to process on Machine 1 for two hours,
and then on Machine 2 for 90 minutes; the alternate route is to process on machine 3 for
three hours, and then on Machine 2 for one hour
We will assume that there are no materials constraints, set-up times, or changeover
times
The figure shows the routes
The factory is required to complete five units of Product B today, and four units of Product A
today. The only available WIP today is one unit of Product B that has completed processing on
Machine 3. The machines are available during the hours of 8 a.m. and 4 p.m. The company's
goals are to maximize resource utilization and product throughput.
Solution Approach
The following information is required to create a production schedule.
Determine the materials required - The problem states that there are no materials
constraints, but in this case there is one WIP unit of Product B.
Identify the resources required - Machines 1, 2, and 3.
Understand the manufacturing process/routes - In this case, there is a different route
for each product; there is also an alternate route for Product A.
Identify the constraints - The constraints for the machines are the times they are
available (8 a.m. to 4 p.m.).
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Determine when the items are demanded - The schedule of demand for the products is
to complete five units of Product B today, and four units of Product A today.
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A Production Scheduling Example - continued
There are many ways to go about solving this problem. Select the Sample Solution button to
reveal one feasible solution.
Sample Solution
A sample production schedule for each machine and product is shown in the tables (note that we
have used A1, A2, etc., to differentiate between each unit of the product).
Select the Sample Solution Considerations button to reveal how this solution addresses capacity
and materials constraints and achieves production scheduling objectives.
Sample Solution Considerations
Although the problem appears to be relatively simple, the solution procedure is very complex; it
may take several minutes, or sometimes hours, for specialized software to generate a good
solution for the typical company that has several products and resources. For this example, note
the following:
Only four units of Product B are manufactured on Machine 3 because one unit was
already a WIP and was netted out to determine the net requirements for the day.
Schedulers consider cycle time for each machine and unit in developing the schedule.
The capacity constraints are satisfied for each resource.
One unit of Product A is manufactured on the alternate route because not enough
capacity is available on the primary route.
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The goal of maximizing factory utilization is met because all the resources are fully
utilized and are not idle at any time.
The goal of maximizing product throughput is met because after completing the required
number of units for Product A, some additional units of Product A are manufactured, and
they will serve as WIP for the subsequent days.
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Topic Summary

Detailed production schedule
How to manufacture the product (i.e., what
resources will be used, and in what sequence (and time)
the manufacturing operations will be performed)
Business problems addressed Key capabilities

Maximize throughput Schedule production activities
Maximize resource utilization Ability to consider different constraints
Minimize changeover times and costs Evaluate multiple scenarios
Minimize lateness
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Materials Planning
Overview
The materials planning process ensures materials are available at the right time and in the right
factory location to manufacture product. The production schedule is synchronized with the
materials plan and defines the time that each operation on a product is performed, which in turn
defines what materials are needed for operations. The materials plan used during production
planning is therefore more detailed than the materials plan generated during supply planning
(which only defines the day/week on which materials are needed). In contrast, the materials plan
generated during production planning will define the exact time at which the materials are needed
on any given day. Furthermore, the materials plan generated during supply planning considers
only key materials and components, while the materials plan generated during production
planning considers all the required materials.
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Introduction to Materials Planning
The detailed production plan sets forth the time at which product production starts and stops on
each resource. As the product moves from one resource to another, it requires additional
materials. The materials plan lists exactly what material is required for the product at each of the
resources. Many companies conduct materials planning simultaneously with production
scheduling.
The key output of this process is a material requirements plan, which is used to pull materials
from suppliers. The materials plan is thus execution-oriented, just like the production schedule,
and serves to:
Communicate purchase orders to Procurement

Purchase orders serve as the trigger for materials to be moved from the suppliers to the
manufacturing facility.
Generate transfer orders

Transfer orders serve as a signal to move materials from one location to another, e.g., from a
local warehouse to the factory. This is analogous to distribution planning except that this plan is
generated for materials, whereas the distribution plan was generated for finished goods.
Provide suppliers with forward visibility

