PRODUCTION PLANNING AND CONTROL

PART II

JOMMEL JUDAN GONZALES

MATERIAL REQUIREMENT PLANNING (MRP)

MRP refers to the basic calculations used to determine components required from end item
requirements. It also refers to a broader information system that uses the dependence relationship
to plan and control manufacturing operations.
“Materials Requirement Planning (MRP) is a technique for determining the quantity and timing
for the acquisition of dependent demand items needed to satisfy master production schedule
requirements.”
Objectives of MRP
Inventory reduction: MRP determines how many components are required when they are
required in order to meet the master schedule. It helps to procure the materials/ components as
and when needed and thus avoid excessive build-up of inventory.
Reduction in the manufacturing and delivery lead times: MRP identifies materials and
component quantities, timings when they are needed, availabilities and procurements and actions
required to meet delivery deadlines. MRP helps to avoid delays in production and priorities
production activities by putting due dates on customer job order.
Realistic delivery commitments: By using MRP, production can give marketing timely
information about likely delivery times to prospective customers.
Increased efficiency: MRP provides a close coordination among various work centers and hence
help to achieve uninterrupted flow of materials through the production line. This increases the
efficiency of production system.

MRP System The inputs to the MRP system are:

(1) A master production schedule,
(2) An inventory status file and
(3) Bill of materials (BOM).
Using these three information sources, the MRP processing logic (computer programmer)
provides three kinds of information (output) for each product component: order release
requirements, order rescheduling and planned orders.
MRP system

MASTER PRODUCTION SCHEDULE (MPS) MPS is a series of time phased quantities for
each item that a company produces, indicating how many are to be produced and when. MPS is
initially developed from firm customer orders or from forecasts of demand before MRP system
begins to operate. The MRP system whatever the master schedule demands and translates MPS
end items into specific component requirements. Many systems make a simulated trial run to
determine whether the proposed master can be satisfied.

INVENTORY STATUS FILE Every inventory item being planned must have an inventory
status file which gives complete and up to date information on the on-hand quantities, gross
requirements, scheduled receipts and planned order releases for an item. It also includes planning
information such as lot sizes, lead times, safety stock levels and scrap allowances.

BILL OF MATERIALS (BOM) BOM identifies how each product is manufactured, specifying
all subcomponents items, their sequence of build up, their quantity in each finished unit and the
work centers performing the build-up sequence. This information is obtained from product
design documents, workflow analysis and other standard manufacturing information.

CAPACITY PLANNING
Design of the production system involves planning for the inputs, conversion process and outputs
of production operation. The effective management of capacity is the most important
responsibility of production management. The objective of capacity management (i.e., planning
and control of capacity) is to match the level of operations to the level of demand.
Capacity planning is to be carried out keeping in mind future growth and expansion plans,
market trends, sales forecasting, etc. It is a simple task to plan the capacity in case of stable
demand. However, in practice the demand will be seldom stable. The fluctuation of demand
creates problems regarding the procurement of resources to meet the customer demand. Capacity
decisions are strategic in nature. Capacity is the rate of productive capability of a facility.
Capacity is usually expressed as volume of output per period.
Production managers are more concerned about the capacity for the following reasons: Sufficient
capacity is required to meet the customers demand in time.
Sufficient capacity is required to meet the customers demand in time. Capacity affects the cost
efficiency of operations. Capacity affects the scheduling system. Capacity creation requires an
investment.
Capacity planning is the first step when an organization decides to produce more or new
products.
Measurement of Capacity Planning The capacity of the manufacturing unit can be expressed
in number of units of output per period. In some situations, measuring capacity is more
complicated when they manufacture multiple products. In such situations, the capacity is
expressed as man-hours or machine hours. The relationship between capacity and output.
Design capacity: Designed capacity of a facility is the planned or engineered rate of output of
goods or services under normal or full scale operating conditions. For example, the designed
capacity of the cement plant is 100 TPD (Tons per day). Capacity of the sugar factory is 150 tons
of sugarcane crushing per day.
System capacity: System capacity is the maximum output of the specific product or product mix
the system of workers and machines is capable of producing as an integrated whole. System
capacity is less than design capacity or at the most equal, because of the limitation of product
mix, quality specification, breakdowns. The actual is even less because of many factors affecting
the output such as actual demand, downtime due to machine/equipment failure, unauthorized
absenteeism.
Capacity and output relationship

