A Quick Guide to Production Planning Function


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This presentation is aimed at helping small and medium businesses in their production planning processes.

Production Planning is explained in a detailed manner with step-by-step examples for better understanding.

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A Quick Guide to Production Planning Function

  1. 1. Introduction Not quite sure if this book would be useful for you? If you belong to any of the category of people mentioned below, then this book is for you. • Manufacturing Sector expects the engineers to be Job- ready. However, the engineering curriculum does not cover some of the basics required in the manufacturing sector. This book would help in understanding the basics, so that a fresh engineer can perform his role immediately aCer joining the company. Fresh Engineers interested in joining Manufacturing Sector • This book can serve as an “InducIon Manual” for the new Supervisors and Engineers in the shop floor. Job ResponsibiliIes, Do’s and Don’ts for each role, Tools and Techniques and MIS reports are explained for each department. This would help in faster career growth. Supervisors / Engineers in the Shop floor • This book can serve as a Quick Guide to teach you and your employees, the basics of manufacturing organizaIon. This would also help you in managing your people, building the organizaIon to the next level by creaIng strong processes. Second GeneraIon Entrepreneurs
  2. 2. Why this book? • In India, several studies conducted on the employability skills state that only 5% to 10% of the Engineers graduating from the Institutions are Job-Ready / Employable. • Industries require workforce which are readily employable, so that they do not have to spend a lot of money and effort on providing basic skills and on- the-Job training • While large organisations have Induction training for their employees, many medium and small scale companies do not have proper structure to provide this training • Their employees work with very little awareness of the best practices of the industry, making them frustrated, fire-fighting for day-to-day activities and results in a lot of stress • This also makes the companies uncompetitive, leading to poor business performance, resulting in poor motivation of the people, and this becomes a vicious cycle • This publication is aimed at providing the fundamentals of manufacturing management which are not offered by any of our institutions/curriculum to Engineers and Diploma Holders who are joining Manufacturing Industry • This is our initiative to empower the professionals in performing more efficiently and effectively helping the organization and the nation • In addition, this gives us immense satisfaction that we are giving something back to the ecosystem we are working in and are able to challenge the traditional way of thinking and practices.
  3. 3. What do we cover in the book? A typical manufacturing company has Production, Production Planning, Quality, Stores, Purchase, Maintenance, Finance & Accounts, Marketing, Human Resources, Admin , Information Technology and Sales functions. However, we would cover 1. Production 2. Production Planning 3. Purchase 4. Stores 5. Quality 6. Maintenance functions in this book, since these are the major areas, an Engineer or a Diploma/Degree Holder joins after his/her degree.
  4. 4. Structure of the contents Each department / function is explained in the following structure: • General Introduction to the Function / Department • Organization Structure of the function • Roles and Responsibilities of the key incharges • Process Flow in the function • Tools and Techniques required in the function • Pictures and tables to demonstrate the activities (wherever applicable) • MIS Reports and the Analysis to be done • Key Result Areas (KRAs) and Key Performance Indicators (KPIs) for each function
  5. 5. Chapter 1 Introduction
  6. 6. Introduction to Manufacturing Company A manufacturing company produces goods (or materials) using tools, machines, chemical processing, biologic processing or formulation and with the use of people. Manufacturing ranges from small hand-made products (Handicrafts industry) to large / Hitech products (Aircraft / Bullet Trains). A typical manufacturing company procures many parts/raw materials from various suppliers (or Vendors), process them (discrete manufacturing or flow manufacturing) and sell to its customers. These customers may be the end users of the product or may use the products to make other products. For e.g. A glass manufacturing company procures silica and other raw materials for making glass. This can either be sold as end product to consumers (for home use) or to an Automotive factory to use these glass for cars (of course, the grades would be different). In this book, we consider a typical manufacturing company consisting of a few discrete manufacturing processes (e.g., Turning, Milling, Polishing, etc.).