Such a materials plan usually covers a six to 12 month horizon, with the requirements broken
down into daily buckets, weekly buckets, and monthly buckets. The materials plan that is used to
draw materials from suppliers and warehouses usually has a seven-day horizon.
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Materials Planning - Planning Horizon and Key Capabilities
The materials planning horizon generally depends on the lead-time of materialslonger lead-
time items require a longer planning horizon. A typical company may create their requirements in
daily buckets for two weeks, then weekly buckets for six weeks, and monthly buckets for the
remainder. We will discuss how a company generates requirements for the daily buckets, on
which manufacturers determine what materials to pull from their suppliers. Most organizations
plan for materials based on their daily needs, but some advanced supply chain planning
companies may do so more often.
For effective materials planning, companies must develop key capabilities, including the ability to:
Create a BOM Explosion

The most basic capability for materials planning, a company creates a BOM explosion by taking a
bill of materials (BOM) and decomposing it such that they obtain the total requirements for each
material. They achieve this by netting out inventory-on-hand and expected receipts from demand
(to ensure a supply/demand match).
Consider supplier constraints

Suppliers may have capacity constraints, and a materials plan must be able to consider such
constraints while planning requirements.
Consider lead-time of materials

Generally, there is a lag between the time the company places an order for materials and the time
material becomes available for production; thus, it is imperative that planners consider lead-time
constraints during materials planning.
Manage by exception
No planner can possibly manage each part when there are so many parts included in a plan.
Thus, planners manage by exceptionan exception message is created if the supply for a part
does not meet the requirements. The materials planner will then intervene and resolve the
exception.
way.
Materials Planning - Stakeholders and Business Issues
Procurement is the business function that interacts most closely with materials planning, using
the output from materials planning to purchase materials. They may use the long-term materials
plan to negotiate contracts and terms with suppliers, e.g., establish blanket purchase orders, and
then use the detailed materials plan to pull materials against the blanket purchase orders.
Some of the key business issues that companies attempt to address during materials planning
include the ability to:
Minimize backorders. If material is not available when needed, the company may have
to backorder the product, and consequently not meet current demand. A goal of materials
planning is to ensure materials are available to minimize backorders.
Minimize inventory. While a company can always ensure that sufficient material is
available for production by carrying a large inventory, they incur the associated costs of
doing so. Thus, companies try to carry as little inventory as possible while still meeting
requirements.
Minimize ordering costs. Every time a company places an order for materials, it incurs
some ordering costs (e.g., paperwork and order processing costs). To minimize ordering
costs, a company will strive to place fewer orders, i.e., orders for larger quantities. Thus,
companies constantly grapple with the tradeoff between ordering costs and inventory
costs.
way.
Key Inputs, Outputs, and Considerations
The bill of materials (BOM) explosion is a key concept related to the materials planning process.
Additional considerations include:
Part Substitution
Part Effectivities
o Date Effectivity
o Use-up effectivety
Advanced BOM
o Planning BOM
o As-build BOM
Customer Prioritization
Supply Prioritization
The figure illustrates the key inputs and outputs for materials planning.
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Key Concept - Bill of Materials Explosion
A key concept related to the materials planning process is the bill of materials (BOM) explosion.
Let's look at how a BOM explosion is done.
A company manufactures cookies. Each pack of cookies requires lb of chocolate chips, 2 lbs of
flour, and cup of sugar. Each pound of chocolate chips requires lb of vanilla and lb of
chocolate. Thus, the exploded BOM for a pack of cookies is:
lb of chocolate chips
2 lbs of flour
cup of sugar
lb of vanilla and lb of chocolate (required per pound of chocolate chips)
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Key Outputs - Materials Plan
The materials plan will specify what materials are needed on what days for the factory to
manufacture the required product. This requires a complete BOM explosion, as well as
knowledge of current inventory, expected receipts, and expected demand. Some suppliers
require manufacturers to place orders in minimum quantities (e.g., 100) and also in multiples of
lot sizes (e.g., if a lot size is 50, the order sizes are in multiples of 5050, 100, 150, 200, etc.).
Planners also use these quantities as inputs when developing the materials plan.
Example
The demand for the cookies for each of the next four days is 50, 60, 100, and 80 respectively. By
exploding the BOM, we can determine the quantity needed of each material per day to
manufacture the cookies. This example focuses only on expected demand, and does not
consider beginning inventory or expected receipts.
Materials Plan
Day 1 Day 2 Day 3 Day 4

