Production Planning & Control
Introduction to the Case Study
This case study is about a crude oil manufacturing company which has several
operating units .These units process the crude oil that is pumped through and
transform it into multitude of hydrocarbon products. The unit runs 24 hours a day ,7
days a week. However it needs to be shut down for maintenance at some point of
time for cleaning and other maintenance purpose. One such unit is Distillation unit
(DU5)in Aston which can operate continuously for 3.5 years without any major
equipment breakdowns and excessive loss of efficiency. Therefore DU5 is shutdown
every 3.5years for cleaning ,inspection and repairs. However, its shutdown severely
affects all others operating units. This time of shut down is critical and the length of
the shut down should be minimum to limit production loss.
The Maintenance of DU5 is carried out in two phases 1st is opening and cleaning the
unit and the 2nd phase is finding and repairing damages. Shale uses PERT as a
planning & controlling tool to minimize shutdown time.
Discuss Production Planning & Control and its
Production Planning & Control
Production is a process whereby raw material is converted into semi finished
products and thereby adds to the value of utility of products, which can be
measured as the difference between the value of inputs and value of outputs.
Production function encompasses the activities of procurement, allocation and
utilization of resources. The main objective of production function is to produce
the goods and services demanded by the customers in the most efficient and
economical way. Therefore efficient management of the production function is of
utmost importance in order to achieve this objective.
Production system is a system whose function is to convert a set of inputs into a
set of desired outputs.
Production management involves the managerial decisions regarding design of
the product and design of the production system i.e. determination of production
processes and production planning and control.
Once the entrepreneur has taken the decisions regarding the product design and
production processes and system, his next task is to take steps for production
planning and control, as this function is essentially required for efficient and
Planning and control involve generally the organization and planning of
manufacturing process. Especially it consists of the planning of routing, scheduling,
dispatching inspection, and coordination, control of materials, methods machines,
tools and operating times. The ultimate objective is the organization of the supply
and movement of materials and labor, machines utilization and related activities, in
order to bring about the desired manufacturing results in terms of quality, quantity,
time and place.
Production planning without production control is like a bank without a bank
manager, planning initiates action while control is an adjusting process, providing
corrective measures for planned development. Production control regulates and
stimulates the orderly how of materials in the manufacturing process from the
The large & complex project of any organization involve number of interrelated
activities with limited resources such as men, machine, material, money & time. It is
not possible for management to make & execute on optimum schedule based on
organizational capacities intuition. It is always an lookout for some methods &
techniques which may help in planning & controlling the project. The need for such
methods have lead into the development of network analysis.
STEPS OF PRODUCTION PLANNING AND CONTROL
Production Planning and Control (PPC) is a process that comprises the
performance of some critical; functions on either side, viz., planning as well as
Production planning: Production planning may be defined as the technique of
foreseeing every step in a long series of separate operations, each step to be taken
at the right time and in the right place and each operation to be performed in
maximum efficiency. It helps entrepreneur to work out the quantity of material
manpower, machine and money requires for producing predetermined level of
output in given period of time.
Production control: Production control is the process of planning production in
advance of operations, establishing the extract route of each individual item part
or assembly, setting, starting and finishing for each important item, assembly or
the finishing production and releasing the necessary orders as well as initiating the
necessary follow-up to have the smooth function of the enterprise.
Planning: Planning is the technique of foreseeing every step in a long series of
separate operations, each step to be taken at the right time and in the right place
and each operation to be performed in maximum efficiency. It helps entrepreneur to
work out the quantity of material manpower, machine and money requires for
producing predetermined level of output in given period of time.
Routing: Under this, the operations, their path and sequence are established. To
perform these operations the proper class of machines and personnel required are
also worked out. The main aim of routing is to determine the best and cheapest
sequence of operations and to ensure that this sequence is strictly followed. In small
enterprises, this job is usually done by entrepreneur himself in a rather adhoc
Scheduling: It means working out of time that should be required to perform each
operation and also the time necessary to perform the entire series as routed,
making allowances for all factors concerned. It mainly concerns with time
element and priorities of a job.
