Basics of Production Planning
February 27, 2018
Production planning typically falls to production managers and those under them, such as supply and operations personnel, along with purchasing managers. However, it’s important for business administrators at all levels to understand this process, because production planning impacts several business areas.
The following sections explain some of the basics of production planning.
What Is a Production Plan?
According to one definition, production planning is “the administrative process that takes place within a manufacturing business and that involves making sure that sufficient raw materials, staff and other necessary items are procured and ready to create finished products according to the schedule specified.”
“A production plan serves as a guide for your company’s production activities,” the International Finance Corporation added. “It establishes and sequences activities which must be carried out to achieve a production target, so that all staff involved are aware of who needs to do what, when, where and how.”
“Production plan” is a common term in manufacturing and production for all of these tasks and priorities. The plan serves as a guide or, according to management consulting and training firm Faber Infinite, “represents the beating heart” of processes. A strong production plan minimizes production time and costs, efficiently organizes resources and maximizes efficiency in the workplace.
There are various tools used in production planning. One example is SAP’s Production Planning, which is used with a manufacturer’s supply chain to plan the manufacturing, sale and distribution of goods. One feature is storing and manipulating master data to make production planning tasks more efficient. For instance, when a production order is created, the tool uses master data about the raw materials needed to produce the finished product, which will also be used to create a sales order.
Why Is Production Planning Important?
Because production planning plays a central role in manufacturing and production for organizations, this process can be responsible for a company’s success or failure in these core areas of responsibility.
But it doesn’t end there. Production planning helps organizations examine how they are doing with sales and distribution, as well as materials management. Improving these areas reflects on a company’s bottom line. As a result, production planning has a direct impact on finance. It’s also relevant to other areas, such as quality management and human resources, as production planning can monitor how organizations are delivering to their customers and ensure there is an optimal amount of staff for different operations.
A real-world look at integrating a better production plan comes from Faber Infinite. The company helped a client, a modular kitchen manufacturer, with developing a user-friendly and powerful way to cater to their basic requirements and ensuring there’s room for any surprise elements. The solution encompassed the order receipt process, capacity booking, production to dispatches and installations at client sites. It also calculated the delivery performance by measuring the “OnTime InFull” ratio, which refers to how often a delivery is executed on time and in full. If there was a mistake, the plan highlighted the reasons for failure.
The production plan improved overall delivery time and production capacity by at least 60 percent, and on-time, in-full deliveries increased by 137 percent. Faber Infinite summarized the benefit of an improved production plan with the following takeaway points.
- Overall production planning was simpler and easy to manage.
- Now a proper, logical and achievable delivery date can be promised to customers.
- There were no backlogs in the order queue.
- There were no delays in delivery.
Production Planning Process
There are five steps to the production planning process, according to the International Finance Corporation.
- Forecast Demand: Estimate how many products you need to produce within a specific time frame. This includes confirmed orders and predicted orders. There are different methods used for forecasting. You could estimate product demand based on historical information (orders placed by customers in the past) or take into account events in your business environment that might alter past patterns (new market trends, stagnant economy, new marketing campaigns, etc.).
- Determine Production Options: Look at different production options to meet the forecasted demand. Begin by mapping all the steps of your production process, such as using a flowchart. This will help you examine how to improve process flow by considering bottlenecks. Then determine the resources needed to complete each task involved in your production process. This includes a combination of resources from human resources, machinery and equipment, materials and inventory. Analyzing these resources will give you a much better look at your production options.
- Choose the Option That Uses Resources Most Effectively: Compare the cost and time of each production option and choose the one that maximizes the operational capacity of your firm. Make sure you can cover costs that are involved, which span the purchase of materials, office rent, payment of staff salary, leasing and more. Share the production plan with departments and staff that are relevant to the process. They can chime in with what materials and equipment will be needed for tasks within the production process, making operations run smoother.
- Monitor and Control: To ensure the plan is working as intended, compare what is happening with what should be happening. This control system should be in place to help you notice problems when they happen, giving you more time to correct issues.
- Adjust: Be ready to adjust the plan if needed. It should have some flexibility to accommodate changes in customer demand. The plan should also have a risk mitigation plan if certain risks occur during the production process, such as a machine breaking down, workers getting sick or suppliers not delivering on time.
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