Cookie Demand 50 60 100 80
Chocolate Chips (in lbs.) 25 30 50 40
Flour (in lbs.) 100 120 200 160
Sugar (in cups) 25 30 50 40
Vanilla 12.5 15 25 20
Chocolate 12.5 15 25 20
way.
Key Outputs - Materials Plan - continued
Materials plans must take into consideration beginning inventory levels and expected receipts, as
well as expected demand. Consider the case of a yogurt manufacturer that is planning its
materials for days three and four (today is day one).
For simplicity, assume that they are only planning materials for six-ounce containers, and
that supplier lead-time is two days (so they must place an order today to receive it in time
for day three).
Also, the supplier specifies a minimum quantity of 75 and lot sizes of 75.
On day three, there are 10 containers in inventory, with expected demand of 205. Based on this
expected demand and existing inventory, the company needs 195 additional containers (i.e., net
material requirements) on day three (as shown below).
Current Material Inventory Position

Product Demand 100 130 205 130
Beginning Inventory 15 65 10
Net Requirements 85 65 195
Expected Receipts 150 75
Because of the lot size restrictions, they cannot order 195 exactly but must order in multiples of
75 (75, 150, 225, etc.). Click on the Materials Plan button to view the adjusted materials plan and
related purchase order recommendations.
Materials Plan

Product Demand 100 130 205 130
Beginning Inventory 15 65 10 30
Net Requirements 85 65 195 100
Expected Receipts 150 75 225 150
Final Inventory 65 10 30 50
Minimum Quantity 75
Lot Size 75
Purchase Order 225 150
way.
Inputs for Materials Planning
There are several inputs for materials planning that can be classified into three typesdemand
inputs, supply inputs, and static inputs (inputs that seldom change).
Demand Inputs
Customer Orders
Customer orders are given top scheduling priority to ensure that due dates are met.
Production Schedule
Daily manufacturing requirements are used to determine the total material requirements.
Master Production Schedule

Longer-term material requirements are derived from the master production schedule.
Demand Plan
Long-term material requirements are derived from the long-range demand plan.
Supply Inputs
On-hand Inventory
Currently available inventory of materials. This information is used to determine the net
Supplier Inventory
Inventory of materials currently available at the suppliers.
Scheduled Receipts
Inventory of materials that has already been shipped and is en route to the appropriate
locations. This information is used to determine the net material requirements.
WIP
Work that has already started and is partially completed. The WIP may be used during the
calculation of net material requirements.
Purchase Orders
Orders placed so that materials will arrive in time for production.
Supplier Capacity Constraints