Loading: The next step is the execution of the schedule plan as per the route
chalked out it includes the assignment of the work to the operators at their
machines or work places. So loading determines who will do the work as routing
determines where and scheduling determines when it shall be done.
The usefulness of their technique lies in the fact that they compare what has been
done and what ought to have been done.
Dispatching: Dispatching involves issue of production orders for starting the
operations. Necessary authority and conformation is given for:
1. Movement of materials to different workstations.
2. Movement of tools and fixtures necessary for each operation.
3. Beginning of work on each operation.
4. Recording of time and cost involved in each operation.
5. Movement of work from one operation to another in accordance with the
6. Inspecting or supervision of work
Dispatching is an important step as it translates production plans into production.
Follow up: Every production programme involves determination of the progress
of work, removing bottlenecks in the flow of work and ensuring that the
productive operations are taking place in accordance with the plans. It spots
delays or deviations from the production plans. It helps to reveal detects in routing
and scheduling, misunderstanding of orders and instruction, under loading or
overloading of work etc. All problems or deviations are investigated and remedial
measures are undertaken to ensure the completion of work by the planned date.
Inspection: This is mainly to ensure the quality of goods. It can be required as
effective agency of production control.
Corrective measures: Corrective action may involve any of those activities of
adjusting the route, rescheduling of work changing the workloads, repairs and
maintenance of machinery or equipment, control over inventories of the cause of
deviation is the poor performance of the employees. Certain personnel decisions
like training, transfer, demotion etc. may have to be taken. Alternate methods may
be suggested to handle peak loads.
Importance & Benefits
Production planning and control can facilitate the entrepreneurs in the
(1) Optimum Utilization of Capacity:
With the help of Production Planning and Control [PPC] the entrepreneur can
schedule his tasks and production runs and thereby ensure that his productive
capacity does not remain idle and there is no undue queuing up of tasks via proper
allocation of tasks to the production facilities. No order goes unattended and no
machine remains idle.
(2) Inventory control:
Proper PPC will help the entrepreneur to resort to just- in- time systems and
thereby reduce the overall inventory. It will enable him to ensure that the right
supplies are available at the right time.
(3) Economy in production time:
PPC will help the entrepreneur to reduce the cycle time and increase the turnover
via proper scheduling.
(4) Ensure quality:
A good PPC will provide for adherence to the quality standards so that quality of
output is ensured.
To sum up we may say that PPC is of immense value to the entrepreneur in
capacity utilization and inventory control. More importantly it improves his
response time and quality. As such effective PPC contributes to time, quality and
cost parameters of entrepreneurial success.
Discuss Operations Research & its Significance
Operations research (O.R.) is the discipline of applying advanced analytical methods
to help make better decisions.
By using techniques such as mathematical modeling to analyze complex situations,
operations research gives executives the power to make more effective decisions
and build more productive systems based on:
More complete data
Consideration of all available options
Careful predictions of outcomes and estimates of risk
The latest decision tools and techniques
O.R. is unique. It's best of breed, employing highly developed methods practiced by
specially trained professionals. It’s powerful, using advanced tools and technologies
to provide analytical power that no ordinary software or spreadsheet can deliver out
of the box. And it’s tailored to you, because an O.R. professional offers you the
ability to define your specific challenge in ways that make the most of your data and
uncover your most beneficial options.
To achieve these results, O.R. professionals draw upon the latest analytical
Simulation Giving you the ability to try out approaches and test ideas for
Optimization Narrowing your choices to the very best when there are virtually
innumerable feasible options and comparing them is difficult
Probability and Statistics Helping you measure risk, mine data to find valuable
connections and insights, test conclusions, and make reliable forecasts
Few definition of O.R
“O.R. is the art of giving bad answers to problems which otherwise have
worse answers”--T. L. Satty.
“O.R. is the scientific method of providing executive departments with the
quantitative basis for decision under their control.”--P. M. Morse and G. E.