  7. 7. There are various functions (or departments) in organisations, each focusing on a few major activities. 1. Production Function - Focuses on the manufacturing of the product 2. Purchase Function - Focuses on purchasing / buying the raw materials and consumables required for the production 3. Stores Function - Focuses on the receiving the incoming raw materials, holding them properly and issuing them to the user department when there is a need for the materials 4. Maintenance - To keep all the machines ready for production. To prevent break-downs of machines, Each function consists of a group of persons (or a single person) performing their tasks. A company is headed by the CEO / Directors / Owners depending on its structure. Various levels of managers across various functions report to the CEO / Directors. Supervisors / In-charges report to the managers and they manage the operators (shop floor employees across various levels) Pic: 1.1 - Various Levels of Employees CEO / VP / Promoter Process steps that take time, (VA) A process step that transforms or shapes a product or service, which is eventually sold to a customer. resources, or space, but do not add value to the product or service. Directors / Promoters Managers (various levels) Supervisors / Incharges (various levels) Operators / Employees (various levels) Senior Management Level Middle Management Level Junior Management Level Employee Level
  8. 8. Internal and External Customer External Customer: A customer who buys the product / services of a company. All the functions in an organization exist to fulfil the need of these end customers. This customer is not a part of your organization but pays your organization for the products / services. Internal Customer: A member of the organization providing goods / services for other members inside the organization. For e.g. Stores issues raw materials to production. So Production function is a customer for Stores. Inside Production function, each operation sends the product to the next operation thus becomes a supplier to the next operation. These are called Internal Customers and Internal Suppliers. Pic: 1.2 - Internal Suppliers and Customers Stores Production Internal CustomerInternal Supplier
  9. 9. Goals of each department Each department works with a set of goals which are aimed at satisfying / exceeding their Internal / External customer’s needs. These goals are called Key Result Areas (KRA’s) or Department Objectives / Targets. Generally there are 6 major categories of objectives / KRAs: 1. Productivity 2. Quality 3. Cost 4. Delivery 5. Safety 6. Morale These KRA’s needed to be measured through various Indicators. They are called Key Performance Indicators (KPIs). For e.g. Productivity can be measured by indicators like “output per person per day”, “Planned production vs. achieved production”, “Utilisation of the machine”, etc. Similarly, Quality can be measured by “Reduction in defectives”, “% of yield”, etc. All the departments will have KRAs and KPIs to measure their performance. Generally there would be a Monthly Review Meeting (MRM) to discuss the performance and take corrective and preventive actions.
  10. 10. Chapter 2 Production Planning
  11. 11. Production Planning Function Production Planning is one of the critical functions, which plans for the production of the goods in the company. In a nutshell, Production Planning takes into account, the demand from the customer, the raw materials availability, Machine and employee availability and other infrastructural requirements and suggests a plan for the production. This section aims at providing the basic knowledge of Production Planning Function, some of the tools and techniques used in the process and help the reader to plan for the production.
  12. 12. Production Planning Function • Production Planning function is responsible for preparing the Plan for the production • Normally the planning is done through Manufacturing Requirements Planning (MRP) or Manufacturing Resource Planning (MRP2) • Enterprise Resource Planning (ERP) is the automated & integrated version of MRP2 – Nowadays a lot of ERP packages are in use widely, across industries • For our easy understanding, the focus would remain on the MRP systems
  13. 13. Materials Requirement Planning (MRP) • Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes. • Evolved in1960’s • An MRP system is intended to simultaneously meet three objectives: • Ensure materials are available for production and products are available for delivery to customers • Maintain the lowest possible material and product levels in store • Plan manufacturing activities, delivery schedules and purchasing activities MRP2 • MRP2 had evolved from MRP in the 80’s • It encompasses the same methodology but includes integrated materials planning, finance and human relations. • It has a simulation capability to answer "what-if" questions • There are many software available for planning using MRP2
  14. 14. Enterprise Resource Planning (ERP) • Integrated functions aids in better planning and execution • Both MRP and MRPII are still widely used, independently and as modules of more comprehensive ERP systems • Automatically calculates the materials purchasing, production planning and delivery schedules
