Industrial Engineering unit 4.Production planning and control Notes by badebhau.

Industrial Engineering 1
Introduction
 For efficient, effective and economical operation in a manufacturing unit of an organization, it is
essential to integrate the production planning and control system. Production planning and subsequent
production control follow adaption of product design and finalization of a production process.
 Production planning and control address a fundamental problem of low productivity, inventory
management and resource utilization.
 Production planning is required for scheduling, dispatch, inspection, quality management, inventory
management, supply management and equipment management. Production control ensures that
production team can achieve required production target, optimum utilization of resources, quality
management and cost savings.
 Planning and control are an essential ingredient for success of an operation unit. The benefits of
production planning and control are as follows:
1. It ensures that optimum utilization of production capacity is achieved, by proper scheduling of
the machine items, which reduces the idle time, as well as over use.
2. It ensures that inventory level are maintained at optimum levels at all time, i.e. there is no over-
stocking or under-stocking.
3. It also ensures that production time is kept at optimum level and thereby increasing the turnover
time.
4. Since it overlooks all aspects of production, quality of final product is always maintained.
 Production Planning
Production planning is one part of production planning and control dealing with basic concepts of
what to produce, when to produce, how much to produce, etc. It involves taking a long-term view at overall
production planning. Therefore, objectives of production planning are as follows:
 To ensure right quantity and quality of raw material, equipment, etc. are available during times of
production.
 To ensure capacity utilization is in tune with forecast demand at all the time.
 Organization can deliver a product in a timely and regular manner.
 Supplier are informed will in advance for the requirement of raw materials.
 It reduces investment in inventory.
Unit-4. Production Planning & Control.

 It reduces overall production cost by driving in efficiency.
 Production Control
Production control looks to utilize different type of control techniques to achieve optimum
performance out of the production system as to achieve overall production planning targets. Therefore,
objectives of production control are as follows:
 Regulate inventory management
 Organize the production schedules
 Optimum utilization of resources and production process
 CONCEPT OF PRODUCTION
Production function is that part of an organization, which is concerned with the transformation of a
range of inputs into the required outputs (products) having the requisite quality level.
Production is defined as “the step-by-step conversion of one form of material into another form
through chemical or mechanical process to create or enhance the utility of the product to the user.” Thus
production is a value addition process. At each stage of processing, there will be value addition.
Edwood Buffa defines production as ‘a process by which goods and services are created’.
Some examples of production are: manufacturing custom-made products like, boilers with a specific
capacity, constructing flats, some structural fabrication works for selected customers, etc., and
manufacturing standardized products like, car, bus, motor cycle, radio, television, etc
PRODUCTION SYSTEM

The production system of an organization is that part, which produces products of an organization. It is that
activity whereby resources, flowing within a defined system, are combined and transformed in a controlled
manner to add value in accordance with the policies communicated by management.
A simplified production system is shown in fig.1.1
A “Production System” is a system whose function is to transform an input into a desired output
by means of a process (the production process) and of resources. The definition of a production system is
thus based on four main elements: the input, the resources, the production process and the output.
Most of the organizations (including non-profit organization) can be described as production
systems.These organizations transform (or convert) a set of inputs (such as materials, labour, equipment,
energy etc.) in to one or useful outputs. The outputs of a production system are normally called products.
These products may be: (a)Tangible goods (b)Intangible services (c)combination of (a) and (b).
Production system refers to manufacturing subsystem that includes all functions required to design,
produce, distribute and service a manufactured product. So this system produces goods and/or services on
a continuous and/or batch basis with or without profit as a primary objective.
Production is the basic activity of all organizations and all other activities revolve around production
activity. The output of production is the creation of goods and services which satisfy the needs of the
customers. In some organization the product is physical (tangible) good. For example, refrigerators, motor
cars, television, toothpaste etc., while in others it is a service (insurance, healthcare etc.).
The production system has the following characteristics:
1. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs (men, material, machines,information,energy) to useful
outputs (goods and/or services).
3. Production system doesn’t oppose in isolation from the other organization system such as marketing,
finance etc.
4. There exists a feedback about the activities which is essential to control and improve system
performance.
5. The transformation process involves many activities and operation necessary to change inputs to output.
These operations and activities can be mechanical, chemical, inspection and control, material handling
operation etc.
 Classification of Production System
The production system of a company mainly uses facilities, equipments and operating
methods(called the production system) to produce goods that satisfy customers’ demand.The above

requirements of a production system depend on the type of product that the company offers and the strategy
that it employs to serve its customers.
Production systems can be basically classified mainly into two types, Intermittent Production and
Continuous Production.
Production systems can be classified as Job Shop, Batch, Mass and Continuous Production systems.
Fig.2 Classification of production systems
1. Job Shop Production
 Job shop is appropriate for manufactures of small batches of many different products, each of which is
custom designed and requires its own unique set of processing steps or routing through production
process.
 The production system in which different types of product follow different sequences through different
shops. Ex. Furniture manufacturing company, restaurant, prototype industry.
 Much time is spent waiting for access to equipment. Some equipment overloaded.
 A process technology suitable for a variety of custom designed products in some volume.
 This production system adopts process layout as by this production system we manufacture more
variety of products at low product volume.
 Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.

5. Detailed planning is essential for sequencing the requirements of each product, capacities for each
work centre and order priorities.
 Advantages
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.
 Limitations
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
2. BATCH PRODUCTION
 Batch production is defined by American Production and Inventory Control Society (APICS) “as a form
of manufacturing in which the job passes through the functional departments in lots or batches and
each lot may have a different routing.”
 It is characterised by the manufacture of limited number of products produced at regular intervals and
stocked awaiting sales.
 Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and change of set up
is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.
 Advantages
1. Better utilization of plant and machinery.
2. Promotes functional specialization.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.

 Limitations
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
3. MASS PRODUCTION / Assembly line production
Manufacture of discrete parts or assemblies using a continuous process are called mass production. This
production system is justified by very large volume of production. The machines are arranged in a line or
product layout. Product and process standardisation exists and all outputs follow the same path.
 Characteristics
Mass production is used under the following circumstances:
1. Standardisation of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
 Advantages
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
 Limitations
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.

4. CONTINUOUS PRODUCTION
Production facilities are arranged as per the sequence of production operations from the first operations to
the finished product. The items are made to flow through the sequence of operations through material
handling devices such as conveyors, transfer devices, etc.
 Characteristics
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
 Advantages
Following are the advantages of continuous production:
1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
 Limitations
Following are the limitations of continuous production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.
Que. What are the Objectives and Functions of Production Planning and Control ?
 Objectives of Production Planning and Control?
1. Effective utilization of resources
Production planning results in effective utilization of resources, plant capacity and equipments. This
results in low-cost and high returns for the organization.
2. Steady flow of production
Production planning ensures a regular and steady flow of production. Here, all the machines are put to
maximum use. This results in a regular production, which helps to give a routine supply to customers.

3. Estimate the resources
Production planning helps to estimate the resources like men, materials, etc. The estimate is made based on
sales forecast. So production is planned to meet sales requirements.
4. Ensures optimum inventory
Production planning ensures optimum inventory. It prevents over-stocking and under-stocking. Necessary
stocks are maintained. Stock of raw material is maintained at a proper level in order to meet the production
demands. Stock of finished goods is also maintained to meet regular demands from customers.
5. Co-ordinates activities of departments
Production planning helps to co-ordinate the activities of different departments. For e.g. the marketing
department co-ordinates with production department to sell the goods. This results in profit to the
organization.
6. Minimize wastage of raw materials
Production planning minimizes wastage of raw materials. It ensures proper inventory of raw materials and
materials handling. This helps to minimize wastages of raw material. It also ensures production of quality
goods. This results in a minimum rejects. So proper production planning and control results in minimum
wastage.
7. Improves the labor productivity
Production planning improves the labor productivity. Here, there is maximum utilization of manpower.
Training is provided to the workers. The profits are shared with the workers in form of increased wages and
other incentives. Workers are motivated to perform their best. This results in improved labor efficiency.
8. Helps to capture the market
Production planning helps to give delivery of goods to customers in time. This is because of regular flow
of quality production. So the company can face competition effectively, and it can capture the market.
9. Provides a better work environment
Production planning provides a better work environment to the workers. Workers get improved working
conditions, proper working hours, leave and holidays, increased wages and other incentives. This is because
the company is working very efficiently.
10. Facilitates quality improvement
Production planning facilitates quality improvement because the production is checked regularly. Quality
consciousness is developed among the employees through training, suggestion schemes, quality circles, etc.
11. Results in consumer satisfaction
Production planning helps to give a regular supply of goods and services to the consumers at far prices. It
results in consumer satisfaction.

