The production plan of the enterprise. Production planning methods

INTRODUCTION

This chapter introduces the reader to the production planning and control system. First, we will talk about the system as a whole, then we will talk in more detail about some aspects of production planning. The following chapters cover master production scheduling, resource planning, performance management, production control, purchasing, and forecasting.

Production is a complex task. Some firms produce a limited number of products, others offer a wide range. But each enterprise uses different processes, mechanisms, equipment, labor skills and materials. To make a profit, a company must organize all these factors in such a way as to produce the right goods of the highest quality at the right time at the lowest cost. This is a complex issue and will require an effective system of planning and control.

A good planning system should answer four questions:

1. What are we going to produce?

2. What do we need for this?

3. What do we have?

4. What else do we need?

These are questions of priority and performance.

A priority is what items are needed, how many are needed, and when they are needed. Priorities are set by the market. It is the responsibility of the production department to develop plans to meet market demand as far as possible.

Performance is the ability of production to produce goods and services. Ultimately, it depends on the company's resources - equipment, labor and financial resources, as well as the ability to obtain materials from suppliers in a timely manner. In a short period of time, productivity (production capacity) is the amount of work that can be completed with the help of labor and equipment in a certain period of time.

There should be a relationship between priority and performance, shown graphically in Figure 2. 1.

Figure 2.1 Relationship between priority and performance.

Over the short and long term, the production department must develop plans to balance market demand with available production resources, inventory, and productivity. When making long-term decisions, such as building new plants or purchasing new equipment, plans need to be made several years in advance. When planning production for the next few weeks, the considered period of time is measured in days or weeks. This planning hierarchy, from long-term to short-term, will be discussed in the next section.

PRODUCTION PLANNING AND CONTROL SYSTEM

The production planning and control (MPC) system consists of five main levels:

• Strategic business plan;
• Production plan (sales and operations plan);
• Master production schedule;
• Resource requirement plan;
• Procurement and control over production activities.

Each level has its own task, duration and level of detail. As one moves from strategic planning to control of production activities, the task changes from defining a general direction to specific detailed planning, the duration decreases from years to days, and the level of detail increases from general categories to individual conveyors and pieces of equipment.

Since each level has its own duration and tasks, the following aspects also differ:

• Purpose of the plan;
• Planning horizon - the period of time from the current moment to a particular day in the future, for which the plan is designed;
• Level of detail - detailing of the products necessary for the implementation of the plan;
• The planning cycle is the frequency with which the plan is revised.

At each level, three questions must be answered:

1. What are the priorities – what needs to be produced, how much and when?

2. What production facilities do we have at our disposal – what resources do we have??

3. How can mismatches between priorities and performance be resolved?

Figure 2.2 illustrates the planning hierarchy. The first four levels are planning levels. . The result of the plans is to initiate the purchase or manufacture of what is needed.

The last level is the implementation of plans through the control of production activities and purchases.

Figure 2.2 Production planning and control system.

In the following sections, we'll look at the goal, horizon, level of detail, and cycle at each level of planning.

Strategic business plan

A strategic business plan is a statement of the main goals and objectives that the company expects to achieve in a period of two to ten years or longer. It is a statement of the overall direction of the firm that describes the type of business the firm wants to do in the future—product lines, markets, and so on. The plan provides a general idea of ​​how the firm intends to achieve these goals. It is based on long-term forecasts and the marketing, financial, production and technical departments are involved in its development. In turn, this plan sets the direction and coordinates the marketing, production, financial and technical plans.

Marketing specialists analyze the market and make decisions regarding the company's actions in the current situation: determine the markets in which work will be carried out, the products that will be supplied, the required level of customer service, pricing policy, promotion strategy, etc.

The finance department decides from what sources to receive and how to use the company's available funds, cash flow, profits, return on investment, as well as budgetary funds.

Production must meet market demand. To do this, it uses units, mechanisms, equipment, labor and materials as efficiently as possible.

The technical department is responsible for the research, development and design of new products and the improvement of existing ones.

Technicians work closely with the marketing and manufacturing departments to design products that will sell well in the market and that can be manufactured at the lowest possible cost.

The development of a strategic business plan is the responsibility of the management of the enterprise. Based on the information received from the marketing, finance and production departments, the strategic business plan determines the general scheme, in accordance with which the goals and objectives of further planning in the marketing, financial, technical and production departments are set. Each department develops its own plan for fulfilling the tasks set by the strategic business plan. These plans are aligned with each other, as well as with the strategic business plan. This relationship is illustrated in Fig. 2. 3.

The level of detail of the strategic business plan is low. This plan addresses the general requirements of the market and production - for example, the market as a whole for major product groups - and not the sale of individual products. Often it contains indicators in dollars, not in units.

Strategic business plans are usually reviewed semi-annually or annually.

Production plan

Based on the tasks set in the strategic business plan, the management of the production department makes decisions on the following issues:

• The number of products in each group that is required to be produced in each period of time;
• Desirable level of inventories;
• Equipment, labor and materials needed in each period of time;
• Availability of the necessary resources.

The level of detail is low. For example, if a company produces various models of children's two-wheelers, tricycles and scooters, and each model has many options, then the production plan will reflect the main groups, or families, of products: two-wheeled bicycles, tricycles, scooters.

Specialists must develop a production plan that would satisfy market demand, while not going beyond the resources available to the company.

Figure 2.3 Business plan.