The system capacity is less than design capacity because of long-range uncontrollable factors.
The actual output is still reduced because of short-term effects such as, breakdown of equipment,
inefficiency of labor. The system efficiency is expressed as ratio of actual measured output to the
system capacity. System Efficiency (SE) =Actual output System capacity
Licensed capacity: Capacity licensed by the various regulatory agencies or government
authorities. This is the limitation on the output exercised by the government.
Installed capacity: The capacity provided at the time of installation of the plant is called
installed capacity.
Rated capacity: Capacity based on the highest production rate established by actual trials is
referred to as rated capacity.
Process of Capacity Planning Capacity planning is concerned with defining the long-term and
the short-term capacity needs of an organization and determining how those needs will be
satisfied. Capacity planning decisions are taken based upon the consumer demand and this is
merged with the human, material and financial resources of the organization.
Capacity requirements can be evaluated from two perspectives long-term capacity strategies and
short-term capacity strategies.
LONG-TERM CAPACITY STRATEGIES Long-term capacity requirements are more
difficult to determine because the future demand and technology are uncertain. Forecasting for
five or ten years into the future is more risky and difficult. Even sometimes company’s today’s
products may not be existing in the future. Long-range capacity requirements are dependent on
marketing plans, product development and life- cycle of the product. Long-term capacity
planning is concerned with accommodating major changes that affect overall level of the output
in long-term. Marketing environmental assessment and implementing the long-term capacity
plans in a systematic manner are the major responsibilities of management.

Following parameters will affect long-range capacity decisions.

Multiple products: Company’s produce more than one product using the same facilities in order
to increase the profit. The manufacturing of multiple products will reduce the risk of failure.
Having more than one product helps the capacity planners to do a better job. Because products
are in different stages of their life cycles, it is easy to schedule them to get maximum capacity
utilization.
Phasing in capacity: In high technology industries, and in industries where technology
developments are very fast, the rate of obsolescence is high. The products should be brought into
the market quickly. The time to construct the facilities will be long and there is no much time as
the products should be introduced into the market quickly. Here the solution is phase in capacity
on modular basis. Some commitment is made for building funds and men towards facilities over
a period of 3–5 years. This is an effective way of capitalizing on technological breakthrough.
Phasing out capacity: The outdated manufacturing facilities cause excessive plant closures and
down time. The impact of closures is not limited to only fixed costs of plant and machinery.
Thus, the phasing out here is done with humanistic way without affecting the community. The
phasing out options makes alternative arrangements for men like shifting them to other jobs or to
other locations, compensating the employees, etc.

SHORT-TERM CAPACITY STRATEGIES Managers often use forecasts of product demand

to estimate the short-term workload the facility must handle. Managers looking ahead up to 12
months, anticipate output requirements for different products, and services. Managers then
compare requirements with existing capacity and then take decisions as to when the capacity
adjustments are needed.
For short-term periods of up to one year, fundamental capacity is fixed. Major facilities will not
be changed. Many short-term adjustments for increasing or decreasing capacity are possible. The
adjustments to be required depend upon the conversion process like whether it is capital
intensive or labor intensive or whether product can be stored as inventory.
Capital-intensive processes depend on physical facilities, plant and equipment. Short-term
capacity can be modified by operating these facilities more or less intensively than normal. In
labor-intensive processes, short-term capacity can be changed by laying off or hiring people or
by giving overtime to workers. The strategies for changing capacity also depend upon how long
the product can be stored as inventory.
The short-term capacity strategies are:

Inventories: Stock of finished goods during slack periods to meet the demand during peak
period.

Backlog: During peak periods, the willing customers are requested to wait and their orders are
fulfilled after a peak demand period.

Employment level (hiring or firing): Hire additional employees during peak demand period
and lay off employees as demand decreases.
Employee training: Develop multi-skilled employees through training so that they can be
rotated among different jobs. The multi-skilling helps as an alternative to hiring employees.