12. Reduces the production costs
Production planning makes optimum utilization of resources, and it minimizes wastage. It also maintains
optimum size of inventories. All this reduces the production costs.
 Other important objects of PPC are:-
 To plan production facilities in the best possible manner along with the proper systematic planning of
production activities.
 Providing men, machines, materials etc. of right quality, quantity and also providing them at the right
time forms a very important factor.
 To inform, about the difficulties or the various awkward positions expected to crop up later, to the
management beforehand.
 Major functions of production planning and control
1. Planning
2. Routing i.e. determination of the manufacturing path.
3. Loading i.e. assigning of job to men and machine.
4. Scheduling i.e. establishing time for starting & finishing each operation or job.
5. Dispatching i.e. issue of orders.
6. Follow-up i.e. ensuring that work proceeds according to plans & there is no variation. This means to
ensure smooth flow of work.
1. Planning
The main function of the PPC is to plan everything, which mainly includes the planning, the organizing, the
staffing, the maintaining the control over the various things and also to maintain the coordination between
the different departments. For the proper working of the PPC, it is very important to classify the various
functions of the manager in the suitable groups of the activities.
Objectives:-
 Production planning helps to estimate the resources like men, materials, etc. The estimate is made based
on sales forecast. So production is planned to meet sales requirements.
 Production planning results in effective utilization of resources, plant capacity and equipments. This
results in low-cost and high returns for the organization.
 Production planning helps to co-ordinate the activities of different departments.

For e.g.:- the marketing department co-ordinates with production department to sell the goods. This
results in profit to the organization.
2. Routing
Routing is one important function in production planning & control. It is useful for smooth & efficient
working of the whole plant or factory. It decides the path of work & the sequence of operations. The demand
for a more systematic method of carrying the work through the shop gave rise to the practice of routing. In
fact, production planning starts with routing which includes the following activities:
a. Determining the quality of the product to be manufactured;
b. Determining the men, machines & materials to be used;
c. Determining the types, number & sequence of manufacturing operations; &
d. Determining the place of production.
 Routing has the following objectives:
1. It determines the sequence of manufacturing operations.
2. It ensures the strict adherence to the sequence so determined.
3. It strives for the best possible & cheapest sequence of operations.
4. It influences the design & layout of the factory building with a view to get quick & better production
results.
5. It also influences the installation of plants & factory for better results.
 Advantages of routing:
1. Well chalked out division of labor.
2. Production of goods according to schedule.
3. Maximization of productivity.
4. Interruption free production.
5. Reduction in cost of production.
6. Optimum use of all factors of production.
7. scientific layout of the plant.
3. Loading
Assigning specific job to men, machines and work centers as per their capacities is called loading. In PPC,
a loading chart is prepared for each work centre. Loading chart shows planned utilization of men and

material and machine available. It also helps to avoid over loading, under loading and bottle necks in the
production.
The following information are required for preparation of loading :
 Time need for a job
 Total work load
 Avaibility of labor ,material, machines
 Capacity of each worker and machine
4. Scheduling
Scheduling is concerned with time table of production. Scheduling arranges the different manufacturing
operations in order of priority, fixing the time & date for the commencement & completion of each
operation. It includes all requisites of production like scheduling of parts, materials, machines, etc. Perfect
coordination must exist between operations so that parts that are separately produced are brought to the
final assembly in right time. In brief, scheduling means fixing or deciding the amount of work to be done
& fixing the time for starting & finishing each operation. It is like a timetable of the production plan.
Essentials of master scheduling:
1. Inventory policy & position.
2. Procurement including subcontract.
3. Sales forecast.
4. Departmental manufacturing capacities.
5. Operations required & operations schedule.
6. Specific operations presenting critical path or imbalance of production flow.
7. Specific customer demands or delivery requirements.
8. Alternative delivery schedules.
9. Production plan including quantitative data.
10. Production standards.
11. Demand for finished products.
Uses of scheduling:
1. Scheduling is certainly a necessity in a large setup which produces a variety of products with numerous
components. The time within which products must be manufactured forms an important element in
production control.
2. Scheduling also determines the total time required to perform a given piece of work or assembly.

3. Time & motion study helps standardization of methods of work after a careful analysis of all the vital
factors surrounding the manufacturing processes.
5. Dispatching
Releasing orders and instructions for starting of production as per route sheet and schedule chart is called
dispatching. Dispatching is concerned with starting the processes & operations of production. Dispatching
is based on the route sheets & schedule sheets. Dispatching provides the necessary authority to start the
routed & schedule work. It is similar to putting oneself into the train after deciding the route of the particular
train & the destination.
Functions of dispatching:
1. To ensure that the right materials are moved from stores to machines & from operation to operation. 2.
To distribute machine loading & schedule charts, route sheets, operation instruction cards & identification
tags for each works order.
3. To instruct tools department to issue the right tools, accessories & fixtures in time.
4. To authorize the work to be taken in hand as per the predetermined dates & time.
5. To direct inspection at various stages of production for inspection report.
6. To maintain proper report of the various subsidiary orders issued with each production order, for filing
& reference.
7. To inform the follow-up section that production is starting.
6. Follow-up Or Expediting
Follow-up expedites the movement of materials & production process as a whole. It looks into
determination of the present situation boosting the department lagging behind & removing the bottlenecks
in the production line. Once production begins it is necessary to check that it is proceeding according to
plan. Before dispatching new orders to the manufacturing department the progress of outstanding orders
must be known. There are certain factors over which the manufacturing department has no control & hence
follow-up is necessary. The most important factors causing disturbances in production schedule are:
excessive labor, absenteeism, machine breakdown, errors in drawings, strikes, late delivery of materials etc.
the function of follow-up is to maintain proper records of work, delays & bottleneck. Such records can be
used in future to control production.

Follow-up Documents:
Follow-up documents are prepared with the objective to identify the products. They also help to
check completion dates with due dates. They vary greatly according to the type of production. These
documents include the following information:
1. Labels with part numbers.
2. Order numbers mentioned on the article.
3. Number of products or batches of products.
4. Daily progress sheets showing the position of every order in process.
5. Reports showing orders behind schedule.
Comparison
Sr.
No.
Routing Scheduling
1. Routing is selection and fixing the path which
the raw material shall follow to get
transformed into finished product.
Scheduling is establishing amount of work to
be done and fixed starting and completion
time of each operation.
2. Under this function, the operations, their path
and sequence are established.
It mainly concerns with time element and
priorities of a job.
3. The main aim of routing is to determine the
best and cheapest sequence of operations and
to ensure that this sequence is strictly
followed.
The main aim of scheduling is to determine
the realistic delivery dates of the product.
4. Routing is prepared on route sheet A principal tool used in scheduling is Gantt
chart.
5. Routing is prepared before scheduling Scheduling is done on the basis of routing
6. Routing answers the question where the
activity should be carried out?
Scheduling answers the question when it shall
be done?

Advantages of Production planning and control
1. Avoidance of Rush Orders
Production is well planned and its time aspects are well controlled. Therefore, production control reduces
the number of risk-orders and overtime work on plant.
2. Avoidance of Bottlenecks
The incomplete work does not get accumulated because production control maintains an even flow of work.
3. Cost Reduction
Production control programs minimizes the idleness of men and machines, keeps in process inventories at
a satisfactory level, leads to a better control of raw materials inventory, reduces costs of storage and
materials handling, helps in maintaining quality and containing rejection and thus reduces unit cost of
production.
4. Effective Utilization of Resources
It reduces the loss of time by the workers waiting for materials and makes most effective use of equipments.
5. Co-Ordination
It serves to co-ordinate the activities of plant and results in a concerted effort by workmen.
6. Benefits to Workers
Adequate wages, stable employment, job Security, improved working conditions, increased personal
satisfaction, high morale.
7. Efficient Service to Customers
It ensures better service to the customers by enabling production to be conducted in accordance with the
time schedules and therefore deliveries are made on promised dates

Q. WHAT IS CAPACITY PLANNING ?
Capacity planning : Capacity planning is central to the long-term success of an organization. Capacity
plans are made at two levels:
(i) Long-term capacity plans :which deal with investments in new facilities and equipments covering
the requirements for at least two years into the future and
(ii) Short-term capacity plans :which focus on work-force size, overtime budgets, inventories etc. A
long term strategic decision that establishes a firm‘s overall level resources.
Three major capacity decisions are:
a) How much capacity to be installed,
b) When to increase capacity and
c) How much to increase
Capacity is defined as the ability to achieve, store or produce. For an organization, capacity would be
the ability of a given system to produce output within the specific time period.
Capacity planning is essential to be determining optimum utilization of resource and plays an
important role decision-making process, for example, extension of existing operations,
modification to product lines, starting new products, etc.
Capacity planning is the process of determining the production capacity needed by an organization to meet
changing demand for its products. Capacity is the rate of productive capability of a facility. Capacity is
usually expressed as volume of output per time period. It is the process of determining the necessary to
meet the production objectives.
The objectives of capacity planning are:
 To identify and solve capacity problem in a timely manner to meet consumer needs.
 To maintain a balance between required capacity and available capacity.
 The goal of capacity planning is to minimize this discrepancy.
Capacity is calculated: (number of machines or workers) × (number of shifts) ×
(utilization) × (efficiency).
THE NEED FOR CAPACITY PLANNING:
Capacity planning is the first step when an organization decided to produce more or a new product. Once
capacity is evaluated and a need for a new expanded facility is determined, facility location and process
technology activities occur. Too much capacity would require exploring ways to reduce capacity, such as
temporarily closing, selling, or consolidating facilities. Consolidation might involve relocation, a