“O.R. is a scientific approach to problems solving for executive
management.”-- H. M. Wanger
Significant features of O.R.
1. Decision-Making:- Primarily, O.R. is addressed to managerial decision-
making or problem-solving. A major premise of O.R is that decision-making,
irrespective of the situation involved, can be considered as general systematic
2. Scientific Approach:- O.R employs scientific methods for the purpose of
solving problems. It is a formalized process of reasoning.
3. Objective:- O.R. attempts to locate the best or optimal solution to the problem
under consideration. For this purpose, it is necessary that a measure of
effectiveness is defined which is based on the goals of the organization. This
measure is then used as the basis to compare the alternative courses of
4. Inter- disciplinary Team Approach:- O.R. is interdisciplinary in nature &
requires a team approach to a solution of the problem. Managerial problems
have economic, physical, psychological, biological, sociological & engineering
aspects. This requires a blend of people with expertise in the areas of
mathematics, statistics, engineering, economics, management, computer
science & so on
5. Digital Computer:- use of a digital computer has become an integral part of
the O.R. approach to decision making. The computer may be required due to
the complexity of the model, volume of data required & the computations to be
The Operations Research Value Proposition
O.R. consistently delivers significant value – strategic to tactical, top-line to bottom-
line – to the organizations and executives who use it. Organizations worldwide in
business, the military, health care, and the public sector are realizing powerful
benefits from O.R., including:
Business insight Providing quantitative and business insight into complex
Business performance Improving business performance by embedding
model-driven intelligence into an organization’s information systems to
improve decision making
Cost reduction Finding new opportunities to decrease cost or investment
Decision making Assessing the likely outcomes of decision alternatives and
uncovering better alternatives
Forecasting Providing a better basis for more accurate forecasting and
Improved scheduling Efficiently scheduling staff, equipment, events, and
Planning Applying quantitative techniques to support operations, tactical
planning, and strategic planning
Pricing Dynamically pricing products and services
Productivity Helping organizations find ways to make processes and people
Profits Increasing revenue or return on investment; increasing market share
Quality Improving quality as well as quantifying and balancing qualitative
Recovery Gaining greater control and achieving turn-around
Resources Gaining greater utilization from limited equipment, facilities,
money, and personnel
Risk Measuring risk quantitatively and uncovering factors critical to managing
and reducing risk
Throughput Increasing speed or throughput and decreasing delays
Answering the challenges you face today
Organizations and the world in which they operate continue to become more
complex. Huge numbers of choices and relentless time pressures and margin
pressures make the decisions you face more daunting and more difficult. Meanwhile,
new enterprise applications and software are generating massive amounts of data –
and it can seem like an overwhelming task to turn that data into insight and answers.
But all that data and the availability of more and cheaper computing power are
creating an important opportunity for decision makers – one O.R. is ideally designed
to help you take advantage of. O.R. professionals thrive on challenges that involve
large numbers of variables, complex systems, and significant risks.
As a result, O.R. can help today’s executives with many of the specific challenges
they face, such as:
Deciding where to invest capital in order to grow
Getting more value out of ERP, CRM, and other software systems
Figuring out the best way to run a call center
Locating a warehouse or depot to deliver materials over shorter distances at
Forecasting sales for a new kind of product that has never been marketed
Solving complex scheduling problems
Planning for a potential terrorist attack
Deciding when to discount, and how much
Getting more cycles out of manufacturing equipment
Optimizing a portfolio of investments, whether it contains financial securities
or pharmaceutical product inventory
Deciding how large a budget to devote to Internet vs. traditional sales
Planting crops in the face of uncertainty about weather and consumer
Speeding up response time, whether selling a product or responding to a 911
The projects univentory variable activities employ PERT ( project evaluation review
technique) whereas the project involving only deterministic activities are handled by
CPM ( Critical path method) . Thus CPM is based on a single estimate of required.
time to execute an activity. PERT system is based on the estimate of time required
for executing the activity. We explain both the processes in detail.