This will require determining what resources are needed to meet market demand, comparing them with available resources, and developing a plan that aligns one with the other.

This process of determining the required resources and comparing them with the available resources is carried out at each level of planning and is a task of performance management. Effective planning requires a balance between priorities and performance.

Along with the marketing and financial plan, the production plan affects the implementation of the strategic business plan.

The planning horizon is usually six to 18 months, and the plan is reviewed monthly or quarterly.

Master production schedule

The master production schedule (MPS) is the schedule for the production of individual end products. It provides a breakdown of the production plan, reflecting the number of final products of each type that is required to be produced in each period of time. For example, this plan might state that 200 model A23 scooters need to be produced every week. The production plan, forecasts for individual end products, purchase orders, inventory information, and existing productivity information are used as input to MPS development.

The level of detail of the MPS is higher than that of the production plan. While the production plan is based on product families (tricycles), the master production schedule is developed for individual end products (for example, each model of tricycles). The planning horizon can be from three to 18 months, but above all it depends on the duration of the procurement processes or the production itself. We'll talk about this in Chapter 3, in the section on master production scheduling. The term master scheduling refers to the process of developing a master production schedule.

The term master production schedule refers to the end result of this process. Plans are usually reviewed and changed weekly or monthly.

Resource requirement plan

A resource requirement plan (MRP)* is a plan for the production and purchase of components that are used in the manufacture of the items specified in the master production schedule.

It indicates the required quantities and terms of the proposed production or use in production. Purchasing and production control departments use MRP to make decisions about initiating purchases or manufacturing a particular product range.

The level of detail is high. The resource requirement plan indicates when raw materials, materials, and components will be needed to produce each end product.

The planning horizon must be at least the total duration of the procurement and production processes. As with the master production schedule, it ranges from three to 18 months.

Purchasing and control over production activities

Figure 2.4 Relationship between level of detail and planning horizon.

Purchasing and Production Control (PAC) is the implementation and control phase of a production planning and control system. The procurement process is responsible for organizing and controlling the flow of raw materials, materials and components to the enterprise. Control over production activities is the planning of the sequence of technological operations in the enterprise and control over it.

The planning horizon is very short, from about a day to a month. The level of detail is high as we are talking about specific assembly lines, equipment and orders. Plans are reviewed and changed daily.

On fig. 2. 4 shows the relationship between different planning tools, planning horizons and levels of detail.

In subsequent chapters, we will take a closer look at the levels discussed in the previous sections. This chapter is about production planning. Next, we'll talk about master scheduling, resource planning, and production control.

performance management

At each level of the production planning and control system, it is necessary to check the compliance of the priority plan with the available resources and the productivity of production facilities. Chapter 5 describes performance management in more detail. For now, it is enough to understand that the basic process of managing the production and resources of an enterprise includes calculating the productivity required for production in accordance with the priority plan, and finding methods to achieve this productivity. Without this, there can be no efficient, workable production plan. If the desired performance cannot be achieved at the right time, the plan needs to be changed.

Determining the desired performance, comparing it with the available performance and making adjustments (or changing plans) should be carried out at all levels of the production planning and control system.

Once every few years, mechanisms, equipment and units can be put into operation or stop working. However, during the periods considered at the stages from production planning to control over production activities, changes of this kind cannot be made. During these time intervals, you can change the number of shifts, the order of overtime work, the transfer of subcontracting to work, and so on.

SALES AND OPERATIONS PLANNING (SOP)

The strategic business plan brings together the plans of all departments of the organization and is updated, as a rule, annually. However, these plans should be updated from time to time to reflect fresh forecasts and recent market and economic developments. Sales and operations planning (SOP) is a process designed to continually review the strategic business plan and coordinate the plans of various departments. The SOP is a cross-functional business plan covering sales and marketing, product development, operations, and enterprise management. Operations represent supply and marketing represents demand. . The SOP is the forum where the production plan is developed.

The strategic business plan is updated annually, and sales and operations planning is a dynamic process in which the company's plans are adjusted regularly, usually at least once a month. The process begins in the sales and marketing departments, who compare actual demand with sales targets, assess market potential, and forecast future demand. The revised marketing plan is then passed on to the production, technical and financial departments, who amend their plans in accordance with the revised marketing plan. If these departments decide they can't deliver on the new marketing plan, it needs to be changed.

Thus, throughout the year, the strategic business plan is constantly reviewed and the coordination of actions of various departments is ensured. On fig. 2.5 shows the relationship between the strategic business plan and the sales and operations plan.

Sales and operations planning is designed for medium duration and includes a marketing, production, technical and financial plan. Sales and operations planning has a number of advantages:

• It serves as a means of adjusting the strategic business plan to reflect changing conditions.
• It serves as a change management tool. Instead of reacting to changes in the market or the economy after they happen, executives use SOPs to review the economic situation at least once a month and are in a better position to plan for change.
• Planning ensures that the plans of the various departments are realistic, consistent, and consistent with the business plan.
• It allows you to develop a realistic plan to achieve the goals of the company.
• It allows you to more effectively manage production, inventories and financing.

MANUFACTURING RESOURCE PLANNING (MRP II)

Due to the large amount of data and many calculations required, the production planning and control system will probably need to be computerized. If you do not use a computer, you will have to spend too much time and effort on manual calculations, and the efficiency of the company will be compromised. Instead of scheduling needs at every stage of the planning system, a company may be forced to extend deadlines and build inventories to compensate for not being able to quickly plan what is needed and when.