combining of technologies, or a rearrangement of equipment and processes. Capacity planning is done in
order to estimate whether the demand is higher than capacity or lower than capacity. That is compare
demand versus capacity. It helps an organization to identify and plan the actions necessary to meet
customer‘s present and future demand.
HOW IS CAPACITY MEASURED?
For some organization capacity is simple to measure. General Motors Corporation can use ―numbers of
automobiles per year. But what about organization whose product lines are more diverse? For these firms,
it is hard to find a common unit of output.
As a substitute, capacity can be expressed in terms of input. A legal office may express capacity in
terms of the number of attorneys employed per year. A custom job shop or an auto repair shop may express
capacity in terms of available labour hours and/or machine hours per week, month, or year.
Capacity can be expressed in terms of input & output, depending on the nature of business.
Types of Capacity
 Production capacity: Maximum rate of production or output of an organization. (e.g., 100 cars per day
etc .. )
 Design capacity: The maximum output that can possibly be attained.
 Effective capacity: The maximum output given a product mix, scheduling difficulties, machine
maintenance, quality factors, absenteeism etc.
 Maximum capacity: The maximum output that a facility can achieve under ideal conditions. Also
known as peak capacity.
Capacity Planning Classification
Capacity planning based on the timeline is classified into three main categories long range, medium range
and short range.

1. Long Term Capacity:
Long range capacity of an organization is dependent on various other capacities like design capacity,
production capacity, sustainable capacity and effective capacity. Design capacity is the maximum output
possible as indicated by equipment manufacturer under ideal working condition. Production capacity is the
maximum output possible from equipment under normal working condition or day. Sustainable capacity is
the maximum production level achievable in realistic work condition and considering normal machine
breakdown, maintenance, etc. Effective capacity is the optimum production level under pre-defined job and
work-schedules, normal machine breakdown, maintenance, etc.
2. Medium Term Capacity:
The strategic capacity planning undertaken by organization for 2 to 3 years of a time frame is
referred to as medium term capacity planning.
3. Short Term Capacity:
The strategic planning undertaken by organization for a daily weekly or quarterly time frame is
referred to as short term capacity planning.
 THREE STEPS OF CAPACITY PLANNING:
1. Determine Service Level Requirements:
The first step on the capacity planning process is to categorize the work done by systems and to quantify
users‘ expectation for how the work gets down.
(a) Define workloads
(b) Determine the unit of work
(c) Identify service levels for each workload
2. Analyze current capacity:
Next, the current capacity of the system must be analyzed to determine how it is meeting the needs of the
users.
(a) Measure service levels and compare to objectives
(b) Measure overall resources usages.
(c) Measure resource usages by workload
(d) Identify components of response time
3. Planning for future:
Finally, using forecasts of future business activity, future system requirements are determined.
Implementing the required changes in system configuring will ensure that sufficient capacity will be
available to maintain service level, even as circumstanced change in the future.

(a) Determine future processing requirements
(b) Plan future system configuration
Strategic Capacity Planning
A technique used to identify and measure overall capacity of production is referred to as strategic
capacity planning. Strategic capacity planning is utilized for capital intensive resource like plant, machinery,
labor, etc.
Strategic capacity planning is essential as it helps the organization in meeting the future
requirements of the organization. Planning ensures that operating cost are maintained at a minimum possible
level without affecting the quality. It ensures the organization remain competitive and can achieve the long-
term growth plan.
Goal of Capacity Planning
The ultimate goal of capacity planning is to meet the current and future level of the requirement at
a minimal wastage. The three types of capacity planning based on goal are lead capacity planning, lag
strategy planning and match strategy planning.
Factors Affecting Capacity Planning
Effective capacity planning is dependent upon factors like production facility (layout, design, and
location), product line or matrix, production technology, human capital (job design, compensation),
operational structure (scheduling, quality assurance) and external structure ( policy, safety regulations).
 Aggregate Production Planning
An organization can finalize its business plans on the recommendation of demand forecast. Once
business plans are ready, an organization can do backward working from the final sales unit to raw materials
required. Thus annual and quarterly plans are broken down into labor, raw material, working capital, etc.
requirements over a medium-range period (6 months to 18 months). This process of working out production
requirements for a medium range is called aggregate planning. Aggregate Production Planning indicates
the level of output.
The aggregate planning concentrates on scheduling production, personnel and inventory levels during
intermediate term planning horizon such as 3-12 months. Aggregate plans act as an interface between
strategic decision (which fixes the operating environment) and short term scheduling and control decision

which guides firm’s day-to-day operations. Aggregate planning typically focuses on manipulating several
aspects of operations-aggregate production, inventory and personnel levels to minimize costs over some
planning horizon while satisfying demand and policy requirements. In brief the objectives of AP are to
develop plans that are feasible and optimal.
Production planning in the intermediate range of time is termed as Aggregate planning.
Factors Affecting Aggregate Planning
Aggregate planning is an operational activity critical to the organization as it looks to balance long-term
strategic planning with short term production success. Following factors are critical before an aggregate
planning process can actually start :
 A complete information is required about available production facility and raw materials.
 A solid demand forecast covering the medium-range period
 Financial planning surrounding the production cost which includes raw material, labor, inventory
planning, etc.
 Organization policy around labor management, quality management, etc.
For aggregate planning to be a success, following inputs are required;
 An aggregate demand forecast for the relevant period
 Evaluation of all the available means to manage capacity planning like sub-contracting, outsourcing,
etc.
 Existing operational status of workforce (number, skill set, etc.), inventory level and production
efficiency
 Aggregate planning will ensure that organization can plan for workforce level, inventory level and
production rate in line with its strategic goal and objective.
Aggregate planning as an Operational Tool
Aggregate planning helps achieve balance between operation goal, financial goal and overall strategic
objective of the organization. It serves as a platform to manage capacity and demand planning.

In a scenario where demand is not matching the capacity, an organization can try to balance both by pricing,
promotion, order management and new demand creation.
In scenario where capacity is not matching demand, an organization can try to balance the both by various
alternatives such as.
 Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce until demand
decrease/increase.
 Including overtime as part of scheduling there by creating additional capacity.
 Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator.
Importance of Aggregate Planning
Aggregate planning plays an important part in achieving long-term objectives of the organization.
Aggregate planning helps in:
 Achieving financial goals by reducing overall variable cost and improving the bottom line
 Maximum utilization of the available production facility
 Provide customer delight by matching demand and reducing wait time for customers
 Reduce investment in inventory stocking
 Able to meet scheduling goals there by creating a happy and satisfied work force.
Aggregate Planning Strategies
There are three types of aggregate planning strategies available for organization to choose from. They are
as follows.
1. Level Strategy
As the name suggests, level strategy looks to maintain a steady production rate and workforce level. In this
strategy, organization requires a robust forecast demand as to increase or decrease production in anticipation
of lower or higher customer demand. Advantage of level strategy is steady workforce. Disadvantage of
level strategy is high inventory and increase back logs.
2. Chase Strategy
As the name suggests, chase strategy looks to dynamically match demand with production. Advantage of
chase strategy is lower inventory levels and back logs. Disadvantage is lower productivity, quality and
depressed work force.
3. Hybrid Strategy
As the name suggests, hybrid strategy looks to balance between level strategy and chase strategy.

Enterprise Resource Planning (ERP)
Enterprise resource planning (ERP) is a category of business-management software—typically a suite of
integrated applications—that an organization can use to collect, store, manage and interpret data from many
business activities, including:
 product planning, cost
 manufacturing or service delivery
 marketing and sales
 inventory management
 shipping and payment
DEFINITION of ERP
An Enterprise resource planning system is a fully integrated business management system covering
functional areas of an enterprise like Logistics, Production, Finance, Accounting and Human Resources. It
organizes and integrates operation processes and information flows to make optimum use of resources such
as men, material, money and machine.
Enterprise resource planning promises
1. one database,
2. one application,
3. one user interface
for the entire enterprise, where once disparate systems ruled manufacturing, distribution, finance and sales.
Here are some descriptions of ERP, not definitions but certainly good examples.
Enterprise Resource Planning is a company increasing its sales by 20 percent in the face of an
overall industry decline. Discussing how this happened, the vice president of sales explained: “We’re
captur- ing lots of business from our competitors. We can out-deliver ’em. Thanks to (ERP), we can now
ship quicker than our competition, and we ship on time.”
Enterprise Resource Planning is a Fortune 50 corporation achieving enormous cost savings and
acquiring a significant competitive advantage. The vice president of logistics stated: “ERP has provided the
key to becoming a truly global company. Decisions can be made with accurate data and with a process that
connects demand and supply across borders and oceans. This change is worth billions to us in sales
worldwide.”
Enterprise Resource Planning is a purchasing department generating enormous cost reductions while at the
same time increasing its ability to truly partner with its suppliers. The director of purchasing claimed: “For
the first time ever, we have a good handle on our future requirements for components raw and materials.