USES of PERT/CPM
1. Construction of buildings, bridges, irrigation, project.
2. Budgets , auditing procedures
3. Missile developments.
4. Planning strategy.
5. Research & development.
6. Market penetration programme.
7. To find best traffic flow pattern in a large city.
8. Preparing univentory plans.
PERT- Program Evaluation and Review Technique
Complex projects require a series of activities, some of which must be performed
sequentially and others that can be performed in parallel with other activities. This
collection of series and parallel tasks can be modeled as a network.
In 1957 the Critical Path Method (CPM) was developed as a network model for
project management. CPM is a deterministic method that uses a fixed time estimate
for each activity. While CPM is easy to understand and use, it does not consider the
time variations that can have a great impact on the completion time of a complex
The Program Evaluation and Review Technique (PERT) is a network model that
allows for randomness in activity completion times. PERT was developed in the late
1950's for the U.S. Navy's Polaris project having thousands of contractors. It has the
potential to reduce both the time and cost required to complete a project.
The Network Diagram
In a project, an activity is a task that must be performed and an event is a milestone
marking the completion of one or more activities. Before an activity can begin, all of
its predecessor activities must be completed. Project network models represent
activities and milestones by arcs and nodes. The PERT chart may have multiple
pages with many sub-tasks.
The milestones generally are numbered so that the ending node of an activity has a
higher number than the beginning node. Incrementing the numbers by 10 allows for
new ones to be inserted without modifying the numbering of the entire diagram.
Steps in the PERT Planning Process
PERT planning involves the following steps:
1. Identify the specific activities and milestones.
2. Determine the proper sequence of the activities.
3. Construct a network diagram.
4. Estimate the time required for each activity.
5. Determine the critical path.
6. Update the PERT chart as the project progresses.
1. Identify Activities and Milestones
The activities are the tasks required to complete the project. The milestones are the
events marking the beginning and end of one or more activities. It is helpful to list the
tasks in a table that in later steps can be expanded to include information on
sequence and duration.
2. Determine Activity Sequence
This step may be combined with the activity identification step since the activity
sequence is evident for some tasks. Other tasks may require more analysis to
determine the exact order in which they must be performed.
3. Construct the Network Diagram
Using the activity sequence information, a network diagram can be drawn showing
the sequence of the serial and parallel activities. For the original activity-on-arc
model, the activities are depicted by arrowed lines and milestones are depicted by
circles or quot;bubblesquot;.
If done manually, several drafts may be required to correctly portray the relationships
among activities. Software packages simplify this step by automatically converting
tabular activity information into a network diagram.
4. Estimate Activity Times
Weeks are a commonly used unit of time for activity completion, but any consistent
unit of time can be used.
A distinguishing feature of PERT is its ability to deal with uncertainty in activity
completion times. For each activity, the model usually includes three time estimates:
Optimistic time - generally the shortest time in which the activity can be
completed. It is common practice to specify optimistic times to be three
standard deviations from the mean so that there is approximately a 1%
chance that the activity will be completed within the optimistic time.
Most likely time - the completion time having the highest probability. Note that
this time is different from the expected time.
Pessimistic time - the longest time that an activity might require. Three
standard deviations from the mean is commonly used for the pessimistic time.
PERT assumes a beta probability distribution for the time estimates. For a beta
distribution, the expected time for each activity can be approximated using the
following weighted average:
Expected time = ( Optimistic + 4 x Most likely + Pessimistic ) / 6
This expected time may be displayed on the network diagram.
To calculate the variance for each activity completion time, if three standard
deviation times were selected for the optimistic and pessimistic times, then there are
six standard deviations between them, so the variance is given by:
[ ( Pessimistic - Optimistic ) / 6 ]2
5. Determine the Critical Path
The critical path is determined by adding the times for the activities in each
sequence and determining the longest path in the project. The critical path
determines the total calendar time required for the project. If activities outside the
critical path speed up or slow down (within limits), the total project time does not
change. The amount of time that a non-critical path activity can be delayed without
delaying the project is referred to as slack time.