Supplier capacity constraints for each material they supply.
Static Inputs
Items
Goods planned for production that have bills of materials associated with them.
BOM
Detailed bill of material that is used to explode finished goods requirements into detailed
Supplier Lead-times
The time between placing an order with a supplier and receiving it so that it is available for
way.
manufacturing.
Minimum Quantities
The minimum quantity in which an order must be placed with a supplier.
Lot Sizes
Multiples in which orders must be placed with suppliers, e.g., if lot size is 75, then the orders
must be in multiples of 75 (75, 150, 225, 300, etc.).
way.
Additional Considerations
In developing materials plans, companies may also take into account additional considerations,
such as:
Part Substitution
Use of an alternate part, or substitute part, when a primary part is not available.
Part Effectivities
A company may choose to terminate the usage of one part and use a different part instead; they
can accomplish this in various ways, including:
Date Effectivity - After a predetermined date, the original part is replaced with a different
part. For example, if the date effectivity of component A is May 16, then component A will
no longer be used after May 16 (even if the company still has existing inventory of
component A).
Use-up Effectivity - The original part is replaced with a different part after all the current
inventory of the original part is used up. For example, if component A is affected by use-
up effectivity, when the entire current inventory for component A is used up, it will no
longer be used and will be replaced by a different part.
Advanced BOM
There may be many different types of bills of material that could be used for different purposes:
Planning BOM - A company uses such BOMs during long-range planning. Planning
BOMs usually do not specify each part that is required to build an item, but are limited to
parts (materials) that need to be planned early, e.g., parts with long lead-times.
As-build BOM - The most detailed level of the BOM; the As-build BOM lists in great
detail every part that is required to manufacture an item, including routing information.
Customer Prioritization
Some customers are more important than others, and companies go to great lengths to satisfy
this customer base, and meet delivery dates, by developing production schedules that
accomplish this even if it means slippage in delivery dates to some other customers.
Supply Prioritization
A company may have multiple sources of supply for certain raw materials, or sub-assemblies and
components, and they will typically specify the primary source and a secondary source of supply
for each of these items. They will use secondary sources only if the primary source is unable to
meet requirements.
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Organizational Implications
Use of the materials planning process usually involves implementation of supply chain planning
software. This leads to several organization changes within the company:
Centralized Planning
Use of an integrated materials planning process usually means that there is one planner who
plans the material requirements globally and communicates those to the suppliers as well as
within the organization. Previously, there may have been several planners/buyers who were each
responsible for materials planning for a product, region, or division. Centralized planning changes
that balance of power and shifts it to the centralized planner. This could also lead to
organizational realignment.
Change in Performance Metrics

Individual performance measurement may change. In the past, for example, a materials planner
may have been measured on meeting material requirements on products for which he was
responsible, or on minimizing inventory levels at the plants for which he was responsible. Now,
the same individual may be measured on his ability to ensure that sufficient material is available
for manufacturing finished goods across the entire network.
Change in Skill Requirements

Skill requirements for the materials planner change. For example, the materials planner now
requires the ability to simultaneously handle multiple parts, regions, and divisions. This skill
requires increased analytical capability and the ability to manage more complexity. This may lead
to retraining or even a new job grade.
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A Materials Planning Example
We will now consider a complex materials planning example by taking into account substitute
parts and date effectivities.
A motorcycle manufacturer has forecasted demand as reflected in the table.
Demand
12-May 13-May 14-May 15-May 16-May 17-May
Number of motorcycles 100 80 80 85 130
Date Effectivity Case Details
The manufacturer uses one gear assembly (GA1) per motorcycle. However, their supplier has
developed a modification for GA1 in which a new assembly (GA2) will replace GA1 effective May
15. The supplier has suggested a lot size of 25 for GA2 (so orders have to be in multiples of 25
25, 50, 75, 100, etc.). The lot size for GA1 is 35. The motorcycle manufacturer has decided to
carry a safety stock of 15 GA2 to account for possible manufacturing mishaps (on their supplier's
part). The order lead-time is one day for GA1 and two days for GA2.
The manufacturer needs to create a feasible materials plan for GA1 and GA2 from May 12
through May 17.
way.
A Materials Planning Example - continued
The following is a feasible materials plan for GA1 and GA2 for May 12 through May 17. Due to
the date effectivity on GA1, it will be replaced by GA2 on May 15. GA1 is no longer used after
May 14 even though there are five units still in inventory.