When our customer demand changes, we—ourselves and our suppliers—can manage changes to our
schedules on a very coordinated and controlled basis. I don’t see how any company can do effective supply
chain management without ERP.”
That’s ERP. Here’s how it came to be.
THE EVOLUTION OF ENTERPRISE RESOURCE PLANNING
Step One—Material Requirements Planning (MRP)-1960
Step Two—Closed-Loop MRP
Step Three—Manufacturing Resource Planning (MRP II)
Step Four—Enterprise Resource Planning (ERP)
ENTERPRISE RESOURCE PLANNING (ERP) predicts and balances demand and supply. It is an
enterprise-wide set of forecasting, planning, and scheduling tools, which:
• links customers and suppliers into a complete supply chain,
• employs proven processes for decision-making, and
• coordinates sales, marketing, operations, logistics, purchasing, ﬁnance, product development, and human
resources.
ERP IMPLEMENTATION
1. The success of an implementation mainly depends on how closely the implementation consultants, users
and vendors work together to achieve the overall objectives of the organisation.
2. The implementation consultants have to understand the needs of the users, understand the prevailing
business realties and design the business solutions keeping in mind It is the users who will be driving
the implementation and therefore their all these factors active involvement at all stages of
implementation is vital for the overall success of implementation.
3. It is worthwhile to remember that ERP is an enabling tool, which makes one do his work better, which
naturally need additional efforts.

4. During the course of implementation the standard package may undergo changes which may be a simple
one or a major ‘functionality’ change. Implementing such changes is known as Customization.
5. The contents of the package are known as modules and the modules are further divided into
Components.
6. The roles and responsibilities of the employees have to be clearly identified, understood and The
employees will have to accept new processes and procedures configured in the system laid down in the
ERP system.
7. At the same time these processes and procedures have to be simple and user friendly.
8. A well managed and implemented ERP package can give a 200 percent return on investment where as
a poorly implemented one can yield a return on investment as low as 25 percent.
9. Key Planning and Implementation decisions a number of the key decisions that need to be made when
this discussion looks at considering an enterprise integration effort.
ERP IMPLEMENTATION METHODOLOGY:
• Identifying the needs
• Evaluating the ‘As Is’ situation
• Deciding the ‘Would be’ situation
• Reengineering the Business Process
• Evaluating the various available ERP
• Finalizing of the most suitable ERP
• Installing the required hardware
• Finalizing the implementation consultants
• Implementation
IMPLEMENTTION GUIDELINES FOR ERP:
• Understanding the corporate needs and culture of the organisation
• Doing a business process redesign exercise prior to starting the implementation
• Establishing a good communication network across the organisation
• Providing a strong and effective leadership
• Finding an efficient and capable project manager
• Creating a balanced team of implementation consultants
• Selecting a good implementation methodology with minimum customisation
• Training end users Adapting the new system and making the required changes in the working environment
to make effective use of the system in future

ERP Characteristics :
Any system has to possess few key characteristics to qualify for a true ERP solution.
These features are:
1. Flexibility : An ERP system should be flexible to respond to the changing needs of an enterprise. The
client server technology enables ERP to run across various database back ends through Open Database
Connectivity (ODBC).
2. Modular & Open : ERP system has to have open system architecture. This means that any module can
be interfaced or detached whenever required without affecting the other modules.
It should support multiple hardware platforms for the companies having heterogeneous collection of
systems. It must support some third party add- ons also.
3. Comprehensive : It should be able to support variety of organizational functions and must be suitable
for a wide range of business organizations.
4. Beyond The Company : It should not be confined to the organizational boundaries, rather support the
on-line connectivity to the other business entities of the organization.
5. Best Business Practices : It must have a collection of the best business processes applicable worldwide.
An ERP package imposes its own logic on a company’s strategy, culture and organization.
Features of ERP :
Some of the major features of ERP and what ERP can do for the business system are :
1. ERP provides multi-platform, multi-facility, multi-mode manufacturing, multi-currency, multi-lingual
facilities.
2. It supports strategic and business planning activities, operational planning and execution activities,
creation of Materials and Resources.
3. ERP covering all functional areas like manufacturing, selling and distribution, payables, receivables,
inventory, accounts, human resources, purchases etc.
4. ERP performs core activities and increases customer service, thereby augmenting the corporate image.
5. ERP bridges the information gap across organisations.
6. ERP provides complete integration of systems not only across departments but also across companies
under the same management.
7. ERP is the solution for better project management.
8. ERP allows automatic introduction of the latest technologies like Electronic Fund Transfer (EFT),
Electronic Data Interchange (EDI), Internet, Intranet, Video conferencing, E-Commerce etc.

9. ERP eliminates most business problems like material shortages, productivity enhancements, customer
service, cash management, inventory problems, quality problems, prompt delivery etc.
10. ERP provides intelligent business tools like decision support system, Executive information system,
Data mining and easy working systems to enable better decisions.
Benefits of ERP
Following are some of the benefits they achieved by implementing the ERP packages :
1. Gives Accounts Payable personnel increased control of invoicing and payment processing and thereby
boosting their productivity and eliminating their reliance on computer personnel for these operations.
2. Reduce paper documents by providing on-line formats for quickly entering and retrieving information.
3. Improves timeliness of information by permitting posting daily instead of monthly.
4. Greater accuracy of information with detailed content, better presentation, satisfactory for the auditors.
5. Improved cost control.
6. Faster response and follow-.up on customers.
7. More efficient cash collection, say, material reduction in delay in payments by customers.
8. Better monitoring and quicker resolution of queries.
9. Enables quick response to change in business operations and market conditions.
10. Helps to achieve competitive advantage by improving its business process.
11. Improves supply-demand linkage with remote locations and branches in different countries.
12. Provides a unified customer database usable by all applications.
13. Improves International operations by supporting a variety of tax structures, invoicing schemes, multiple
currencies, multiple period accounting and languages.
14. Improves information access and management throughout the enterprise.
15. Provides solution for problems like Y2K and Single Monetary Unit (SMU) or Euro Currency.
Disadvantages of ERP :
1. EPR systems are very expensive.
2. It is very complex.
3. Implementation of ERP is on an going process and never ends.
4. Takes years for a organization to get adjusted with ERP
5. Employee training is required and is costly.
6. IT implementation of ERP may demand new infrastructure.
7. ERP experts are not easily available.
8. Maintaining standards as per ERP systems are difficult for organization in real practice

WHY COMPANIES UNDERTAKE ERP ?
• Standardise and speed up Manufacturing processes
• Standardise HR information
• Reduce Inventory
• Integrate Customer order information
• Integrate Financial Information
ERP Modules
All ERP packages contain many modules. The number and features of the modules varywith the ERP
packages. Some of the most common modules available in almost all packages are:
1. Finance
2. Plant Maintenance
3. Quality Management
4. Material Management
5. Inventory Management
6. Manufacturing and production planning
7. Sales and distribution
8.Human resoureces.
Explanation in Techmax
MATERIAL REQUIREMENT PLANNING (MRP)
Material Requirements Planning (MRP) is a computer-based production planning and inventory
control system. MRP is concerned with both production scheduling and inventory control. It is a material
control system that attempts to keep adequate inventory levels to assure that required materials are available
when needed. MRP is applicable in situations of multiple items with complex bills of materials. MRP is not
useful for job shops or for continuous processes that are tightly linked.
● Material requirement planning can be defined as computation technique that is used to transform
master or main schedule of final products into a detailed schedule for raw material and components
used to produce final product.

● The major purpose of MRP is to make sure that components and required raw material are
available in right quantities at right time.
● Right material at right time allows production of final products as per master production schedule.
Material requirement planning is not only a technique for planning “material” requirements. It is also a
logic that relates all the activities in a company to customer demands. People can manage all the resources
in a company by using MRP logic together with data processing in other areas. This entire system is called
a Manufacturing Resources Planning System, or MRP II.
An alternative approach to managing dependent-demand items is to plan for procurement or manufacture
of the specific components that will be required to produce the required quantities of end products as per
the production schedule indicated by the master production schedule (MPS). The technique is known as
material requirements planning (MRP) technique.
MRP is a computer-based system in which the given MPS is exploded into the required amounts of raw
materials, parts and sub-assemblies, needed to produce the end items in each time period (week or month)
of the planning horizon. The gross requirement of these materials is reduced to net requirements by taking
into account the materials that are in inventory or on order.
OBJECTIVES OF MRP
The objectives of material requirements planning in operations management are:
1. To improve customer service by meeting delivery schedules promised and shortening delivery lead times.
2. To reduce inventory costs by reducing, inventory levels.
3. To improve plant operating efficiency by better use of productive resources.
Three facts of MRP technique are:
a) The MRP technique as a requirements calculator
b) MRP – A manufacturing, planning and control system
c) MRP – A manufacturing resourced planning system.
The major objectives of an MRP system are to simultaneously:
1. Ensure the availability of materials, components, and products for planned production and for
customer delivery,
2. Maintain the lowest possible level of inventory,
3. Plan manufacturing activities, delivery schedules, and purchasing activities.
The three major inputs of an MRP system are the master production schedule, the product structure records,
and the inventory status records. Without these basic inputs the MRP system cannot function.