If the critical path is not immediately obvious, it may be helpful to determine the
following four quantities for each activity:
ES - Earliest Start time
EF - Earliest Finish time
LS - Latest Start time
LF - Latest Finish time
These times are calculated using the expected time for the relevant activities. The
earliest start and finish times of each activity are determined by working forward
through the network and determining the earliest time at which an activity can start
and finish considering its predecessor activities. The latest start and finish times are
the latest times that an activity can start and finish without delaying the project. LS
and LF are found by working backward through the network. The difference in the
latest and earliest finish of each activity is that activity's slack. The critical path then
is the path through the network in which none of the activities have slack.
The variance in the project completion time can be calculated by summing the
variances in the completion times of the activities in the critical path. Given this
variance, one can calculate the probability that the project will be completed by a
certain date assuming a normal probability distribution for the critical path. The
normal distribution assumption holds if the number of activities in the path is large
enough for the central limit theorem to be applied.
Since the critical path determines the completion date of the project, the project can
be accelerated by adding the resources required to decrease the time for the
activities in the critical path. Such a shortening of the project sometimes is referred to
as project crashing.
6. Update as Project Progresses
Make adjustments in the PERT chart as the project progresses. As the project
unfolds, the estimated times can be replaced with actual times. In cases where there
are delays, additional resources may be needed to stay on schedule and the PERT
chart may be modified to reflect the new situation.
Benefits of PERT
PERT is useful because it provides the following information:
Expected project completion time.
Probability of completion before a specified date.
The critical path activities that directly impact the completion time.
The activities that have slack time and that can lend resources to critical path
Activity start and end dates.
The following are some of PERT's weaknesses:
The activity time estimates are somewhat subjective and depend on
judgment. In cases where there is little experience in performing an activity,
the numbers may be only a guess. In other cases, if the person or group
performing the activity estimates the time there may be bias in the estimate.
Even if the activity times are well-estimated, PERT assumes a beta
distribution for these time estimates, but the actual distribution may be
Even if the beta distribution assumption holds, PERT assumes that the
probability distribution of the project completion time is the same as the that of
the critical path. Because other paths can become the critical path if their
associated activities are delayed, PERT consistently underestimates the
expected project completion time.
CPM - Critical Path Method
In 1957, DuPont developed a project management method designed to address the
challenge of shutting down chemical plants for maintenance and then restarting the
plants once the maintenance had been completed. Given the complexity of the
process, they developed the Critical Path Method (CPM) for managing such
CPM provides the following benefits:
Provides a graphical view of the project.
Predicts the time required to complete the project.
Shows which activities are critical to maintaining the schedule and which are
CPM models the activities and events of a project as a network. Activities are
depicted as nodes on the network and events that signify the beginning or ending of
activities are depicted as arcs or lines between the nodes.
Steps in CPM Project Planning
1. Specify the individual activities.
2. Determine the sequence of those activities.
3. Draw a network diagram.
4. Estimate the completion time for each activity.
5. Identify the critical path (longest path through the network)
6. Update the CPM diagram as the project progresses.
1. Specify the Individual Activities
From the work breakdown structure, a listing can be made of all the activities in the
project. This listing can be used as the basis for adding sequence and duration
information in later steps.
2. Determine the Sequence of the Activities
Some activities are dependent on the completion of others. A listing of the immediate
predecessors of each activity is useful for constructing the CPM network diagram.
3. Draw the Network Diagram
Once the activities and their sequencing have been defined, the CPM diagram can
be drawn. CPM originally was developed as an activity on node (AON) network, but
some project planners prefer to specify the activities on the arcs.
4. Estimate Activity Completion Time
The time required to complete each activity can be estimated using past experience
or the estimates of knowledgeable persons. CPM is a deterministic model that does
not take into account variation in the completion time, so only one number is used for
an activity's time estimate.
5. Identify the Critical Path
The critical path is the longest-duration path through the network. The significance of
the critical path is that the activities that lie on it cannot be delayed without delaying
the project. Because of its impact on the entire project, critical path analysis is an
important aspect of project planning.