GA1 Beginning Inventory 10 15
Order 105 70
Expected Receipts 105 70
Ending Inventory 15 5
GA2 Beginning Inventory 0 0 15
Order 75 100 125

Expected Receipts 75 100 125
Ending Inventory 0 15 10
way.
Substitute Parts Case Details
The motorcycle manufacturer also uses fuel injectors (F1); the order lead-time for F1 is one day.
The primary supplier for fuel injectors has the F1 Capacity as shown in the table.
F1 Capacity

F1 Capacity 85 85 85 85 85
Fortunately, there is an alternate part available for F1 (named F2) from the same supplier. If F1 is
unavailable, then F2 can be substituted for F1 (as reflected in the F2 Capacity table).
F2 Capacity

F1 Capacity 85 85 85 85 85
F2 Capacity 15 15 15 15 15
The manufacturer needs to create a material plan for F1 and F2 from May 12 through May 17.
way.
Considering the availability of F1 and substitute part F2, this solution highlights the materials plan
for F1 and F2 from May 12 through May 17.
F1 Capacity 85 85 85 85 85
F2 Capacity 15 15 15 15 15
F1 Beginning of Inventory 0 0 5 15 15
Order 85 85 85 85 85
Expected Receipts 85 85 85 85 85
Expected Inventory 0 5 15 15
F2 Beginning Inventory 0 0 0 0 15
Order 15 0 15 15
Expected Receipts 15 0 15 15
Ending Inventory 0 0 15 0
way.
Topic Summary

Materials plan
What materials will be required to meet the
manufacturing requirements
Business problems addressed Key capabilities

Minimize backorders BOM explosion
Minimize inventory Ability to consider supplier constraints
Minimize ordering costs Ability to consider lead-time of materials
Manage by exception
Communicate purchase orders to purchasing
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Metrics for Production Planning
Overview
Companies monitor the "health" of their supply planning processes using a variety of metrics,
including:
Metrics to ensure process is being followed