The demand for end items is scheduled over a number of time periods and recorded on a master production
schedule (MPS). The master production schedule expresses how much of each item is wanted and when it
is wanted. The MPS is developed from forecasts and ﬁrm customer orders for end items, safety stock
requirements, and internal orders. MRP takes the master schedule for end items and translates it into
individual time-phased component requirements.
The product structure records, also known as bill of material records (BOM), contain information on every
item or assembly required to produce end items. Information on each item, such as part number, description,
quantity per assembly, next higher assembly, lead times, and quantity per end item, must be available.
The inventory status records contain the status of all items in inventory, including on hand inventory and
scheduled receipts. These records must be kept up to date, with each receipt, disbursement, or withdrawal
documented to maintain record integrity.
MRP will determine from the master production schedule and the product structure records the gross
component requirements; the gross component requirements will be reduced by the available inventory as
indicated in the inventory status records.
Item requirements can be classified as dependent and independent demands.
1. Independent demand
Demand for an item that is unrelated to the demand for other items. Demand for finished goods, parts
required for destructive testing, and service part requirements are examples of independent demand.
2. Dependent demand
Demand that is directly related to or derived from the bill of material structure for other items or
end products. Such demands are calculated and need not be forecasted.
A given inventory item may have both dependent and independent demand at any given time. For
example, a part may simultaneously be used as a component of an assembly and also sold as a service part.
Production to meet dependent demand should be scheduled so as to explicitly recognize its linkage to
production intended to meet independent demand.
MRP SYSTEM INPUTS
1. Master Production Schedule (MPS) :
For staffing, inventory, production etc. company develops and designs a plan called as Master
Production Schedule (MPS). It is used to set the quantity of every end or final item to be completed per
week. MPS is a plan that views future production of end of product.

2. Bill Of Material File (BOM) Or Product Structure File :
It is necessary to calculate the number of components and raw material required for every end product
that is mentioned in master production schedule. Its product structure must be known before actually
producing the end product. These details can be specified with the help of document called as bill-of-
material. Bill-of-material is made up of list of the sub assemblies as well as components that makes up
the end product. By putting all the assemblies in one group we can create a bill-of-material.
3. Inventory Status File :
In MRP current inventory status is necessary to be maintained. This is done by using computerized
inventory system that maintains the inventory record file or it is called as item master file.
MRP SYSTEM OUTPUT
Two primary outputs are:
1. Planned order schedule which is a plan of the quantity of each material to be ordered in each time
period. The order may be a purchase order on the suppliers or production orders for parts and sub-
assembles on production departments.
2. Changes in planned orders – i.e., modification of previous planned orders. The secondary output are:
1. Exception reports which list items requiring management attention to control
2. Performance reports regarding how well the system is operating – e.g. inventory turnovers, percentage
of delivery promises kept and stock out incidences.
3. Planning reports such as inventory forecasts, purchase commitment reports, etc.
 DEFINITIONS OF TERMS USED IN MRP SYSTEM
1. MASTER PRODUCTION SCHEDULE (MRP): This is the schedule of the quantity and timing of
all end products to be produced over a specific planning horizon. MPS is developed from customer‘s
firm orders or from forecasts of demand or both. It is an input to the MRP system.
2. PRODUCT STRUCTURE: Indicates the level of components required to produce an end product.
3. BILLS OF MATERIAL: A list indicating the quantities of all raw materials, parts, components, sub
assemblies and major assemblies that go into an end product. It gives details of the build up of a product.
It may also be called as indented parts list.
4. BILLS OF MATERIAL FILE: A bills of material file, also known as product-structure file, is a
computerized file listing all finished products, the quantity of raw materials, parts sub-assemblies and
assemblies in each product. The bills of materials file must be kept up-to-date as and when the products
are redesigned or modified with addition/deletion of some parts, components and sub-assemblies.
5. INVENTORY STATUS FILE: It is a computerized file with a comprehensive record of each and
every material held in inventory. The information included in this file are, materials on hand or on order,

planned orders, planned order releases, allocated materials, lot sizes, lead times, safety stock levels,
costs and suppliers for each material. The inventory file must kept up-to-date taking into consideration
the daily inventory transactions such as receipts, issues, scrapped materials, planned orders and order
releases.
6. MRP COMPUTER PROGRAM: It is a computer program, which processes the MRP information.
Its inputs are the MPS, inventory status file and bills of materials file. The primary outputs are: planned
order schedule, planned order releases and changes to planned orders.
7. AVAILABLE INVENTORY: Materials that are held in inventory of which are on order, but are not
either safety stock or allocated to other uses.
8. ALLOCATED INVENTORY: Materials that are held in inventory or on order but which have been
allocated to specific production orders
9. ON-HAND INVENTORY: The quantity of a material, physically held in inventory at a point of
time. It may include safety stock and allocated inventory except materials on order.
10. PLANNING HORIZON: The number of time periods (days, weeks or months) included in the
MPS, CRP, MRP and departmental schedules.
11. ACTION BUCKET: The unit of time measurement in MRP systems. It is a particular period of
time in the planning horizon. For example, Bucket # 10 means the tenth period (usually a week in
duration) of the planning horizon.
12. GROSS REQUIREMENTS: The total quantity of an item at the end of a period to meet the panned
output levels, not considering any availability of the item in inventory or scheduled receipts.
13. SCHEDULED RECEIPTS: The quantity of an item that will be received at the beginning of a time
period from a supplier as a result of orders already placed (open orders).
14. PLANNED ORDER RECEIPTS: The quantity of an item that is planned to be ordered so that, it
will be received at the beginning of the time period to meet the net requirements for that time period.
The order is yet to be placed.
15. PLANNED ORDER RELEASES: The quantity of an item that is planned to be ordered and the
planned time period for releasing this order, so that, the item will be received when needed. This time
schedule is determined by off-setting the planned order receipts schedule to allow for lead times. When
this other is released, it becomes a schedule receipt.
16. NET REQUIREMENTS: The quantity of an item that must be procured to meet the scheduled
output for the period.
17. LOW-LEVEL CODING: It is the coding of each material at the lowest level in ay product structure
that it appears. A component can appear at more than one level in the product structure. Because MRP

computer programs process net requirements calculations for all products, level by level from end items,
down to the raw materials, low level coding avoids redundant net requirements calculations.
18. LOT-SIZING DECISIONS: Whenever there is a need for the net requirement of a material, a
decision must be taken regarding the quantity of material to be ordered (either purchase order or
production order). Lot-sizing decisions include both the batch or lot-size (quantity) as well as the timing
of these lots.
19. DEPENDENT DEMAND: Demand for raw material, part or a component, that is dependent on the
demand for the end product in which these materials are used.
20. INDEPENDENT DEMAND: Demand for a materials that is independent of the demands for other
materials. For example, demand for end products re independent of demand for parts, raw materials or
components as their demands are determined, by customers outside the organizations.
21. LUMPY DEMAND: If the demand for the materials varies greatly from time period o time period
(say week to week), the demand is said to be ‗lumpy demand‘.
22. CAPACITY REQUIREMENT PLANNING: The process of reconciling the Master Production
Schedule to the available capacities of production departments (viz., machine and labour capacities)
over the planning horizon.
23. PLANNED ORDER RELEASES: Number in ‗planned order releases‘ row indicate when orders
should be placed to meet the requirement for the item. The time period at which the order should be
released is found by subtracting the lead time from the ‗net requirement‘ period (this procedure is called
‗offsetting‘ by lead time)
 CHARACTERISTICS OF MRP SYSTEM
The production systems suitable for MRP should have the following desirable. characteristics:
1. An effective computer system.
2. Computerized BOM files and inventory status file for all end products and materials with the highest
possible accuracy.
3. A production system that manufactures discrete products made up of raw materials, parts, sub-
assemblies and major assemblies which are processed through several production steps or operations.
4. Production processes or operations requiring long processing times.
5. Short and reliable lead times for procurement of raw materials and components from vendors.
6. The time fence for the frozen MPS should be sufficient to procure materials without undue expediting
effort.
7. Support and commitment of the top management.

