1. (Aggregate) Production Planning
Chapter 7

2. (Aggregate) Production Planning
Process for determining aggregate levels of production (i.e., at product line/group level)
Production plan links strategic goals to production and is coordinated with sales objectives, resource availabilities, and financial budgets
New term—Sales and Operations Planning

3. Role of Production Planning

4. Production-Planning Process
Begin with updated sales forecast covering the planning periods (usually one year or more)
Desired changes (increases or decreases) to inventory and backlogs are factored in
Periodic reviews and updates are conducted.
See forecast (Figure 7.3) and cumulative forecast/production plan (Figure 7.4)

5. Production Planning Formulas
Make-to-Stock
Finished goods inventory = previous inventory + production - demand forecast
Make-to-order
Backlog = customer orders + previous backlog - production
Assemble-to-order
Semi-finished goods inventory = previous inventory + production - demand forecast

6. Production Planning Strategy
Chase strategy—production output is changed to chase sales. Incurs costs of changing the workforce level, hours worked, and subcontracting
Level strategy—production is at a uniform rate, with inventory buildups and depletions. Incurs inventory holding and backorder costs
Mixed (hybrid) strategy

7. Trade-offs
Aggregate output is converted into resource requirements by using a planning factor (e.g., converting aggregate sales dollars into labor requirements—see Figure 7.5)
Basic trade-offs: inventory accumulations, hiring and firing, under-time and overtime, and alternative capacity options such as subcontracting

8. Production Planning Methods
Trial-and-error method
Optimization methods
Heuristic Methods

9. Evaluating Alternatives
Establish cost data that relate to the alternative production-planning methods (See Figure 7.6)
Determine starting conditions (on-hand inventory, beginning workforce level)
Example—Figure 7.7

10. Management Obligations
Top management: force the resolution of trade-offs between functional areas
Functional roles (manufacturing, sales, engineering, finance, human resources):
Hit the plan.
Communicate when something will prevent hitting the plan, as well as provide continual feedback on performance versus the plan.

11. Potential Difficulties with Production Planning
Large number of products and product families
Complexity of planning models/methods
Unavailability of useable data
Lack of understanding and direction from top management
Lack of cooperation from other functions

12. Concluding Principles (VBW, p.302)
The production plan is not a forecast; it must be a managerial statement of desired output.
The production plan should be a part of the game planning process so it will be in complete agreement with other functional plans (sales plan, budget, etc.).
The trade-offs to frame the production plan must be made prior to final approval of the plan.

13. Concluding Principles
There must be top-management involvement in the game planning process, which should be directly related to strategic planning.
The MPC system should be used to perform routine activities and provide routine data, so management can address non-routine tasks.
The MPC system should be used to facilitate what-if analyses at the production-planning level.

14. Concluding Principles
Reviews of performance against production plans and sales forecasts are needed to prompt re-planning when necessary.
The production plan should provide the MPS parameters. The sum of the detailed MPS must always equal the production plan.
The production plan should tie the company’s strategic activities directly through the MPS to the execution modules.

15. Homework Assignments Problems 7.2, and 7.3 Due Tuesday, Sept. 17
We will do problem 7.1 in class. Problems 7.2 and 7.3 are variations using the same framework.