Metrics used to measure supply chain effectiveness
An organization that implements and uses an effective production planning process can provide
capabilities that, together with effective procurement, manufacturing, and fulfillment functions,
increase shareholder value.
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Production Planning Process Control
The goal of supply chain planning is for individuals within organizations to trust and use the
process-generated plans to minimize the number of manual changes to those plans. This ensures
that an organization can maximize the value of their investment in supply chain initiatives.
Thus, companies use the number of manual overrides as a crucial metric to monitor whether
they have sufficient control of the planning processes. This metric measures the number of
occurrences in which plans have been manually revised, and identifies the level of intervention in
the planning process.
A high level of intervention may indicate that there are process, organizational, or training issues
that need to be resolved.
way.
Production Planning Effectiveness Oriented Metrics
Companies engage in production planning processes to improve their supply chain effectiveness,
and they can track a variety of effectiveness-oriented metrics, including:
Schedule Adherence
The percentage of time a company adheres to the established schedule during the week (i.e.,
producing the correct items in the right quantity on the day scheduled). Changing production to a
different day (later in week) might result in lost sales since product may not be available when
customers want it. Companies seek to maximize their ability to complete all production in the
correct volumes at the correct times, within the specified week.
Capacity Utilization
The percentage of a factory's capacity utilized during a period. Low capacity utilization suggests
that the company has excess capacity to meet customer requirements, while high capacity
utilization suggests that the company may occasionally not have sufficient capacity to meet
customer requirements. This is reported as a percent of total available capacity.
Inventory Turns
The number of times that inventory turns over during the year. An organizational objective is to
maximize the frequency of inventory turns per year to promote the release of working capital to
the business.
Number of Stock-outs
The number of times a company is out of stock on items ordered by customers. Companies seek
to minimize this number because it correlates to customer service level measurement.
Order Lead-time
The average time it takes a company to deliver an order once the order has been received. This
enables organizations to measure "lead-time to customer delivery" performance against their own
targets as well as other industry benchmarks. Companies seek to minimize the number of days it
takes to deliver the requested quantities to customers once the order has been placed.
Furthermore, customers may have pre-scheduled delivery days that will impact the order delivery
date. Some customers also place orders weeks in advance, which may further distort this metric.
Delivery in Full
The percentage of all orders for which the quantity and lines ordered have been delivered in full,
on first delivery, as a proportion of total orders. This shows how often an order is 100 percent
right upon delivery, and how often a company "misses" (even if the miss is one unit per order).
Companies seek to maximize the proportion of orders that are delivered completely to order
quantity. The percentage of orders delivered in full decreases when product is not available to fill
customer orders or when product is not delivered as per the customer orders.
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Production Planning Influences on Shareholder Value
Companies seek to ensure product availability and high service levels for their customers, while
simultaneously maintaining low inventory levels. Production planning processes seek to ensure
machines and materials are available for production when needed. Furthermore, production
planning processes are used to maximize asset utilization and throughput. This eventually leads
to an increased number of inventory turns and reduced inventory-carrying costs. To maintain low
inventory levels, companies strive to manufacture product as close to the dates needed without
using any manufacturing overtime and without expediting materials from suppliers.
More accurate production schedules and timely materials availability also leads to increased
product availability for customers. This increases service levels to the customers. In addition, it
results in lower costs to fulfill customer orders because fewer customer orders need to be
expedited, and most orders can be shipped accurately and completely. Furthermore, less
expediting also leads to reduced manufacturing and distribution overtime, as well as reduced
FTEs in the supply chain management function.
way.
Topic Summary
Companies monitor the "health" of their supply chains using a wide variety of metrics. Two such
metrics are metrics to ensure process is followed and metrics to measure supply chain planning
effectiveness. Companies achieve benefits from improved production planning, including
increased schedule adherence, increased capacity utilization, increased number of inventory
turns, reductions in order lead-time, and an increase in orders delivered in full. These benefits
ultimately translate into increased shareholder value.
way.
A Production Planning Case Study
A cookie manufacturer makes many different types of cookies. It has several bakeries across the
world, but uses some common raw materials for making the cookies, e.g., flour, oats, butter,
chocolate chips, peanut butter, etc. For illustrative purposes, we will look at the production
schedule for one of its bakeries. The bakery bakes two types of cookieschocolate chip and
peanut butter. The chocolate chip cookies are baked at 275 degrees F for one hour, and the
peanut butter cookies are baked at 350 degrees F for one hour. The bakery only has one oven for
baking cookies. If the oven is already set at 275 degrees, it requires another 15 minutes to heat
up to 350 degrees, whereas if it is at 350 degrees, it takes 45 minutes for it to cool down to 275
degrees (both of these times are analogous to changeover times).
The bakery is constrained by the following: The "due time" for each of type of cookie is
different as shown in the cookie delivery
A maximum of 1,500 chocolate chip schedule below.
cookies can be baked at one time
A maximum of 1,000 peanut butter Quality Due Time
cookies can be baked at one time Chocolate Chip 1,000 10 a.m.
1,000 12 noon
The baker (and hence the oven)
1,000 2 p.m.
only works from 7 a.m. to 3:30 p.m.
Peanut Butter 2,000 11 a.m.
The company needs to produce 3,000 4 p.m.
3,000 chocolate chip cookies (CC)
and 5,000 peanut butter (PB)
cookies
way.
A Production Planning Case Study - continued
There are many ways to go about determining a feasible production schedule. One approach is
trial and errortry a sequence of activities and determine if the resulting sequence satisfies all
the constraints. If it does, you have a solution. If it does not, you then must modify some aspect of
the sequence, and try again until you reach a feasible solution.
Determine which of the following sequences provides a feasible production schedule. Be sure to
consider the Cookie Delivery Schedule and Capacity Constraints. Click the button below to
review the schedule and constraints.
Schedule and Constraints
Cookie Delivery Schedule Capacity Constraints
Quality Due Time Only one oven is available from 7 a.m. to 3:30 p.m. The
Chocolate Chip 1,000 10 a.m. set-up time to change the temperature from 275 degrees
to 350 degrees is 15 minutes, while the set-up time to
1,000 12 noon
change the temperature from 350 degrees to 275 degrees
1,000 2 p.m. is 45 minutes. The company can bake a maximum of
Peanut Butter 2,000 11 a.m. 1,500 CC cookies or 1,000 PB cookies at one time.
3,000 4 p.m.
Sequence A Sequence B Sequence C