  15. 15. Pic: 6.1 - Evolution of Production Planning Tools Terminology Used in Planning • The following are the various factors that should be considered while planning for the production Pic: 6.2 - Terminology used in Production Planning Suppliers Company Customers 1. Stock in hand 2. Pending Order Status 3. Lead Time / Safety Stock 4. Minimum Order Quantity 1. Bill of Materials 2. Machine / Labor Productivity 1. Customer Order 2. Forecasted Demand
  16. 16. Suppliers - Stock in hand • This is the stock for the items present in hand • Finished goods • Raw materials • For e.g. For a customer order of 500 items of ‘X’ product, if we have 100 nos of ‘X’ in stores, we can plan only for the remaining 400 nos Suppliers - Pending Order Status • This refers to the pending Purchase Orders that are yet to be fulfilled by the suppliers/ vendors • One has to take this also in to account while planning for the materials
  17. 17. Suppliers - Lead Time and Safety Stock • This has been clearly explained in the Purchase and Stores modules • Lead time – is the time an item takes to reach the factory gate from the time of raising a PO • Safety Stock – is the stock quantity/no of days of stock that should be planned to compensate for any uncertainty in the delivery Suppliers - Minimum Order Quantity • There is a minimum order size and batch size for most of the items. For E.g. the supplier of welding rods might accept the order only a minimum of 500 rods are ordered and the multiples will be in 100 • Minimum order is 500 nos • After that multiples of 100 ( an order of 575 nos will not be accepted; either 600 nos or 500 nos will be accepted by the supplier)
  18. 18. Company - Bill of Materials (BOM) • Bill of Materials (BoM) is the list of all items required to manufacture a product • It includes all raw materials, consumables, packing materials with clear consumption details to manufacture 1 product • This must be created for each and every finished product the company is delivering to the customers • An example for a BoM is demonstrated here Pic: 6.3 - Bill of Materials
  19. 19. Company - Machine / Labor Productivity • What is the time taken for manufacturing – manufacturing lead time • Lead time of all manufacturing processes • Machine run time + idle time + transportation + documentation etc. (refer 7 wastes – explained in the production module) Customers - Sales Order • A confirmed order from the Customer specifying the following: • Order No • Product Required • Quantity • Delivery schedule • Price • Sample approval / Design / Technical drawings – depending on the industry
  20. 20. Customers - Demand Forecast • For items which are manufactured based on the sales forecast, the following items are required for planning: • Product Required • Quantity • Region-wise / other break-up ( depending on the company) • Shipment date
  21. 21. Step-by-Step Example for Production Planning • Imagine the company produces a product called ‘X’ • It is made using the following materials: • Note that items like ‘OK’ sticker, carton boxes etc. are not included the list. Normally, the small items are omitted from the list, which creates a lot of confusion while planning the materials. This is why we would create a detailed/mistake proof BoM Pic: 6.4 - Sample Bill of Materials for ‘X’ - Note that few Items missing in this BOM
  22. 22. Customer Order • Let us assume that the customer has placed an order with the following details: Order No C10075 Product Required X Quantity 1000 nos ; 2 batches (500 each) Delivery Schedule 500 nos on 1st April 2016 and next 500 nos on 17th April 2016 Price Rs. 5000 per unit Sample Approved
  23. 23. Bill of Materials Generation • A detailed Bill of Materials would be created and used subsequently for the product ‘X’ • Please refer to the table below for the BoM • All the items required for manufacturing 1 unit of “X” is noted. • Even Packing boxes, consumables and other low value items should be included Pic: 6.5 - Detailed Bill of Materials for ‘X’
  24. 24. Machine / Labor Productivity • Let us assume the production consists of 3 activities: Welding 30 min Assembling 20 min Inspection and Sticker Pasting 5 min Pasting 5 min Total manufacturing time = 60 mins = 1 hour 1 Hour There are 5 assembly lines 5 nos So total production per shift = 8x1x5 40 nos Assume that the factory works for 2 shifts per day = 16 hours: Total Production per day 80 nos Pic: 6.6 - Machine / Labour Productivity
  25. 25. Lead Time, Safety Stock and MOQ • Let us assume the production consists of 3 activities: BoM Per day Consumption Lead time (days) Safety stock (days) Safety Stock (Qty) MOQ Multiples Copper Rod 5 400 7 3 240 200 50 Steel Rod 10 800 5 2 160 200 50 Plastic case - Type A 2 160 3 2 160 200 50 Plastic case - Type B 1 80 3 2 160 200 50 Welding Rod 2 160 3 2 160 200 50 OK Sticker 1 80 3 2 160 200 50 Barcode Lable 1 80 3 2 160 200 50 Packing Box 1 80 2 1 80 200 50 Carton box 0.17 13.33 2 1 80 50 10 Pic: 6.7 - Lead time and Safety Stock for the materials