 Manufacturing resource planning (MRP II)
Manufacturing resource planning (MRP II) is an integrated method of operational and financial
planning for manufacturing companies. MRP II serves as an extension of MRP (closed loop manufacturing
resource planning, also abbreviated as CLMRP)..
Manufacturing Resource Planning (MRP II) is defined by APICS (American Production and
Inventory Control Society, Estd. 1957) as a method for the effective planning of all resources of a
manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars,
and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP.
This is not exclusively a software function, but a marriage of people skills, dedication to data base
accuracy, and computer resources. It is a total company management concept for using human resources
more productively.
The typical MRP II system employs a modular organizational structure. Modules keep track of, and
regulate, specific characteristics and functions of the entire organization.
MRP II integrates many areas of the manufacturing enterprise into a single entity for planning and
control purposes, from board level to operative and from five-year plan to individual shop-floor operation.
It builds on closed-loop Material Requirements Planning (MRP) by adopting the feedback principle but
extending it to additional areas of the enterprise, primarily manufacturing-related.
The MRP II process is carried out by a synergistic combination of computer and human resources.
The MRP II differs fundamentally from point contact planning, in which individual characteristics and
functions have their own dedicated systems.
 Key functions and Features
MRP II is not a proprietary software system and can thus take many forms. It is almost impossible
to visualise an MRP II system that does not use a computer, but an MRP II system can be based on either
purchased / licensed or in-house software.
Almost every MRP II system is modular in construction. Characteristic basic modules in an MRP
II system are:
• Master Production Scheduling (MPS) • Item Master Data (Technical Data) • Bill of Materials
(BOM) (Technical Data) • Production Resources Data (Manufacturing Technical Data) • Inventories &
Orders (Inventory Control) • Purchasing Management • Material Requirements Planning (MRP) • Shop
Floor Control (SFC) • Capacity planning or Capacity Requirements Planning (CRP) • Standard Costing
(Cost Control) • Cost Reporting / Management (Cost Control) • Distribution Resource Planning (DRP)
Together with ancillary systems such as:

• Business Planning • Lot Traceability • Contract Management • Tool Management • Engineering
Change Control • Configuration Management • Shop Floor Data Collection • Sales Analysis and
Forecasting • Finite Capacity Scheduling (FCS)
And related systems such as:
• General Ledger • Accounts Payable (Purchase Ledger) • Accounts Receivable (Sales Ledger) •
Sales Order Management • Distribution Requirements Planning (DRP) • [Automated] Warehouse
Management • Project Management • Technical Records • Estimating • Computer-aided
design/Computer-aided manufacturing (CAD/CAM) • CAPP
The MRP II system integrates these modules together so that they use common data and freely
exchange information, in a model of how a manufacturing enterprise should and can operate. The MRP II
approach is therefore very different from the “point solution” approach, where individual systems are
deployed to help a company plan, control or manage a specific activity. MRP II is by definition fully
integrated or at least fully interfaced.
MRP II systems can provide:
• Better control of inventories • Improved scheduling • Productive relationships with suppliers
For Design / Engineering:
• Improved design control • Better quality and quality control
For Financial and Costing:
• Reduced working capital for inventory • Improved cash flow through quicker deliveries • Accurate
inventory records • Timely and valid cost and profitability information
MASTER PRODUCTION SCHEDULE (MPS)
The master production scheduling process translates a business plan into a dynamic and comprehensive
product manufacturing schedule.
Master Production Scheduling (MPS) helps your management team balance and integrate the needs of
marketing, manufacturing, finance and most importantly your customers.
A Master Production Schedule or MPS is the plan that a company has developed for production, inventory,
staffing, etc. It sets the quantity of each end item to be completed in each week of a short-range planning
horizon. A Master Production Schedule is the master of all schedules. It is a plan for future production of
end items.

The Master Production Schedule gives production, planning, purchasing, and top management the
information needed to plan and control the manufacturing operation. The application ties overall business
planning and forecasting to detail operations through the Master Production Schedule.
OBJECTIVES OF MASTER SCHEDULING
The master scheduler considers the following objectives when developing the MPS:
1. Achieve the desired customer service level either by maintaining finished goods inventory or by
scheduling completion of the item or service to meet the customer's delivery needs.
2. Make the best use of the company's resources: material, labor, and equipment.
3. Ensure that the inventory investment is at the appropriate level.
Five key benefits of Master Production Scheduling :
1. Can help to smooth the demand signal
2. Protects lead time and helps book future deliveries
3. Acts as a single communication tool to the business
4. Helps the Supply chain prioritize requirement
5. Helps stabilize production
Another benefits are :
1. It helps last minute scheduling, shortage avoidance, efficient allocations of resources and
cost control.
2. It gives the customer timely information on what they need and when they need.
3. The schedule can be re-calculated easily when a process fails
 MASTER PRODUCTION SCHEDULE (MPS) Advantages
• Anticipated build schedule for manufacturing end products (or product options)
• A statement of production, not a statement of market demand

• MPS takes into account capacity limitations, as well as desires to utilize capacity fully
• Stated in product specifications – in part numbers for which bill of material exist
• Since it is a build schedule, it must be stated in terms used to determine componentpart
needs and other requirements; not in monetary or other global unit of measure
• Specific products may be groups of items such as models instead of end items
The exact product mix may be determined with Final Assembly Schedule (FAS), which is not ascertained
until the latest possible moment.
If the MPS is to be stated in terms of product groups, we must create a special bill of material (planning
bill) for these groups Task performed by a master production scheduler
Construct and update the MPS Involves processing MPS transactions, maintaining MPS records and reports,
having a periodic review and update cycle (rolling through time), processing and responding to exception
conditions, and measuring MPS effectiveness on a routine basis On a day-to-day basis, marketing and
production are coordinated through the MPS in terms of Order Promising Order promising is the activity
by which customer order requests receive shipment dates
An effective MPS provides Basis for making customer delivery promises Utilising plant capacity
effectively Attaining the firm’s strategic objectives as reflected in the production plan and Resolving trade-
off between manufacturing and marketing
• Since MPS is the basis for manufacturing budgets, the financial budgets should be
integrated with production planning/MPS activities
• When MPS is extended over a time horizon, is a better basis for capital budgeting
• Based on the production output specified in the MPS the day-to-day cash flow can be
Disadvantages
1. Complexity
2. Cost
3. Can be Skewed
4. Lack of Flexibility
Forecasting
● Forecasting is a process of estimating a future event by casting forward past data. The past data are
systematically combined in a predetermined way to obtain the estimate of the future. Prediction is a process
of estimating a future event based on subjective considerations other than just past data; these subjective
considerations need not be combined in a predetermined way.

Thus forecast is an estimate of future values of certain specified indicators relating to a decisional/planning
situation, In some situations forecast regarding single indicator is sufficient, where as, in some other
situations forecast regarding several indicators is necessary. The number of indicators and the degree of
detail required in the forecast depends on the intended use of the forecast.
● Casting data forward is called forecasting. It is a projection based upon past data or it is an estimate of
an event which will happen in future.
Need of forecasting:
● When there is a time lag between awareness of an impending event or need and occurrence of that event.
This lead time is the main reason of planning and forecasting.
● Planning is the fundamental activity of management. Forecasting forms the basis of planning.
● It is essential for the organization to know for what level of activities one is planning before investments
in input.
 Types of Forecasting:
1. Short Term Forecasting 2. Long Term Forecasting
 Short Term forecasting is the forecasting that made for short term objectives covering less than one
year. Ex. Material Requirement Planning (MRP), scheduling, sequencing, budgeting etc.
 Long Term Forecasting is the forecasting that made for that made for long term objectives covering
more than five years. Ex. Product diversification, sales and advertisement.
General Steps in the Forecasting Process
The general steps in the forecasting process are as follows:
1) Identify the general need
2) Select the Period (Time Horizon) of Forecast
3) Select Forecast Model to be used: For this, knowledge of various forecasting models, in which
situations these are applicable, how reliable each one of them is; what type of data is required. On these
considerations; one or more models can be selected.
4) Data Collection: With reference to various indicators identified-collect data from various appropriate
sources-data which is compatible with the model(s) selected in step(3). Data should also go back that
much in past, which meets the requirements of the model.
5) Prepare forecast: Apply the model using the data collected and calculate the value of the forecast.
6) Evaluate: The forecast obtained through any of the model should not be used, as it is, blindly. It should
be evaluated in terms of ‘confidence interval’ – usually all good forecast models have methods of
calculating upper value and the lower value within which the given forecast is expected to remain with

certain specified level of probability. It can also be evaluated from logical point of view whether the value
obtained is logically feasible? It can also be evaluated against some related variable or phenomenon. Thus,
it is possible, some times advisable to modify the statistically forecasted’ value based on evaluation.
 Forecasting Techniques
Forecasting techniques can be divided in to three main categories.
A. Extrapolative or Time-series Methods
B. Casual or explanatory methods
C. Qualitative or judgmental methods
Time-series Methods and explanatory methods are quantitative methods and judgmental methods are
qualitative methods. Quantitative methods will be adopted when sufficient quantitative information
available and when little or no qualitative information available but sufficient qualitative knowledge
available qualitative methods will be preferable.
A. Extrapolative or Time-series Methods
Time series forecasting models try to predict the future based on past data. • Relate the forecast to only one
factor – time.
A time series is a series of observations over time of some quantity of interest (a random variable).
Thus, if Xi is the random variable of interest at time i, and if observation are taken at times i=1,2,3,……t,
then observed values {X1=x1. X2=x2,….Xt=xi} are a time series
Two types in time series methods :
1. Moving average
2. Exponential smoothing
1. Moving Average
When demand for a product is neither growing nor declining rapidly, and if it does not have seasonal
characteristics, a moving average can be useful can be useful in removing the random fluctuations for
forecasting. Although moving averages are frequently centered, it is more convenient to use past data to
predict the following period directly. To illustrate, a centered five-month average of January, February,
March, April and May gives an average centered on March. However, all five months of data must already
exist. If our objective is to forecast for June, we must project our moving average- by some means- from
March to June. If the average is not centered but is at forward end, we can forecast more easily, through we
may lose some accuracy. Thus, if we want to forecast June with a five-month moving average, we can take
the average of January, February, March, April and May. When June passes, the forecast for July would be
the average of February, March, April, May and June.