Figure 2.5 Sales and operations planning.

It is supposed to be a fully integrated planning and control system, operating from the top down with feedback coming from the bottom up. Strategic business planning integrates the plans and actions of the marketing, finance, and operations departments to develop plans designed to achieve the company's overall goals.

In turn, master production scheduling, resource requirements planning, production control and purchasing are aimed at achieving the goals of the production plan and the strategic business plan and, ultimately, the company. If, due to performance issues, it becomes necessary to adjust the priority plan at any planning level, the changes made should be reflected at the above levels. Thus, feedback must be provided everywhere in the system.

The strategic business plan combines the plans of the marketing, financial and production divisions. The marketing department must recognize its plans as realistic and feasible.

The finance department must agree that the plans are financially attractive, and production must demonstrate the ability to meet the corresponding demand. As we have already said, the production planning and control system determines the general strategy for all departments of the company. This fully integrated planning and control system is called production resource planning system, or MRP II . The concept of “MRP II” is used to denote the difference between the “ production resource plan" ((MRP II) from the "resource requirement plan"((MRP). MRP II ensures the coordination of marketing and production.

The marketing, finance, and production departments agree on a common, workable plan expressed in a production plan. The marketing and production departments must interact weekly and daily to adjust the plan to reflect ongoing changes. It may be necessary to change the size of the order, cancel the order, or approve a suitable delivery date. Changes of this kind are carried out within the framework of the general calendar plan of production. Marketing and production managers can change master production schedules to reflect changes in forecasted demand. The management of the enterprise can change the production plan in accordance with general changes in demand or the situation with resources. However, all employees work within the framework of the MRP II system. It serves as a mechanism for coordinating the work of the marketing, financial, production and other departments of the company. MRP II is a method for efficient planning of all resources of a manufacturing enterprise.

The MRP II system is shown schematically in fig. 2. 6. Pay attention to existing feedback loops.

Figure 2.6 Manufacturing Resource Planning (MRP II).

ENTERPRISE RESOURCE PLANNING (ERP)

The ERP system is similar to the MRP II system, but it is not limited to manufacturing. The entire enterprise as a whole is taken into account. The ninth edition of the APICS Dictionary by the American Association for Production and Inventory Control (APICS) defines ERP as a reporting information system for identifying and planning an enterprise—the global resources needed to produce, transport, and report on customer orders. For full operation, there must be applications for planning, scheduling, costing, and so on at all levels of the organization, in work centers, departments, divisions, and all of them together.

It is important to note that ERP covers the entire company, while MRP II refers to production.

DEVELOPMENT OF THE PRODUCTION PLAN

We briefly reviewed the purpose, planning horizon, and level of detail of the production plan. In this section, we will talk more about the development of production plans.

Based on the marketing plan and available resources, the production plan sets limits or levels of production activity at some point in the future. It integrates enterprise capabilities and performance with marketing and financial plans to achieve the company's overall business goals.

The production plan establishes the general levels of production and inventories for the period corresponding to the planning horizon. The primary goal is to determine the production standards that will allow you to achieve the goals set in the strategic business plan. These include inventory levels, backlog (customer backorders), market demand, customer service, low cost equipment maintenance, labor relations, and so on. The plan should cover a period long enough to provide for the manpower, equipment, facilities and materials required to carry it out. Usually this period is from 6 to 18 months and is broken down by months, and sometimes by weeks.

The planning process at this level does not take into account details such as individual products, colors, styles or options. Since the time horizon is long and demand cannot be predicted with certainty over such a period, such detailing would be inaccurate and useless, and the development of a plan would be too costly. Planning only requires a common unit of product or several groups of products.

Definition of product groups

Firms that produce a single product or a range of similar products can measure output directly as the number of units they produce. For example, a brewery might use kegs of beer as a common denominator.

However, many companies produce several different types of products and it may be difficult or impossible for them to find a common denominator to measure total output. In this case, you need to enter product groups. While marketers naturally view products from the customer's point of view based on their functionality and application, the manufacturing department categorizes products based on processes. Thus, the firm must define product groups based on the similarity of manufacturing processes.

The production department must provide sufficient productivity to produce the required products. It is more concerned with the demand for specific types of productivity resources required for the production of products than with the demand for the products themselves.

Productivity is the ability to produce goods and services. This term refers to the availability of resources necessary to meet demand. In the time span to which the production plan refers, productivity can be expressed as the time available, or sometimes as the number of units that can be produced in that time, or the dollars that can be obtained. The demand for goods needs to be converted into a demand for productivity. At the level of production planning, where fine detail is required, this requires groups, or families of products, based on the similarity of production processes. For example, the production of several models of calculators may require the same processes and the same throughput regardless of differences between models. These calculators will belong to the same product family.

In the period of time to which the production plan relates, it is usually impossible to make major changes in productivity. During this period, it is impossible or very difficult to make additions to or decommission plant and equipment components. However, some things can be changed, and it is the responsibility of production management to identify and evaluate these opportunities. The following changes are usually allowed:

• You can hire and fire employees, introduce overtime and reduced working hours, increase or reduce the number of shifts.
• During a downturn in business activity, you can create inventories, and with increased demand, sell or use them.
• You can outsource work to subcontractors or rent additional equipment. Each option has its own benefits and costs. Production managers must find the cheapest option that would meet the goals and objectives of the business. Basic Strategies So, the problem of production planning has, as a rule, the following characteristics:
• A planning horizon of 12 months is applied, with periodic updates, such as monthly or quarterly.
• A production demand consists of one or more product families or common units.
• There are fluctuations or seasonal changes in demand
• In the period provided for by the planning horizon, the workshops and equipment do not change.
• Management faces various challenges, such as keeping inventories low, efficient operation of production facilities, high levels of customer service and good working relationships.

