MODULE IV

PRODUCTION
PLANNING

Asst Prof Arvind Gajakosh

BE, MBA, NET
 MATERIAL REQUIREMENT PLANNING:
 It is a simple system of calculating arithmetically the
requirement of the i/p materials at different points
of time, based on the plan or schedule of production
of finished good.
 MRP is a computer based information system for
scheduling production and purchase of dependent
demand items.
 MRP is a system of planning & scheduling the item
phased materials requirement for production
operations.
MATERIAL REQUIREMENTS
PLANNING
 Materials requirements planning (MRP) is a means for
determining the number of parts, components, and
materials needed to produce a product
 MRP provides time scheduling information specifying
when each of the materials, parts, and components
should be ordered or produced
 Dependent demand drives MRP
 MRP is a software system
 MRP OBJECTIVES
 Inventory reduction
 Reduction in production and delivery lead times
 Realistic commitments
 MRP SYSTEM COMPONENTS
 Three major sources of information are mandatory in
the MRP system. (i/p)
 A master production schedule (MPS)
 An inventory status file
 A bill of materials (BOM) file
 Using these three info sources the MRP processing
logic provides following o/p.
 Order release requirement
 Order rescheduling
 Planned orders
 6

Aggregate Forecasts
Firm orders product of demand
from known
plan from random
customers
customers

Engineering Master production

Schedule (MPS) Inventory
design
transactions
changes

Material
planning
Bill of (MRP Inventory
material computer record file
file program)
Secondary reports
Primary reports
Exception reports
Planned order schedule for Planning reports
inventory and production control Reports for performance control

MRP
MRPModel/System
Model/System ©The McGraw-Hill Companies, Inc., 2004
 MASTER PRODUCTION SCHEDULE(MPS)
 The MPS is developed from firm’s customer orders or
from forecasts of demand before the MRP system
begins to operate.
 The MPS is designed to meet market demand.
 Service components for customers are also entered
as end items in the MPS.
 The MPS provides the focal info for the MRP system.
 MATERIAL REQUIREMENTS PLANNING SYSTEM

 Based on a MPS (master production schedule), a

material requirements planning system:
 Creates schedules identifying the specific parts and
materials required to produce end items
 Determines exact unit numbers needed
 Determines the dates when orders for those
materials should be released, based on lead times
 INVENTORY STATUS FILE
 It consists the complete documentation of the
inventory status of each item in the product
structure, on hand quantity safety stock level,
quantity allocated and lead time.
 This file provides accurate info about of every item
controlled by the MRP system.
 Pegging
 Identify each parent item that created demand
 BILL OF MATERIALS (A COMPLETE
PRODUCT DESCRIPTION)
 The BOM identifies how each end product is
manufactured, specifying all sub component items,
their sequence, their quantity in each finished unit.
 This info is obtained from product design
documents, work flow analysis & other std
manufacturing & industrial engg documentation.
 The primary info to the MRP from the BOM is the
product structure.
 EXAMPLE OF MRP LOGIC AND PRODUCT
STRUCTURE TREE
Given
Giventhe
theproduct
productstructure
structuretree
treefor
for“A”
“A”and
andthe
thelead
leadtime
timeand
anddemand
demand
information
informationbelow,
below,provide
provideaamaterials
materialsrequirements
requirementsplan
planthat
thatdefines
definesthe
the
number
numberofofunits
unitsof
ofeach
eachcomponent
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whenthey
theywill
willbe
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needed

Product Structure Tree for Assembly A Lead Times

A 1 day
A B 2 days
C 1 day
D 3 days
E 4 days
B(4) C(2) F 1 day

D(2) E(1) D(3) F(2)

PRIMARY MRP REPORTS
 Planned orders to be released at a future time
 Order release notices to execute the planned
orders
 Changes in due dates of open orders due to
rescheduling
 Cancellations or suspensions of open orders due
to cancellation or suspension of orders on the
master production schedule
 Inventory status data
SECONDARY MRP REPORTS
 Planning reports, for example, forecasting inventory
requirements over a period of time
 Performance reports used to determine agreement
between actual and programmed usage and costs
 Exception reports used to point out serious
discrepancies, such as late or overdue orders
 BENEFITS OF MRP
 As the MRP system is of dynamic nature, it reacts
well to the changing conditions.
 MRP can identify potential bottlenecks and capacity
problems far enough in advance to adapt the
schedule to them.
 MRP system helps in planning & scheduling the item
phased material requirement for the production
operations.
 LIMITATIONS OF MRP
 A computer is necessary
 The product structure must be assembly oriented.
 A valid master schedule has to be prepared.
 BOM and inventory status info must be assembled
and computerized.
 Unreliable inventory and transactions data from the
shop floor can ruin a well planned MRP system.
MANUFACTURING RESOURCE PLANNING
(MRP II)