Although it is important to select the best period for the moving average, there are several conflicting effects
of different period lengths. The longer the moving average period, the more the random elements are
smoothed (which may be desirable in many cases). But if there is a trend in the data-either increasing or
decreasing-the moving average has the adverse characteristic of lagging the trend. Therefore, while a shorter
time span produces more oscillation, there is a closer following of the trend. Conversely, a longer time span
gives a smoother response but lags the trend.
Let
n = number of periods taken to evaluate the moving average
Dt or Di = Actual demand in that period
SMAt = simple moving average at the end of the period t or estimated demand at the end of that period.
The formula for a simple moving average is
Example:1- 3-Month Simple Moving Average
Example :- 5-month Simple Moving Average

Example : 2-
The data in the first two columns of the following table depict the sales of a company. The first two columns
show the month and the sales. The forecasts based on 3, 6 and 12 month moving average and shown in the
next three columns. The 3 month moving average of a month is the average of sales of the preceding three
months.
The 6 month moving average is given by the average of the preceding 6 months actual sales.
For the month of July it is calculated as
July’s forecast = ( Sum of the actual sales from January to June ) / 6
= ( 450 + 440 + 460 + 410 + 380 + 400 ) / 6
= 423 ( rounded )

For the forecast of January by the 12 month moving average we sum up the actual sales from January to
December of the preceding year and divide it by 12
Characteristics of moving averages
a. The different moving averages produce different forecasts.
b. The greater the number of periods in the moving average, the greater the smoothing effect.
c. If the underlying trend of the past data is thought to be fairly constant with substantial
randomness, then a greater number of periods should be chosen.
d. Alternatively, if there is though to be some change in the underlying state of the data,
more responsiveness is needed, therefore fewer periods should be included in the moving
average.
Limitations of moving averages
a. Equal weighting is given to each of the values used in the moving average calculation, whereas it is
reasonable to suppose that the most recent data is more relevant to current conditions.

b. An n period moving average requires the storage of n – 1 values to which is added the lates observation.
This may not seem much of a limitation when only a few items are considered, but it becomes a significant
factor when , for example, a company carries 25,000 stock items each of which requires a moving average
calculation involving say 6 months usage data to be recorded.
c. The moving average calculation takes no account of data outside the period of average, so full use is not
made of all the data available.
d. The use of the unadjusted moving average as a forecast can cause misleading results when there is an
underlying seasonal variation.
2. Exponential smoothing
In the previous methods of forecasting (simple moving average), the major drawback is the need to
continually carry a large amount of historical data. As each new piece of data is added in these methods,
the oldest observation is dropped, and the new forecast is calculated. In many applications (perhaps in
most), the most recent occurrences are more indicative of the future than those in the more distant past. If
this premise is valid – “that the importance of data diminishes as the past becomes more distant” - then
exponential smoothing may be the most logical and easiest method to use. The lengthy calculations
involved .The age of the data , which increase with the no.of periods used.
All of these disadvantages are overcome by this techniques.
The method involves the automatic weighting of past data with weights that decrease exponentially with
time, i.e. the most current values receive a decreasing weighting.
The simplest formula for exponential smoothing technique is given as,
New forecast = Old forecast + α (Latest Observation – Old Forecast)
Mathematically
Ft +1 = α Dt + (1 - α) Ft
Where,
F t +1 = forecast for next period
D t = actual demand for present period
F t = previously determined forecast for present period
α = weighting factor, smoothing constant
Effect of Smoothing Constant
0.0 ≤ α ≤ 1.0
If α = 0.20, then Ft +1 = 0.20 * Dt + 0.80 Ft

1. If α = 0, then Ft +1 = 0 * Dt + 1 Ft = Ft
Forecast does not reflect recent data
2. If a = 1, then Ft +1 = 1 Dt + 0 Ft = Dt
Forecast based only on most recent data
The smoothing constant (α)
The value of α can be between 0 and 1. The higher value of α (i.e. the nearer to 1), the more sensitive the
forecast becomes to current conditions, whereas the lower the value, the more stable the forecast will be,
i.e. it will react less sensitively to current conditions. An approximate equivalent of alpha values to the
number of periods’ moving average is given below:
The total of the weights of observations contributing to the new forecast is 1 and the weight reduces
exponentially progressively from the alpha value for the latest observation to smaller value for the older
observations. For example, if the alpha value was 0.3 and June’s sales were being forecast, then June’s
forecast is produced from averaging past sales weighted as follows.
0.3 (May’s Sales) + 0.21 (April’s Sales) + 0.147 (March’s Sales) + 0.1029 (February Sales) + 0.072
(January Sales) + 0.050 (December Sales), etc.
In the above calculation, we will observe that α (1- α)0 = 0.3, α (1- α)1 = 0.21, α (1- α)2 = 0.147 ,
α (1- α)3 = 0.1029 and so on.
Exponential smoothing is the most used of all forecasting techniques. It is an integral part of virtually all
computerized forecasting programs, and it is widely used in ordering inventory in retail firms, wholesale
companies, and service agencies.
Exponential smoothing techniques have become well accepted for six major reasons:
1. Exponential models are surprisingly accurate
2. Formulating an exponential model is relatively easy
3. The user can understand how the model works
4. Little computation is required to use the model
5. Computer storage requirement are small because of the limited use of historical data

6. Tests for accuracy as to how well the model is performing are easy to compute
In the exponential smoothing method, only three pieces of data are needed to forecast the future: the
most recent forecast, the actual demand that occurred for that forecast period and a smoothing
constant alpha (α). This smoothing constant determines the level of smoothing and the speed of
reaction to differences between forecasts and actual occurrences. The value for the constant is
determined both by the nature of the product and by the manager’s sense of what constitutes a good
response rate.
Example :- Given the weekly demand data, what are the exponential smoothing forecasts for
periods 10th using α=0.10 and α=0.60?
Assume F 1=D 1
Solution: The respective alphas columns denote the forecast values. Note that you can only forecast one
time period into the future.
Ft +1 = α Dt + (1 - α) Ft
by using this formula solve problem ………&…………check value

Example 2. The data are given in the first two columns and the forecasts have been prepared
using the values of α as 0.2 and 0.8.
** In the above example, no previous forecast was available. So January sales were used as February’s
forecast.
It is apparent that the higher α value, 0.8, produces a forecast which adjusts more readily to the most recent
sales.
Example .3
Forecast sales for last period = 24
Actual sales for last period = 22
Forecast sales for next period = α(22)+(1-α)24
If α=0.1
Therefore ,
Forecast sales for next period =23.8

Characteristics of exponential smoothing
a) Greater weight is given to more recent data
b) All past data are incorporated there is no cut-off point as with moving averages c) Less data needs to
be stored than with the longer period moving averages.
d) Like moving averages it is an adaptive forecasting system. That is, it adapts continually as new data
becomes available and so it is frequently incorporated as an integral part of stock control and production
control systems.
e) To cope with various problems (trend, seasonal factors, etc) the basic model needs to be modified
f) Whatever form of exponential smoothing is adopted, changes to the model to suit changing
conditions can simply be made by altering the α value.
g) The selection of the smoothing constant α is done through trial-error by the researcher/analyst. It is done
by testing several values of α (within the range 0 to 1) and selecting one which gives a forecast with the
least error (one can take standard error). It has been found that values in the range
0.1 to 0.3 provide a good starting point.
Example 4. Data on production of an item for 30 periods are tabulated below. Determine which value of
the smoothing constant (α), out of 0.1 and 0.3, will lead to the best simple exponential smoothing model.
The first 15 values can be used for initialization of the model and then check the error in the forecast as
asked after the table.
Use the total squared error or the mean squared error as the basis of comparison of the performances.
The total squared error is the sum of the squares of all the error figures for the period selected (here only
the last 15 figures because the first 15 periods will initialize the forecast). Their mean is the mean
squared error.
Solution: The following table give the forecasted values for the two different values of the smoothing
constant for the first 15 periods.