Suppose the predicted demand for a certain group of products is displayed in Fig. 2. 7. Please note that the demand is seasonal.

Three basic strategies can be used when developing a production plan:

1. Pursuit strategy;

2. Uniform production;

3. Subcontract. Pursuit (Demand Satisfaction) Strategy. Pursuing strategy refers to the production of the volume required at the moment. The level of inventories remains the same, and the volume of production changes in accordance with the level of demand. This strategy is shown in Fig. 2.8.

Figure 2.7 Hypothetical demand curve.

Figure 2.8 Demand Satisfaction Strategy.

The company produces the volume of products, which is just enough to meet the demand at a given time. In some industries it is possible to use only this strategy. For example, farmers must produce during the period when it is possible to grow it. Post offices have to process letters during the busy period before Christmas and during the calm periods. Restaurants are required to serve dishes when customers order them. Such enterprises cannot stock and accumulate products, they must be able to meet demand when it arises.

In these cases, companies must have sufficient capacity to be able to meet peak demand. Farmers need to have enough machinery and equipment to harvest in the summer, although this equipment will be idle in winter. Companies are forced to hire and train employees to work during peak periods, and after this period, fire them. Sometimes you have to introduce additional shifts and work overtime. All these changes increase the cost.

The advantage of a chasing strategy is that inventory can be kept to a minimum. A good is produced when it is in demand and is not stockpiled. Thus, it is possible to avoid the costs associated with the storage of inventories. These costs can be quite high, as shown in Chapter 9 on Inventory Fundamentals.

Figure 2.9 Uniform production strategy.

Uniform production. With uniform production, a volume of output equal to the average demand is constantly produced. This ratio is shown in Fig. 2. 9. Enterprises calculate the total demand for the period covered by the plan and, on average, produce enough volume to meet this demand. Sometimes the demand is less than the volume produced, in which case inventories are accumulated. In other periods, demand exceeds production, then inventories are used.

The advantage of a level production strategy is that the operation is carried out at a constant level, and this avoids the cost of changing the level of production.

The business does not have to conserve excess capacity resources to meet peak demand. There is no need to hire and train workers, and then fire them during quiet periods. There is an opportunity to form a stable workforce. The disadvantage is the accumulation of inventories during periods of reduced demand.

The storage of these inventories requires cash costs.

Uniform production means that the enterprise uses production capacity at the same pace and produces the same amount of output every working day. The volume of products produced in a month (and sometimes in a week) will vary, since different months have a different number of working days.

EXAMPLE

The company wants to produce 10,000 units over the next three months at a steady rate. The first month has 20 business days, the second month has 21 business days, and the third month has 12 business days due to the annual closure of the business. How much does a company need to produce on average per day for uniform production?

Answer

Total production volume - 10,000 units

Total number of working days =20 +21 +12 =53 days

Average daily production =10,000 /53 =188.7 units

Figure 2.10 Subcontracting.

For some types of products that vary greatly in demand from season to season, such as Christmas tree decorations, some form of uniform production will be required. The costs of maintaining idle production resources, hiring, training, and firing employees using a harassment strategy will be excessive.

Subcontract. As a strategy in its purest form, subcontracting means constantly producing at minimum demand and subcontracting to meet higher demand. Subcontracting can mean purchasing missing volume or rejecting additional demand. In the latter case, you can increase prices when demand rises, or increase lead times .This strategy is shown in Figure 2.10.

The main advantage of this strategy is the cost.

There are no costs associated with maintaining additional production resources and, since production is uniform, there are no costs for changing production volume. The main disadvantage is that the purchase price (cost of the product, purchase, transportation and inspection) can be higher than the cost of the product when manufactured at enterprise.

Businesses rarely make everything themselves or, on the contrary, buy everything they need. The decision about which products to buy and which to produce in-house depends mainly on cost, but there are several other factors that can be taken into account. .

The firm may decide in favor of production in order to maintain the confidentiality of processes within the enterprise, guarantee the level of quality, and ensure the employment of employees.

It may be possible to purchase from a supplier that specializes in the design and manufacture of certain components in order to enable the enterprise to focus on its area of ​​specialization, or in order to be able to offer accepted and competitive prices.

For many products, such as nuts and bolts or components that the company does not normally manufacture, the decision is clear. For other products within the company's area of ​​expertise, a decision will need to be made whether to subcontract.

hybrid strategy. The three strategies discussed above are variants of pure strategies. Each of them has its own costs: equipment, hiring/firing, overtime, inventory, and subcontracting. In fact, a company may use many hybrid hybrid hybrid hybrid, or combined strategies. Each of them has its own set of cost characteristics. It is the responsibility of the production department management to find a combination of strategies that will minimize the total amount of costs, while providing the necessary level of service and achieving the objectives of the financial and marketing plans.

Figure 2.11 Hybrid strategy.

One of the possible hybrid plans is shown in Figure 2.11.