1. Bake 1,500 Chocolate 1. Bake 1,500 Chocolate 1. Bake 1,000 Peanut
Chip Cookies Chip Cookies Butter Cookies
2. Bake 1,500 Chocolate 2. Heat Oven to 350 2. Cool Oven to 275
Chip Cookies degrees degrees
3. Heat Oven to 350 3. Bake 1,000 Peanut 3. Bake 1,500 Chocolate
degrees Butter Cookies Chip Cookies
4. Bake 1,000 Peanut 4. Bake 1,000 Peanut 4. Bake 1,500 Chocolate
Butter Cookies Butter Cookies Chip Cookies
5. Bake 1,000 Peanut 5. Cool Oven to 275 5. Heat Oven to 350
Butter Cookies degrees degrees
6. Bake 1,000 Peanut 6. Bake 1,500 Chocolate 6. Bake 1,000 Peanut
Butter Cookies Chip Cookies Butter Cookies
7. Bake 1,000 Peanut 7. Heat Oven to 350 7. Bake 1,000 Peanut
Butter Cookies degrees Butter Cookies
8. Bake 1,000 Peanut 8. Bake 1,000 Peanut 8. Bake 1,000 Peanut
Butter Cookies Butter Cookies Butter Cookies
9. Bake 1,000 Peanut 9. Bake 1,000 Peanut
Butter Cookies Butter Cookies
10. Bake 1,000 Peanut
Butter Cookies
Production Schedule Solution
way.
way.
Global Material Requirements
While there are many materials required for baking the cookies, we will concentrate on flour only.
For each cookie, one gram of flour is required. Thus, the bakery needs 8,000 grams of flour for
the day (to produce a total of 8,000 cookies).
The planner runs the requirements for all the bakeries across the world (assume the company
has bakeries in Asia, Australia, Europe, and North America), and determines the total flour
requirements by region for the next five days. The planner then communicates the requirements
to all the suppliers in each region, as well as internally within the organization.
Day 1 Day 2 Day 3 Day 4 Day 5

Flour Required (in Kg) 32,000 33,000 31,000 35,000 29,000
Asia 6,000 7,000 5,000 7,000 7,000
Australia 8,000 9,000 8,000 7,000 8,000
Europe 8,500 9,000 9,500 9,000 9,000
North America 9,500 8,000 8,500 12,000 5,000
way.
Change in Forecast
During the day, the planner receives an update on the forecast and notes that the demand for
cookies has increased substantially in Asia from day five onwards (for day 5, the requirements
have changed from 7,000 kg of flour to 10,000 kg of flour). By quickly determining the additional
quantities needed in Asia, the planner updates the material requirements and communicates
them internally, as well as to the supplier.
Day 1 Day 2 Day 3 Day 4 Day 5

Flour Required (in Kg) 32,000 33,000 31,000 35,000 32,000
Asia 6,000 7,000 5,000 7,000 10,000
Australia 8,000 9,000 8,000 7,000 8,000
Europe 8,500 9,000 9,500 9,000 9,000
North America 9,500 8,000 8,500 12,000 5,000
way.
Resolving Material Availability Exceptions Using Secondary Supplier
Unfortunately, Procurement informs the planner that the supplier has just informed them of a
labor strike in the mill, and will not be able to commit to the additional quantities that are required.
Procurement has contracted with a secondary supplier who will supply the required quantities but
at a slightly higher price. Procurement also informs the planner of the delivery schedule of the
material.
The planner updates this information and generates a revised production schedule for the
bakeries in Asia.
way.
Resolving Manufacturing Capacity Constraints
To further hinder production, the planner is told that one of the ovens in a bakery in Australia has
broken down and will require at least 24 hours to be repaired. The planner quickly updates this
information and generates a new production schedule for the Australian bakery. Unfortunately,
the bakery does not have sufficient capacity to meet the requirements. However, one of the Asian
bakeries has excess capacity available. The planner then shifts some of the production to the
Asian bakery (while ensuring that enough materials will be available) and generates a revised
production schedule for the affected bakeries.
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Conclusion
Module Summary
Companies plan how to manufacture product during the production planning process. Production
planning is comprised of the production schedule and the materials plan, and is limited by
constraints, including capacity and materials constraints.
Planning emphasis on different production planning components varies by industry. While