Month Production α = 0.1 α = 0.3
( in tonnes) Forecast Forecast1 30.50 30.50 30.50
2 28.80 30.33 29.90
3 31.50 30.45 30.44
4 29.90 30.39 30.28
5 31.40 30.49 3.62
6 33.50 30.79 31.48
7 25.70 30.28 29.75
8 32.10 30.47 30.45
9 29.10 30.33 30.05
10 30.80 30.38 30.27
11 25.70 29.91 28.90
12 30.90 30.01 29.50
13 31.50 30.16 30.10
14 28.10 29.95 29.50
15 30.80 30.04 29.89
The following table now gives the forecasted values and also checks the errors in the forecast for the last
15 periods
Error = Actual Observed value – Forecasted value
Month Production
( in tonnes)
α = 0.1 α = 0.3
Forecast error Squared forecast Squared error
error
16 29.50 30.04 -0.54 0.29 29.89 0.15
17 29.80 29.98 -0.18 0.03 29.77 0.0
18 30.00 29.96 0.04 0.0 29.78 0.05
19 29.90 29.97 -0.07 0.0 29.85 0.0
20 31.50 29.96 1.54 2.37 29.86 2.68
21 27.60 30.12 -2.52 6.33 30.35 7.58
22 29.90 29.86 0.04 0.0 29.53 0.14
23 30.20 29.87 0.33 0.11 29.64 0.31
24 35.50 29.90 5.60 31.35 29.81 32.40
25 30.80 30.46 0.34 0.12 31.52 0.51
26 28.80 30.49 -1.69 2.87 31.30 6.25
27 30.80 30.32 0.48 0.23 30.55 0.06
28 32.20 30.37 1.83 3.34 30.63 2.48
29 31.20 30.56 0.64 0.42 31.10 0.01
30 29.80 30.62 -0.82 0.67 31.13 1.76
TOTAL SQUARED ERROR 48.13 54.41
MEAN SQUARED ERROR =48.13/15 =54.41/15
=3.20 =3.62

The results here indicate that the forecast accuracy is better for α = 0.1 as compared to 0.3. They also
indicate that a search around 0.1 may lead to a more refined single exponential smoothing model.
B. Casual or explanatory methods
In some cases, the variable to be forecasted has a rather direct relationship with one or more other
variables whose values will be known at the time of the forecast. If so, it would make sense to base the
forecast on this relationship. This kind of approach is called causal forecasting.
Causal forecasting obtains a forecast of the quantity of interest (the dependent variable) by relating
it directly to one or more other quantities (the independent variables) that drive the quantity of interest.
Fig. shows some examples of the kinds of situations where causal forecasting sometimes is used. In
each of the first three cases, the indicated dependent variable can be expected to go up or down rather
directly with the independent variable(s) listed in the rightmost column. The last case also applies when
some quantity of interest (e.g., sales of a product) tends to follow a steady trend upward (or downward)
with the passage of time (the independent variable that drives the quantity of interest).
Fig
Simple Linear Regression Model
Formula for linear regression
y = a + bx
where a = intercept
b = slope of the line
x = time period
y = forecast for demand for period x
Type of Forecasting
Possible Dependent
Variable
Possible Independent
Variables
Sales
Spare parts
Economic trends
Any quantity
Sales of a product Demand for spare
parts Gross domestic product This same
quantity
Amount of advertising
Usage of equipment
Various economic factors
Time

where
Example: Given the data below, what is the simple linear regression model that can be used to predict sales
in future weeks?
Week Sales
1 150
2 157
3 162
4 166
5 177
Solution: First, using the linear regression formulas, we can compute “a” and “b”.
The resulting regression model is:
Yt = 143.5 + 6.3x

C. Qualitative or judgmental methods
● Delphi Method
The Delphi method was developed by the Rand Corporation in the 1950s.
●The Delphi method is a process of gaining consensus from a group of experts while maintaining their
anonymity. ● It is forecasting techniques applied to subjective nature demand values. ● It is useful when
there is no historical data from which to develop statistical models and when managers inside the firm have
no experience. ● Several knowledgeable persons are asked to provide estimates of demand or forecasts of
possible advances of technology. ● A coordinator sends questions to each member of the panel of outside
experts, and they are unknown to each other. Anonymity is important when some members of the tend to
dominate discussion or command a high degree of respect in their field. The members tend to respond to
the questions and support their responses freely. The coordinator prepares a statistical summary of the
responses along with a summary of arguments for a particular response. If the variation among the opinions
too much the report is sent to the same group for another round and the participants may choose to modify
their previous responses. This process will be continuing until consensus is obtained. So Delphi method is
a iterative process.
 Trends and Seasonality
Trends:
These relate to the long-term persistent movements/tendencies/changes in data like price increases,
population growth, and decline in market shares.Also it is a gradual, long-term up or down movement of
demand. An example of a decreasing linear trend is shown in below Fig.

Linear trend models forecast a straight-line trend for any period in the future.
Exponential trends forecast that the amount of growth will increase continuously. At long horizons, these
trends become unrealistic. Thus models with a damped trend have been developed for longer-range
forecasting. The amount of trend extrapolated declines each period in a damped trend model. Eventually,
the trend dies out and the forecasts become a horizontal line.
Seasonality
There could be periodic, repetitive variations in time-series which occur because of buying or consuming
patterns and social habits, during different times of a year. The demand for products like
soft drinks, woolens and refrigerators, also exhibits seasonal variations.
It is also an up-and-down repetitive movement in demand occurring periodically.
The additive seasonal pattern assumes that the seasonal fluctuations are of constant size.
The multiplicative pattern assumes that the seasonal fluctuations are proportional to the data. As the trend
increases, the seasonal fluctuations get larger.
 Applications of Forecasting
Sales Forecasting
Forecasting Staffing Needs
Forecasting Economic Trends
Forecasting in education environment
Forecasting in a rural setting
Ministry of Petroleum
Department of Technology
PURPOSE / NEED OF SALES FORECASTING
Sales forecasting is essential because,

(i) It determines the volume of production and the production rate.
(ii) It forms basis for production budget, labour budget, material budget, etc.
(iii) It suggests the need for plant expansion
(iv) It emphasizes the need for product research development
(v) It suggests the need for changes in production methods
(vi) It helps establishing pricing policies
(vii) It helps deciding the extent of advertising, product distribution, etc.

The term “supply chain management” arose in the late 1980s and came into widespread use in the
1990s.Prior to that time,businesses used terms such as “logistics” and “operations management” instead.
Supply chains encompass the companies and the business activities needed to design, make, deliver, and
use a product or service. Businesses depend on their supply chains to provide them with what they need to
survive and thrive. Every business fits into one or more supply chains and has a role to play in each of them.
Some definitions of a supply chain are offered below:
• “A supply chain is the alignment of firms that bring products or services to market.”- Lambert
• “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request.The
supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers,
and customers them- selves.”- Chopra and Meindl
• “A supply chain is a network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and finished products, and the
distribution of these finished products to customers.”- Ganeshan and Harrison
Supply chain management Definitions:-
• “The systemic, strategic coordination of the traditional business functions and the tactics across these
business functions within a particular company and across businesses within the supply chain, for the
purposes of improving the long-term performance of the individual companies and the supply chain as a
whole.”- Mentzer
• “Supply chain management is the coordination of production, inventory, location, and transportation
among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the
market being served.”
● LaLonde defines supply-chain management as follows: "The delivery of enhanced customer and
economic value through synchronised management of the flow of physical goods and associated
information from sourcing to consumption. "
There is a difference between the concept of supply chain management and the traditional concept of
logistics. Logistics typically refers to activities that occur within the boundaries of a single organization
and supply chains refer to networks of companies that work together and coordinate their actions to deliver
a product to market. Also traditional logistics focuses its attention on activities such as
procurement,distribution, maintenance, and inventory management. Supply chain management
acknowledges all of traditional logistics and also includes activities such as marketing, new product
development, finance, and customer service.

In the wider view of supply chain thinking,these additional activities are now seen as part of the work
needed to fulfill customer requests. Supply chain management views the supply chain and the organizations
in it as a single entity.It brings a systems approach to understanding and managing the different activities
needed to coordinate the flow of products and services to best serve the ultimate customer.This systems
approach provides the framework in which to best respond to business requirements that otherwise would
seem to be in conflict with each other.
Effective supply chain management requires simultaneous improve- ments in both customer service levels
and the internal operating effi- ciencies of the companies in the supply chain. Customer service at its most
basic level means consistently high order fill rates, high on-time delivery rates, and a very low rate of
products returned by customers for whatever reason. Internal efficiency for organizations in a supply chain
means that these organizations get an attractive rate of return on their investments in inventory and other
assets and that they find ways to lower their operating and sales expenses.
There is a basic pattern to the practice of supply chain management.Each supply chain has its own unique
set of market demands and operating challenges and yet the issues remain essentially the same in every
case.Companies in any supply chain must make decisions indi- vidually and collectively regarding their
actions in five areas:
1. Production—What products does the market want? How much of which products should be produced
and by when? This activity includes the creation of master production schedules that take into account plant
capacities,workload balancing,quality control, and equipment maintenance.
2. Inventory—What inventory should be stocked at each stage in a supply chain? How much inventory
should be held as raw materials,semifinished,or finished goods? The primary purpose of inventory is to
act as a buffer against uncertainty in the supply chain.However,holding inventory can be expensive,so what
are the optimal inventory levels and reorder points?

Industrial Engineering unit 4.Production planning and control Notes by badebhau.

Industrial Engineering unit 4.Production planning and control Notes by badebhau.

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