Demand is met to a certain extent, production is somewhat even, and there are some subcontracts during the peak period. This plan is just one of many options that could be developed.

Development of a stock production plan

In a situation where products are produced for the purpose of stock replenishment, products are manufactured and stockpiled prior to receiving an order from a customer. Those goods that constitute inventory are sold and delivered. Examples of such products are ready-made clothing, frozen foods and bicycles.

Typically, firms produce inventory when:

• Demand is quite constant and predictable;
• Products vary slightly;
• The market requires delivery in a much shorter time than the production time;
• Products have a long shelf life. The following information is required to develop a production plan:
• Demand forecast for the period covered by the planning period;
• Data on the volume of inventories at the beginning of the planning period;
• Data on the required volumes of inventories at the end of the planning period;
• Information about the current refusals of customers from orders and orders with overdue payment orders of customers. That is, about orders, the decision to ship which is delayed;

  The purpose of developing a production plan is to minimize the cost of storing inventories, changing the level of production, as well as the likelihood of not having the right product in stock (the inability to deliver the right product to the customer at the right time).

In this section, we develop a uniform production plan and a pursuit strategy plan.

Consider the general procedure for developing a plan for uniform production.

1. Calculate the total forecasted demand for the period of the planning horizon.

2. Set the initial volume of inventories and the required final volume.

3. Calculate the total volume of products to be produced using the formula:

Total Output = Total Forecast + Backorders + Ending Inventory - Starting Inventory

4. Calculate the volume of production that is required to be produced in each period, for this, divide the total volume of production by the number of periods.

5. Calculate the final volume of inventories in each period.

EXAMPLE

Amalgamated Fish Sinkers manufactures rod weights and wants to develop a production plan for this type of product.

The expected initial inventory is 100 sets, and by the end of the planning period, the company wants to reduce this to 80 sets. The number of working days in each period is the same. There are no failures or unpaid orders.

The predicted demand for weights is shown in the table:

Answer
a. Required total output = 600 +80 – 100 ==580 sets

Production volume in each period =580/5 =116 sets
b.Final Inventory = Initial Inventory + Output - Demand

Closing inventory after first period =100 +116 – 110 ==106 sets

In the same way, the final volume of inventories in each period is calculated, as shown in Figure 2.12.

The ending inventory in period 1 is the initial inventory for period 2:

Closing Inventory (Period 2)=106 +116 – 120 ==102 sets
c.Total inventory holding costs will be: (106 +102 +88 +84 +80) x $5 = $2300
d. Since there were no out-of-stock situations and the level of production did not change, this will be the total cost of the plan.

Figure 2.12 Level production plan: stock production.

Pursuit Strategy Amalgamated Fish Sinkers manufactures another line of products called the "fish feeder". You have to use a pursuit strategy and produce the minimum amount of product that will satisfy the demand in each period. The cost of storing inventories is minimal, there are no costs associated with the lack of goods in the warehouse. However, there are costs due to a change in the level of production.

Consider the example above, assuming that it costs $20 to change production by one set. For example, going from producing 50 sets to producing 60 sets would cost (60 – 50)) x $20 = $200

The initial inventory is 100 sets and the company wants to reduce it to 80 sets in the first period. In this case, the required production volume in the first period is: 110 - ((100 - 80)) = 90 sets

Suppose the volume of production in the period preceding period 1 was 100 sets. Figure 2.13 shows changes in the level of production and the final volume of inventories.

Planned expenses will be:

Cost of changing the level of production = 60 x $20 = $1200

Inventory holding costs = 80 sets x 5 periods x $5 = $2000

Total Plan Costs = $1200 + $2000 = $3200

Development of a production plan on order

In production to order, the manufacturer waits for the order to be received from the customer, and only then proceeds to manufacture the products.

Examples of such items are custom-made clothing, equipment, and any other goods that are made to customer specifications. Very expensive items are usually made to order. Businesses typically work to order when:

• The product is manufactured according to the customer's specifications.
• The client is ready to wait for the execution of the order.
• The production and storage of the product is expensive.
• Several product options are offered.

Figure 2.13 Demand Matching Plan: Inventory Production.

Assemble-to-Order. When there are multiple variants of a product, as is the case in automobiles, and when the customer does not agree to wait for the order to be completed, manufacturers produce and stock standard components. After receiving an order from the customer, manufacturers assemble the product from the components in stock according to the order. Since the components are ready, the company only needs time to assemble before the goods are shipped to the customer. Examples of goods that are assembled to order are cars and computers. order.

To draw up a production plan for products that are assembled to order, the following information is required:

• Forecast by periods for the term of the planning horizon.
• Information about the initial portfolio of orders.
• Required final portfolio of orders.

Uniform production plan. Consider the general procedure for developing a uniform production plan:

1. Calculate the total forecasted demand for the term of the planning horizon.

2. Determine the initial order book and the desired end order book.

3. Calculate the required total production volume using the formula:

Total production = total forecast + initial order book - final order book

4. Calculate the required output for each period by dividing the total output by the number of periods.

5.Distribute the existing order book over the planning horizon period according to the order completion dates in each period.

EXAMPLE

A small print shop handles custom orders. Because each job requires a different job, demand is projected as hours per week. The company expects demand to be 100 hours per week over the next five weeks. The order book is currently 100 hours, and after those five weeks the company wants to cut it down to 80 hours.