  26. 26. Pending Order Status Order Quantity 500 For I despatch Finished Goods in Stores 100 Net Requirement 400 Net Requirement x BoM qty Stock in Hand Pending Order Qty Quantity to be ordered Copper Rod 2000 200 100 1700 Steel Rod 4000 300 200 3500 Plastic case - Type A 800 50 100 650 Plastic case - Type B 400 60 100 240 Welding Rod 800 200 400 200 OK Sticker 400 50 150 200 Barcode Lable 400 25 200 175 Packing Box 400 200 50 150 Carton box 66.67 20 25 22
  27. 27. Pic: 6.8 - Pending Order Status Production Plan • Let us assume today's date is 10th March. We have 21 days for delivery. We can use one assembly line and meet the target. We can start the production on 15th March. Pic: 6.9 - Table showing the Production Plan
  28. 28. Daily Stock Consumption Pattern • Red cells indicate that the stock in stores will get over by that date and should be refilled before that date, to avoid stock-out situation Pic: 6.10 - Consumption Pattern of Materials
  29. 29. Purchase Plan • To avoid the stock-situation (refer previous slide), we need to order the materials as mentioned below: • The list below gives the date for ordering the raw materials (based on the lead time and Safety stock). • Quantity is approximately (or more) than half of the net requirement quantity for ease of understanding. • In reality, Re-order status has to be considered while ordering Pic: 6.11 - Purchase Plan for the materials
  30. 30. Conclusion • The example mentioned in this section has clearly explained the production planning process, taking into account the following: • Delivery – based on the customer order • Manufacturing – based on the manufacturing lead times • Purchase – Based on the stock position, Re-order level & lead time of the materials
  31. 31. What are the KRAs and KPIs of your department? Goals / KRAs Performance Indicators / KPIs Measure Current Level Target Productivity Achieving Planned Production by the Production Dept in % 80% 100% Productivity Achieving the planned export orders by the production in % 50% 100% Prepare your department’s KRA’s in case your organization does not have them.
  32. 32. Learning’s from the Section At the end of Production Planning Section, Are you clear on the following? • Key Terminologies used in the Planning process • Can you prepare a detailed production plan for a product at your organization?
  33. 33. Interested in buying the book? Please click on any of the following links to buy. View Listing Print Book India View Listing View Listing View Listing View Listing View Listing International Print Books View Listing View Listing eBooks View Listing View Listing View Listing View Listing
  34. 34. Meet the Author Ananth is the CEO and Founder of Hash Management Services LLP. Ananth has over 12 years of experience in the areas of Implementation of Lean Manufacturing concepts, Quality Management, and Supply Chain Management initiatives. Some of the industries he works/worked with are Textiles, Leather and Footwear, Castings and Forgings, Electronic Equipment, Pump Manufacturing, Fabrication, White goods, Heavy Engineering and Light Engineering sectors. He works with Industry bodies like CII, FICCI and currently working with International Labour Organization (ILO) for implementing their SCORE Program in a few auto ancillaries in Chennai. He is also an empaneled Lean Manufacturing Consultant (LMC) with National Productivity Council (NPC) and working on Implementing Lean Manufacturing principles for Small and Medium Enterprises. Prior to Hash Management Services LLP, he was a consultant with Deloitte`s consulting practice in India. Earlier, Ananth worked with Titan Industries Ltd, as a Senior Engineer responsible for productivity improvements and various quality initiatives. He holds PGDM from the IFMR, Chennai and a Bachelors degree in Mechanical Engineering from the Government College of Engineering, Tirunelveli. Please visit www.hashllp.com to know more about the ways we help manufacturing companies improve their operations and profitability.
  35. 35. Disclaimer The advice contained in this material is for a specific audience and not for general public. The author designed the information to present his opinion about the subject matter. The reader must carefully investigate all aspects of any business decision before committing him or herself. The author obtained the information contained herein from sources he believes to be reliable and from his own personal experience, but he neither implies nor intends any guarantee of accuracy. The author particularly disclaims any liability, loss or risk taken by individuals who directly or indirectly act on the information herein. The author believes the advice presented here is sound, but the readers cannot hold him responsible for either the take or the result of those actions.
  36. 36. Acknowledgements This book would not have been a reality without the contribution from V N Shiju who worked with me on creating the contents, L S Kannan contributed Quality section, Veerabaghu, my mentor and guide, my wife Jeyalakshmi who helped me in documentation, A S Senthil Kumar, my first boss who helped me understand the basics of manufacturing industry, my colleagues at Deloitte and all my friends who stood by me during some of the toughest times in my life.