 Goal: Plan and monitor all resources of a

manufacturing firm (closed loop):
 manufacturing
 marketing
 finance
 engineering
 MRP II is applicable to any manufacturing orgn,
regardless of its size, location, product or process.
 It provides info abt inventory investment levels,
plant expansion needs, & work force requirements.
ERP
 Enterprise Resource Planning Defined
 R/3 System Components
 Reasons for Implementing R/3
ENTERPRISE RESOURCE PLANNING

(ERP) SYSTEMS
 Enterprise Resource Planning Systems is a computer
system that integrates application programs in
accounting, sales, manufacturing, and other functions
in the firm
 It is a software package developed for optimum use of
resources of an enterprise in a planned manner.
 It integrates entire enterprise starting from the
supplier to the customer, covering logistics, financial
and human resources.
 This will enable the enterprise to increase
productivity by reducing costs.
 SAP AG’S R/3

 SAP AG, A German firm, is a world leader in ERP

software.
-Designed to operate
in a three-tier
client/server
configuration
-Applications are
fully integrated so
that data are shared
between all
applications
R/3 SYSTEM FUNCTIONAL COMPONENTS

Financial
Accounting

R/3 System
Sales & Distribution Functional
Human Resources
Components
(ERP)

Manufacturing
& Logistics
FINANCIAL ACCOUNTING
 Financials (daily transaction costs)

 Controlling (working capital mgmt)

 Asset management (current assets)

HUMAN RESOURCES
 Payroll
 Benefits administration
 Applicant data administration
 Personnel development planning
 Workforce planning
 Schedule & shift planning
 Time management
 Travel expense accounting
MANUFACTURING & LOGISTICS
 Materials management
 Plant maintenance
 Quality management
 Production planning & control
 Project management system
SALES AND DISTRIBUTION
 Prospect & customer management
 Sales order management
 Configuration management
 Distribution
 Export controls
 Shipping and transportation management
 Billing, invoicing, and rebate processing
REASONS FOR IMPLEMENTING SAP R/3
 Desire to standardize and improve processes
 To improve the level of systems integration
 To improve information quality
PRODUCTION-PLANNING AND CONTROL
SYSTEMS
 Once a MPS is complete, we have to focus on
PPC. There are four types of PPC system.
 Pond draining systems
 Push systems
 Pull systems
 Bottlenecks systems
POND DRAINING SYSTEMS

 In the pond draining approach to PPC, the

emphasis is on holding reservoirs of materials to
support production.
 Pond draining system can be used in either
product-focused or process –focused
production.
 It requires little info about customers, suppliers
and production.
 It may lead to excessive inventories to store RM.
PUSH SYSTEMS
 In push system emphasis shifts to using info
about customers, suppliers & production to
manage material flow.
 Batches of RMs are planned to arrive at a factory
about when needed to make batches of parts.
 Push systems have resulted in great reductions of
RMs inventories & in greater worker and machine
utilization when compared to pond draining
systems.
PULL SYSTEMS
 In pull systems of PPC, the emphasis is on
reducing inventory levels at every stage of
production.
 In pull systems we look only at the next stage
of production & determine what is needed there,
and then we produce only that.
 RMs and parts are pulled from the back of the
factory toward the front of the factory where
they become FGs.
 BOTTLENECK SYSTEMS(FOCUSING ON
BOTTLENECKS)
 Some PPC systems focus on production
bottlenecks that impede (delays) production
because they have less capacity than upstream
or downstream stages.
 At bottleneck operations, batches of products
arrive faster than they can be completed.
PRODUCTION PLANNING CONTROL
 It is nothing but deciding future courses of action of
the orgzn well in advance so that executives at
different level will play their role.
 PPC has three phases.
 Planning phase
 Action phase
 Control phase
PLANNING PHASE