How many hours of work per week will it take to reduce the backlog? What will the backlog be at the end of each week?

Answer

Total production =500 +100 - 80 = 520 hours

Weekly production =520/5 = 104 hours

The portfolio of orders for each week can be calculated using the formula:

Forecast order book = old order book + forecast - production volume

For the 1st week: Projected order book = 100 + 100 - 104 = 96 hours

Week 2: Projected order book = 96 + 100 - 104 = 92 hours

The resulting production plan is shown in Figure 2.14.

Figure 2.14 Uniform production plan: make-to-order production.

Resource planning

Having completed the development of a preliminary production plan, it is necessary to compare it with the resources available to the company. This stage is called resource requirements planning, or resource planning. Two questions must be answered:

1. Does the enterprise have the resources to fulfill the production plan?

2.If not, how can the missing resources be replenished?

If it is not possible to achieve a performance that would allow the production plan to be met, then the plan must be changed.

One of the most commonly used tools is a resource inventory. It indicates the number of critical resources (materials, labor and a list of equipment with productivity) needed to produce one average statistical unit of products in this group. Figure 2.15 shows an example of a company’s resource inventory, which produces three types of products that make up one family - tables, chairs and stools.

If a firm plans to produce 500 tables, 300 chairs, and 1,500 stools in a given period, it can calculate how much wood and labor it will need to do so.

For example, the required volume of the tree:

Tables: 500 x 20 = 10,000 board linear feet

Chairs: 300 x 10 = 3000 board linear feet

Stools: 1500 x 5 = 7500 board linear feet

Total required volume of wood =20500 board, linear feet

Figure 2.15 Resource inventory.

Required amount of labor resources:

Tables: 500 x 1.31 = 655 standard hours

Chairs: 300 x 0.85 = 255 standard hours

Stools: 1500 x 0.55 = 825 standard hours

Total required workforce = 1735 standard hours

The company must now compare the tree and workforce requirement with the available resources. For example, let's say that the normally available workforce during this period is 1600 hours. The priority plan calls for 1735 hours, a difference of 135 hours, or about 8.4%. either find additional production resources, or change the priority plan. In our example, it may be possible to arrange overtime to meet the missing amount of productivity. If this is not possible, you need to change the plan to reduce the need for labor resources. deadline or postpone shipment.

SUMMARY

Production planning is the first stage of the production planning and control system. The planning horizon is usually one year. The minimum planning horizon depends on the time of procurement of materials and production. The level of detail is low. Typically, a plan is developed for product families based on the similarity of manufacturing processes or on a common unit of measure.

There are three basic strategies that can be used to develop a production plan: pursuit, uniform production, and subcontracting. Each of these has its own advantages and disadvantages in terms of operations and costs. Operations managers must choose the best combination of these baselines that will keep total costs to a minimum while maintaining high levels of customer service.

The inventory production plan determines how much to produce in each period to:

• Realization of the forecast;
• Maintaining the required level of inventories.

While it is necessary to meet demand, it is also necessary to balance the costs of holding inventories with the costs of changing the level of production.

The make-to-order production plan determines the volume of products that must be produced in each period for:

• Realization of the forecast;
• Maintaining the planned portfolio of orders.

When the backlog is too large, the associated cost is equal to the cost of rejecting the order. If customers have to wait too long for delivery, they may decide to order another firm. production must be balanced in terms of the costs incurred when the backlog is larger than required.

KEY TERMS
A priority
Performance
Manufacturing Resource Planning (MRP II)
Pursuit Strategy (Demand Matching)
Uniform production strategy
Subcontracting strategy
Hybrid strategy
Uniform production plan
Order book
Resource inventory

QUESTIONS

1. What four questions should an effective planning system answer?

2. Define performance and priority. Why are they important for production planning?

3. Describe each of the plans listed below with the goal, planning horizon, level of detail, and planning cycle for each:

• Strategic business plan
• Production plan
• Master production schedule
• Resource requirement plan
• Control of production activities.

4. Describe the responsibilities and contributions of the marketing, manufacturing, finance, and technical departments to the development of the strategic business plan.

5. Describe the relationship between the production plan, the master production schedule, and the resource requirement plan.

6. What is the difference between strategic business planning and sales and operations planning (SOP)? What are the main benefits of SOP?

7.What is MRP with feedback?

8.What is MRP II?

9.How can performance change in a short period of time?

10. Why is it necessary to choose a common unit of measure or define product groups when developing a production plan?

11. On the basis of what should groups (families) of products be determined?

12. Name five typical characteristics of a production planning problem.

13. Describe each of the three basic strategies that are used to develop a production plan. List the advantages and disadvantages of each.

14. What is a hybrid strategy? Why is it used?

15. Name four conditions, depending on which the company produces stocks or carries out production under the order.

16. What information is needed to develop a stock production plan?

17. Name the stages of developing a plan for the production of stocks.

18. Describe the difference between make-to-order and make-to-order. Give examples of both options.

19. What information is needed to develop a custom production plan? How is it different from the information needed to develop a stockpile plan?

20. Describe the general procedure for developing a uniform production plan when using a make-to-order system.

21. What is a resource inventory? At what level of the planning hierarchy is it used?

TASKS

2.1. If the starting inventory is 500 units, demand is 800 units, and production is 600 units, what will be the final inventory?

