1. Objectives After completing this chapter, you will be able to:
Describe the steps in the production planning process of a high-volume manufacturer such as Fitter Snacker
Describe Fitter Snacker’s production and materials management problems
Describe how a structured process for Supply Chain Management planning enhances efficiency and decision making
Describe how production planning data in an ERP system can be shared with suppliers to increase supply chain efficiency 1

2. Production Overview
To meet customer demand efficiently, Fitter Snacker must:
Develop a forecast of customer demand
Develop a production schedule to meet the estimated demand
ERP system is a good tool for developing and executing production plans
Goal of production planning is to schedule production economically

3. Production Overview (cont’d.)
Three general approaches to production
Make-to-stock items: made for inventory (the “stock”) in anticipation of sales orders
Make-to-order items: produced to fill specific customer orders
Assemble-to-order items: produced using a combination of make-to-stock and make-to-order processes

4. Capacity Planning
Capacity planning is a long-term strategic decision that establishes a firm's overall level of resources.
long time horizon: usually a year or more for building new facilities or acquiring new businesses.
Capacity decisions affect product lead times, customer responsiveness, operating costs, and a firm's ability to compete.
Inadequate capacity can lose customers and limit growth. Excess capacity can drain a company's resources and prevent investments in more lucrative ventures. When to increase capacity and how much to increase capacity are critical decisions.

5. Strategy of Timing Capacity Expansion
Capacity lead strategy. Capacity is expanded in anticipation of demand growth. This aggressive strategy is used to lure customers from competitors who are capacity constrained or to gain a foothold in a rapidly expanding market.
Capacity lag strategy. Capacity is increased after an increase in demand has been documented. This conservative strategy produces a higher return on investment but may lose customers in the process. It is used in industries with standard products and cost-based or weak competition. The strategy assumes that lost customers will return from competitors after capacity has expanded.
Average capacity strategy. Capacity is expanded to coincide with average expected demand. This is a moderate strategy in which managers are certain they will be able to sell at least some portion of the additional output.

6. Factors Affecting Capacity Expansion
How much to increase capacity depends on
the volume and certainty of anticipated demand;
strategic objectives in terms of growth, customer service, and competition; and
the costs of expansion and operation.
Capacity can be increased incrementally
Incremental expansion is less risky but more costly.
An attractive alternative to expanding capacity is outsourcing, in which suppliers absorb the risk of demand uncertainty.

7. The Production Planning Process
Three important principles for production planning:
Work from sales forecast and current inventory levels to create an “aggregate” (“combined”) production plan for all products
Break down aggregate plan into more specific production plans for individual products and smaller time intervals
Use production plan to determine raw material requirements

8. The SAP ERP Approach to Production Planning
Figure 4-2 The production planning process
Concepts in Enterprise Resource Planning, Third Edition

9. Production Planning and Control
Production Planning is one of the main function of a production Manager. This is concerned with determining the QUANTITY and TIMING of production for the FUTURE. Isn’t it DIFFICULT!
Production manager try to determine the BEST way to meet forecasted demands by:
Adjusting production rates
Adjusting manpower levels
Inventory levels
Overtime works
subcontracting

10. Decision-making in Operations Management
Operations managers are decision makers.
What makes the difference between a Good Decision and a Bad Decision?
“Good’ decision = logic + Data + Alternatives
Steps
Define the problem and the factors that influence it
Establish decision criteria and goals
Formulate a model (relation between goals and variables)
Identify and evaluate alternatives
Select BEST alternative
Implement the decision

11. Problem ? Quantitative Analysis Logic Historical Data Market research
Scientific analysis
Modeling
Decision
Problem ?
Qualitative Analysis
Emotions
Intuition
Personal experiences
Rumors

12. The Planning Process Planning Short Term
Medium Term (begins once long term
capacity decisions are made. Monthly and
quarterly plans, AGGREGATE
PRODUCTION PLAN – related to operation
managers – Tactical Scheduling decisions)
Long Term (Facility Location and expansion, New product development, Research funding, investment over several years, strategic issues – related to Top Management)

13. Master Production Scheduling (MPS)
Objectives
Determine the quantity and timing of completion of end items over a short-range planning horizon.
Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer.
Avoid overloading or under loading the production facility so that production capacity is efficiently utilized and low production costs result.

14. Time Fences The rules for scheduling 6+ weeks 4-6 weeks 2-4 weeks 1-2
+/- 20%
Change
1-2
weeks
+/- 10%
Change
+/- 5%
Change
No Change
Frozen
Firm
Full
Open

15. Detailed Scheduling
Detailed plan of what is to be produced, considering machine capacity and available labor
One key decision in detailed production scheduling
How long to make the production runs for each product
Production run length requires a balance between setup costs and holding costs to minimize total costs to the company

16. Detailed Scheduling (cont’d.)
Fitter Snacker uses repetitive manufacturing
Repetitive manufacturing environments usually involve production lines that are switched from one product to another similar product
Production lines are scheduled for a period of time, rather than for a specific number of items

17. Detailed Scheduling (cont’d.)
Production runs should be decided by evaluating the cost of equipment setup and holding inventory
Integrated information system simplifies this analysis
Automatically collects accounting information that allows managers to better evaluate schedule trade-offs in terms of costs to company

18. Materials Requirements Planning (MRP)
Determines required quantity and timing of the production or purchase of subassemblies and raw materials needed to support MPS
Bill of material (BOM): list of the materials (including quantities) needed to make a product

19. Materials Requirements Planning (MRP)
Figure The bill of material (BOM) for Fitter Snacker’s NRG bars

20. Materials Requirements Planning (MRP)
Lead times and lot sizing
Lead time: cumulative time required for the supplier to receive and process the order, take the material out of stock, package it, load it on a truck, and deliver it to the manufacturer
Lot sizing: determining production quantities and order quantities
MRP record: standard way of viewing the MRP process on paper

21. Materials Requirements Planning (MRP) (cont’d.)
Figure The MRP record for oats in NRG bars, weeks 1 through 5

22. Production – Inventory System
Information Flow
Material Flow
Days for transit time
Days to process or to
handle and issue orders
25 Day De Day Delay Day Delay Day Delay
lay to sense to sense for Review for Review
needs, place needs, place and and
and transmit and transmit Transmission Transmission
orders M.O.s of orders of orders
Demand
Raw Factory Factory Distributor Retail Ultimate
Material Warehouse Inventory Inventory Customer
Vendor
50 Independent Independent
Distributors Retailers # # 35 4 2 1 30 1 10 5 1
Company System Under
Managerial Control
Production Planning
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