 It has two categories of a planning namely prior

planning & active planning.
 Prior planning means pre-production planning.
 Active planning means the actual production
planning which includes various activities directly
related to the production at micro level
immediately following the prior planning.
 The modules of prior planning are product
development and design, forecasting, aggregate
planning etc.
 The modules of active planning are process planning
and routing, loading, scheduling etc.
ACTION PHASE
 This phase has the major step of dispatching.
 Dispatching is the transition from planning phase to
action phase.
 In this case the worker is ordered to start to
manufacturing the product.
 The tasks which are included in dispatching are job
order, inspection order etc.
CONTROL PHASE
 This phase has the following two major modules.
 Progress reporting: here data regarding what is
happening with the job is collected. Also it helps to
make comparison with the present level of
performance.
 Corrective action: the tasks under corrective
action primarily make provisions for an unexpected
event. Some examples of corrective actions are:
crating schedule flexibility, capacity modifications
etc.
 CAPACITY PLANNING
 Determination of plant capacity
 Production design is the first level planning for the
inputs, conversion activities & outputs of a
production operation.
 Design capacity: it is the rate of o/p of goods or
services under full scale operating conditions.
 Ex: a cement factory may be designed to produce
200 tons/day.
 System capacity: the max. o/p of a specific product
that the sys of workers & less equipments is
capable of producing as an integrated whole is
called system capacity.
 System capacity may be less than that of the design
capacity.

 System efficiency= Actual o/p___

system capacity
CAPACITY PLANNING STRATEGIES
 Capacity is a measure of the ability to produce
goods or services.
 Capacity planning is the task of determining the LT
& ST capacity needs of an orgzn and then
determining how these needs will be satisfied.
 LT capacity strategies:
 Develop a new product lines
 Expand existing facilities
 Construct production plants
 ST capacity strategies : capacity decision are taken
by considering the fluctuations in demand caused
by seasonal and economic factors.
EQUIPMENT SELECTION
 Equipment selection is the process of identifying a
set of suitable equipments which are most suitable
for processing a set of products.
IMPORTANCE OF PPC
 It arranges the sales forecasts & sales orders.
 It minimizes the working capital.
 It ensures a better control of material.
 It utilizes an optimum combination of resources and
methods to bring down production cost.
 It ensures an orderly flow of production resulting in
the avoidance of rush orders, & minimizing
overtime.
 It gives a better service to the customers by
producing the right product in the right quality and
at the right time.
ROUTING
 It is a selection of path or route over which every
piece is to travel in being transformed from RM into
FP.
 Objectives of routing:
 To decide the most feasible sequence of operations
and to ensure that the same are followed.
 To utilise inputs like machines, materials, men etc.
in the most economical way.
 To influence the design of the factory layout,
building, machines etc.
VALUE ENGINEERING / VALUE ANALYSIS
 Value analysis is one of the major techniques of
cost prevention.
 It is a disciplined approach that necessary functions
at min. cost without compromising on quality,
reliability, performance & appearance.
 The society of US Value engineering was found in
1959.
 The society of Japan Value engineering was found
in 1967.
 The society of India Value engineering was found in
1977. (INVEST-Indian Value engineering Society)
WHEN TO APPLY VALUE ANALYSIS
 Company’s product shows decline in sales.
 Company’s prices are higher than those of its
competitors.
 RM cost has gone up suddenly.
 New designs are being introduced.
 Rate of return on investment has a falling trend.
VALUE ANALYSIS VS VALUE ENGINEERING
 Value analysis is the application of a set of
techniques to an existing product with a view to
improving its value.
 Value engg is the application of exactly the same
set of techniques to a new product at the design
stage, project concept or preliminary design.
VALUE TYPES
 Cost value (labor, material, OH cost)
 Exchange value (money or product)
 Use value (price paid by the buyer)
 Esteem value (appearance of the product)

 Value = Performance (utility)

cost

Value can be increased by increasing the utility for

the same cost or by decreasing the cost for the
same utlity.
AIMS OF VALUE ENGG:
 Simplify the product.
 Use cheaper and better materials.
 Modify product design.
 Use efficient processes.
 Reduce the product cost.
 Increase the utility of the product.
 Save money or increase the profit.
VALUE ENGG PROCEDURE
 Identify the product
 Collect relevant info
 Define different functions
 Different alternatives
 Critically evaluate the alternatives
 Develop the best alternative
 Implement the alternative.
ADVANTAGES OF VALUE ENGG
 It is much faster cost reduction technique.
 It is a less expensive technique.
 It reduces production costs and adds value to sales
income of the product.

 Application of value engg: machine tool industries,

auto industries etc.
COST CONTROL VS COST REDUCTION
 Cost control:
 Manufacturing cost is controlled by wastage
reduction, value analysis, inventory control and
efficient utilization of all resources.

 Cost reduction:
 Here this focuses on how to reduce the existing cost
of the product.