Answer: 300 units

2.2. The company wants to produce 500 units at a steady pace over the next four months. These months have 19, 22, 20 and 21 working days, respectively. How much output should the company produce on average per day with uniform production?

Answer: Average production per day = 6.1 units

2.3. The company plans to produce 20,000 units of products in a three-month period. These months have 22, 24 and 19 business days, respectively. How much output should the company produce per day on average?

2.4. According to the conditions of task 2.2, what volume of products will the company produce in each of the four months?

1st month: 115, 9 3rd month: 122

2nd month: 134.2 4th month: 128.1

2.5. According to the conditions of task 2.3, what volume of products will the company produce in each of the three months?

2.6. The production line should produce 1000 units per month. The sales forecast is shown in the table. Calculate the forecast volume of inventories at the end of the period. The initial volume of inventories is 500 units. In all periods, the same number of working days.

Answer: in the 1st period, the final volume of inventories will be 700 units.

2.7. A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 100 units; by the end of the planning period, this volume is expected to increase to 130 units. Demand in each period is shown in the table. How much output should the company produce in each period? What will be the final volume of inventories in each period? In all periods, the same number of working days.

Answer: Total production = 750 units

Volume of production in each period = 125 units

The final volume of inventories in the 1st period is 125, in the 5th period - 115 ..

2.8. The company wants to develop a uniform production plan for a family of products. The initial inventory is 500 units, by the end of the planning period, this volume is expected to decrease to 300 units. Demand in each period is shown in the table. All periods have an equal number of working days. How much output should the company produce in each period? What will be the final inventory in each period? In your opinion, are there any problems with this plan?

2.9. The company wants to develop a uniform production plan.

The initial volume of inventories is zero. Demand in the next four periods is shown in the table.

a. At what rate of production in each period will the volume of inventories at the end of the 4th period remain zero?

b. When will backorders occur and to what extent?

c. What is the uniform rate of production in each period to avoid backorders? What will be the final inventory in the 4th period?

Answer: a. 9 units

b. 1st period, minus 1

c. 10 units, 4 units

2.10. If inventory holding costs are $50 per item in each period, and out of stock results in a cost of $500 per item, what would be the cost of the plan developed in problem 2.9a? What will be the cost of the plan developed in task 2.9c?

Answer: The total cost of the plan in problem 2.9 a = $650

Total costs according to the plan in problem 2.9 c = $600

2.11. A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 100 units, by the end of the planning period, this volume is expected to increase to 130 units. Demand in each period is shown in the table. Calculate the total production, daily production, and production and inventory in each month.

Answer: Monthly production in May = 156 units

Ending inventory in May = 151 units

2.12. The company wants to develop a uniform production plan for a family of products. The initial inventory is 500 units, by the end of the planning period, this volume is expected to decrease to 300 units. The demand in each month is shown in the table. How much product the company should produce in each month? What will be the final inventory for each month? In your opinion, are there any problems with the implementation of this plan?

2.13. According to the employment contract, the company must hire enough employees to produce 100 units per week for one shift or 200 units per week for two shifts. Hire additional workers, fire someone and organize Overtime cannot be worked. In the fourth week, you can assign part or all of an additional shift to another department (up to 100 units). In the second week, there will be a planned maintenance shutdown of the plant, and therefore production will be halved. Develop a production plan. The initial volume of inventories is 200 units, the required final volume is 300 units.

2.14. If the initial order book is 400 units, the projected demand is 600 units, and the production volume is 800 units, what will the final order book be?

Answer: 200 units

2.15. Initial order book volume is 800 units. Forecast demand is shown in the table. Calculate the weekly production volume with uniform production if the order book volume is expected to be reduced to 400 units.

Answer: Total production = 4200 units

Weekly production = 700 units

Order book volume at the end of the 1st week = 700 units

2.16. The initial volume of the portfolio of orders is 1000 units.

The forecasted demand is shown in the table. Calculate the weekly production with uniform production if you expect to increase the volume of the order book to 1200 units.

2.17. Based on the data in the table, calculate the number of workers required for uniform production and the total inventory at the end of the month. Each worker can produce 15 units per day, and the required ending inventory is 9,000 units.

Answer: Required number of workers = 98 people

Inventory at the end of the first month = 12900 units

2.18. Based on the data in the table, calculate the number of workers that will be required for uniform production, and the total volume of inventories at the end of the month. Each worker can produce 9 units per day, and the required ending inventory is 800 units.

Why is it impossible to achieve the planned ending inventory?

In which the main production indicators and sales volumes of products, variable and fixed costs, a personnel plan, depreciation costs of fixed production assets, requirements for the organization of the production process and the main technical and economic characteristics of production, specialized equipment and technologies used are considered.

This section describes in detail the way by which it is planned to establish the production and sale of products, indicating the problematic and bottlenecks that need special attention and the means (methods) to overcome them. The production plan reflects the following characteristics of the organization of the technological process of production:

General technical and organizational requirements for production.

It considers the general design requirements for the organization of the production site, the list of production main and auxiliary equipment necessary for the acquisition, requirements for the technologies used.

1. Total area, zoning and technical characteristics of the production site, reflection of the design estimates for new industrial and engineering construction (if necessary).

2. A list of the main and auxiliary technological equipment required for purchase, indicating its name, series and brand, quantity, price per unit of equipment, supplier and his contact details, total costs for the acquisition of technological equipment.

3. Used production technologies (their availability, patent protection, reliability, performance and other characteristics).