production scheduling is very important to the semiconductor industry, materials planning is
critical in the computer industry. The production scheduling process is used by companies to
drive production on the factory floor. A detailed production schedule determines the resources
required (labor and machines) and the sequence (time frame) of the manufacturing operations.
Planners must consider capacity and materials constraints as well as alternate product routes,
and customer and supply prioritization. The goal is to minimize late (or early) orders, and
maximize throughput and utilization of factory resources while balancing the load on that resource.
The materials plan developed during materials planning is a detailed schedule that defines the
exact time at which materials are needed on any given day. Planners consider supplier
constraints, along with part substitutions, part effectivities, and customer and supply prioritizations.
The goal is to minimize backorders, inventory, and ordering costs during materials planning.
Organizational implications of production planning include centralized, team-based decisions, as

well as a change in performance metrics and an increase in job complexity for the planning role.
Companies use metrics to ensure the process is followed and to measure production planning
effectiveness. The benefits of production planning ultimately translate into increased shareholder
value.
way.

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Supply Chain Planning: Production Planning

The primary business issues addressed by production planning include:

What to do with the information generated

After completing this module, you should be able to:

Production planning consists of the following two components:

The semiconductor industry is a capacity constrained industry. In addition, very few

Maximizing product throughput

Inaccurate due date promises

Industry Sector Production Planning

The semiconductor industry thus tends to focus on production scheduling.

High fluctuations in demand

Increasing customer demand for customized products

Industry Production Planning

The computer industry thus tends to focus on materials planning.

High Number of Parts

Collaboration with Suppliers

Industry Sector Production Planning

Automotive Balance assembly line

What is it? Key output

Sample business problems addressed Key capabilities

In a typical organization, a manufacturing facility (factory) is capable of manufacturing multiple

Schedule production activities

Consider different constraints

Evaluate multiple scenarios

Maximize resource utilization

Minimize changeover times and costs

A key concept related to production scheduling is the concept of production scheduling

Shortest process time

Additional considerations include:

Quantity Due Time

The following information is required to create a solution:

Sequence A Sequence B Sequence C

Schedule and Constraints

Cookie Delivery Schedule Capacity Constraints

Production Schedule Solution

Shortest Process Time

Earliest Due Date

Minimum Total Manufacturing Time

Work in Process (WIP)

Business Objectives - In addition to maximizing product throughput and resource

Decreased Number of Schedulers - The use of advanced software usually leads to a

A company manufactures two productsProduct A and Product B. It has three machines

The following information is required to create a production schedule.

Sample Solution Considerations

What is it? Key output

Business problems addressed Key capabilities

Communicate purchase orders to Procurement

Generate transfer orders

Provide suppliers with forward visibility

Create a BOM Explosion

Consider supplier constraints

Consider lead-time of materials

Additional considerations include:

Day 1 Day 2 Day 3 Day 4

Current Material Inventory Position

Day 1 Day 2 Day 3 Day 4

Purchase Order 225 150

Master Production Schedule

Supplier Capacity Constraints

Change in Performance Metrics

Change in Skill Requirements

A motorcycle manufacturer has forecasted demand as reflected in the table.

Date Effectivity Case Details