The critical path can be identified by determining the following four parameters for
ES - earliest start time: the earliest time at which the activity can start given
that its precedent activities must be completed first.
EF - earliest finish time, equal to the earliest start time for the activity plus the
time required to complete the activity.
LF - latest finish time: the latest time at which the activity can be completed
without delaying the project.
LS - latest start time, equal to the latest finish time minus the time required to
complete the activity.
The slack time for an activity is the time between its earliest and latest start time, or
between its earliest and latest finish time. Slack is the amount of time that an activity
can be delayed past its earliest start or earliest finish without delaying the project.
The critical path is the path through the project network in which none of the
activities have slack, that is, the path for which ES=LS and EF=LF for all activities in
the path. A delay in the critical path delays the project. Similarly, to accelerate the
project it is necessary to reduce the total time required for the activities in the critical
6. Update CPM Diagram
As the project progresses, the actual task completion times will be known and the
network diagram can be updated to include this information. A new critical path may
emerge, and structural changes may be made in the network if project requirements
CPM was developed for complex but fairly routine projects with minimal uncertainty
in the project completion times. For less routine projects there is more uncertainty in
the completion times, and this uncertainty limits the usefulness of the deterministic
CPM model. An alternative to CPM is the PERT project planning model, which
allows a range of durations to be specified for each activity.
Elements of Network:-
An individual operation which consumes resources and has a beginning and an
end is called activity. An arrow ( ) is often used to represent an
activity in the network diagram with its head indicating the direction of programme
of the project.
Event represents a point in time signifying the completion of some activities and
beginning of new ones. It is usually represent by a circle ( O ) in the network
diagram and is also called as a mode or a connector.
Types of Events:-
1) Start Event:- Is for which there is no preceding activity. Obviously, it will
have no arrow entering into it but will have arrows emerging from it.
2) End Event:- Is for which there is no succeeding activity. Again this event
won’t have any arrow emerging out but will have all arrows entering in.
3) First Event:- Is from which 2 or more activities emerge. ( O )
4) Merge Event:- Is in which 2 or more activities merge. ( O)
C) Dummy Activity:- is an activity with zero duration. Does not consume any
resources but merely shows the technological dependencies. It is inserted in the
network under following situation:-
a. Created to make activities with common starting, finishing events
b. To identify and maintain proper precedence relation between activities that
are not connected by events. (They are represent by dotted lines in the
When all activities and events in a project are connected logically and
sequentially they form a network.
RULES FOR DRAWING A NETWORK:-
1) Each activity will have two events.
2) Each activity should be represent by one and only one arrow in the
3) Length of an arrow is immaterial.
4) In beginning & end, there can be only 1 event, in between you can have
5) No two activities can have same start and event. To avoid such situations
a dummy activity can be introduced. A dummy line is a dotted line. It is
drawn when there is no connection between the events.
6) The arrow should be drawn as straight lines from left to right and no
arrows should cross each other.
7) One should take care that there are no loop formations in the network.
Critical path = 1-2-3-4-9-14-20-21-22-23
Duration of the project= 45.7479 Days
P (shutdown can be completed one week earlier)
P (Finishes maintenance project one day earlier)
P (Finishes maintenance project two days earlier)
P (Finishes maintenance project three days earlier)
P (Finishes maintenance project four days earlier)
P (Finishes maintenance project five days earlier)
P (Finishes maintenance project six days earlier)
Shale oil is considering, increasing the budget to shorten the shutdown. How
do you suggest the company proceed?
As the company is ready to increase the budget to shorten the loss at the time of
shutdown the company must employ a good amount of direct cost i.e. ,cost must be
incurred on manpower loading, good equipments ,direct material etc. in respect of
various productive activities. Also, proper planning of raw material should be done in
order to maintain the flow of manufacturing activity. A good amount of finished
product should be maintained so as to avoid the shortage during the length of shut
down time. Also, skilled and efficient labor force should employed to increase the