Description of the production process and costs.

This part of the production plan includes a calculation of the requirements for raw materials and component materials, a plan for the production and sale of products, a calculation of fixed and variable production costs and depreciation charges.

1. The need and conditions for the supply of raw materials, materials and components. The main characteristics of providing the production process with raw materials are also reflected in a tabular form indicating the type of raw materials (components, semi-finished products), the price per unit of raw materials, the main suppliers and their contact details. those volumes that are directly required for the production of a certain quantity of products. This is done in order to ensure a carry-over stock of raw materials. The value of the production stock is justified by its norm, which represents the average stock of materials during the year in days of its average daily consumption, and is calculated at the end of the year as a carryover stock. The size of the carry-over stock depends on the size of the need for various types of materials and the seasonality of their supplies in accordance with the Decree of the Federal Office on Insolvency (Bankruptcy) dated December 5, 1994 No. 98-r “On the Standard Form of an Enterprise Financial Recovery Plan (Business Plan)” is determined by the formula:

where: T - the size of the carryover stock;

Q - the need for the appropriate material, nature. units;

M - carry-over stock rate, days;

D is the number of days of the planning period.

The carryover stock rate is determined by the sum of the average, current and safety stocks.

2. Reflection in tabular form of the volume of production and sales of products, indicating the selling price of products and sales proceeds. A number of business planning techniques also include Value Added Tax as part of total sales receipts in this tabular form of the Production Plan. This is the main table within this section of the business plan.

For a potential investor (strategic partner), the table reflecting the schedule of production and sales of products, as well as sales proceeds, will be of particular interest in the production plan, so this tabular form must be detailed in sufficient detail.

The time horizon for reflecting the production plan and the sales plan is usually equal to the full payback period of the investment project. However, at the request of the investor, it can be slightly increased if the goal is to model the distribution and reinvestment of profits after the project pays off.

3. Calculation of fixed and variable production costs. In the production plan, it is necessary to provide an estimate of the costs of manufactured products, which is a calculation of costs for certain types of manufactured and sold products. The calculation of costs for the production and sale of products can be carried out according to an enlarged scheme based on the existing norms for the cost of raw materials, component materials and semi-finished products for the manufacture of a unit of production. The consolidated cost estimate for the production and sale of products includes cost items related to the cost of production, without their breakdown into fixed and direct costs, as well as the balance of non-operating transactions.

The consolidated cost estimate is based on the plan for the production and sale of products and describes the total cost of all manufactured products, as well as the cost of each individual type of product. Thus, the cost estimate can be detailed for individual types of products.

The composition of costs and their classification must comply with Decree of the Government of the Russian Federation of August 05, 1992 No. 552 “On approval of the regulation on the composition of costs for the production and sale of products (works, services) included in the cost price, and on the procedure for generating financial results taken into account when taxing - zhenie profits. They are the following:

SALES VOLUME, TOTAL

COST, TOTAL, including:

2. materials and accessories

3. fuel

4. electricity and heat

5. payroll

6. accruals on payroll

7. BPF depreciation

9. other expenses

10. loan service (interest)

BALANCE OF NON-SALES OPERATIONS TOTAL, including:

11. Central Bank income

12. rental income

13. property tax

14. land tax

15. other income and expenses

BALANCE PROFIT

16. Income tax

17. Other taxes and payments from profit

NET PROFIT

When using software tools for developing a business plan, the cost estimate is divided into two tabular forms - the calculation of fixed (general) costs and the calculation of variable (direct) costs for the production and sale of products.

4. Calculation of depreciation charges for the restoration of fixed production assets is considered as part of the total (fixed) costs of production and sales of products. Various forms of depreciation of fixed production assets can be included in the calculations for the project:

Linear depreciation - the initial cost of fixed assets is paid evenly over the entire life of the equipment;

Accelerated depreciation - the initial cost of fixed production assets is returned in a shorter time, and therefore the depreciation rates are set higher (most often used in the leasing mechanism for lending and financing projects).

Personnel plan.

The personnel plan is a mandatory and extremely important part of such a section as the "Production Plan". The personnel plan displays quantitatively and qualitatively the structure of the company's personnel employed in the implementation of a specific investment project, the level of personnel qualification, personnel costs (wage fund and deductions from it).

It is advisable to divide the personnel plan into 3 parts:

Administrative and managerial personnel;

Production personnel;

Marketing and support staff.

Within the framework of the investment project, two forms of wages can be used: in the form of a fixed salary and piecework wages. In the case of piecework wages, it is considered as one of the items of variable costs for the production and sale of products and is taken into account in the consolidated cost estimate (Table 8). A fixed salary should be considered as one of the items of fixed (general) costs for the production and sale of products.

Thus, the production plan within the framework of the business plan is considered as one of the key sections, the main task of which is to show the potential investor the reality of the company's production (sales) program and the adequacy of the existing resources for this (both material and labor). In addition, the production plan reflects all the requirements for the organization of production and marketing of products, reflects the knowledge by the author of the business plan of the technological scheme of production, the availability of appropriate personnel with the required level of competence, licenses, certificates and permits.

Another important task of the production plan is the modeling and analysis of existing and future material flows within the enterprise, indicating specific sources of raw materials and materials, specific consumers.

Source - Business planning and development of investment projects / Educational and methodological manual, under the general editorship of Saveliev Y.V., Zhirnel E.V., Petrozavodsk, 2007.