Subcontracting: During peak periods, hire the capacity of other firms temporarily to make the
component parts or products.

Process design: Change job contents by redesigning the job.

SCHEDULING
Scheduling can be defined as “prescribing of when and where each operation necessary to
manufacture the product is to be performed.” It is also defined as “establishing of times at which
to begin and complete each event or operation comprising a procedure”. The principle aim of
scheduling is to plan the sequence of work so that production can be systematically arranged
towards the end of completion of all products by due date.
Principles of Scheduling
The principle of optimum task size: Scheduling tends to achieve maximum efficiency when
the task sizes are small, and all tasks of same order of magnitude.
Principle of optimum production plan: The planning should be such that it imposes an equal
load on all plants.
Principle of optimum sequence: Scheduling tends to achieve the maximum efficiency when the
work is planned so that work hours are normally used in the same sequence.

Inputs to Scheduling
Performance standards: The information regarding the performance standards (standard times for
operations) helps to know the capacity in order to assign required machine hours to the facility.
Units in which loading and scheduling is to be expressed. Effective capacity of the work Centre.
Demand pattern and extent of flexibility to be provided for rush orders. Overlapping of
operations. Individual job schedules.
Scheduling Strategies Scheduling strategies vary widely among firms and range from ‘no
scheduling’ to very sophisticated approaches. These strategies are grouped into four classes:
Detailed scheduling: Detailed scheduling for specific jobs that are arrived from customers is
impracticable in actual manufacturing situation. Changes in orders, equipment breakdown, and
unforeseen events deviate the plans.
Cumulative scheduling: Cumulative scheduling of total workload is useful especially for long
range planning of capacity needs. This may load the current period excessively and under load
future periods. It has some means to control the jobs.
Cumulative detailed: Cumulative detailed combination is both feasible and practical approach.
If master schedule has fixed and flexible portions.
Priority decision rules: Priority decision rules are scheduling guides that are used independently
and in conjunction with one of the above strategies, i.e., first come first serve. These are useful in
reducing Work-In-Process (WIP) inventory.

Types of Scheduling Types of scheduling can be categorized as forward scheduling and

backward scheduling.
Forward scheduling is commonly used in job shops where customers place their orders
on “needed as soon as possible” basis. Forward scheduling determines start and finish times of
next priority job by assigning it the earliest available time slot and from that time, determines
when the job will be finished in that work center. Since the job and its components start as early
as possible, they will typically be completed before they are due at the subsequent work centers
in the routing. The forward method generates in the process inventory that are needed at
subsequent work centers and higher inventory cost. Forward scheduling is simple to use and it
gets jobs done in shorter lead times, compared to backward scheduling.
Backward scheduling is often used in assembly type industries and commit in advance to
specific delivery dates. Backward scheduling determines the start and finish times for waiting
jobs by assigning them to the latest available time slot that will enable each job to be completed
just when it is due, but done before. By assigning jobs as late as possible, backward scheduling
minimizes inventories since a job is not completed until it must go directly to the next work
center on its routing. Forward and backward scheduling methods are shown in the following
figure.
Forward and backward scheduling

SCHEDULING METHODOLOGY
The scheduling methodology depends upon the type of industry, organization, product, and level
of sophistication required. They are:
Charts and boards, Priority decision rules, and Mathematical programming methods. Gantt
Charts and Boards Gantt charts and associated scheduling boards have been extensively used
scheduling devices in the past, although computer now draws many of the charts. Gantt charts
are extremely easy to understand and can quickly reveal the current or planned situation to all
concerned. They are used in several forms, namely, Scheduling or progress charts, which depicts
the sequential schedule; Load charts, which show the work assigned to a group of workers or
machines; and Record a chart, which are used to record the actual operating times and delays of
workers and machines. Priority Decision Rules Priority decision rules are simplified guidelines
for determining the sequence in which jobs will be done. In some firms, these rules take the
place of priority planning systems such as MRP systems. Following are some of the priority rules
followed.

Mathematical Programming Methods Scheduling is a complex resource allocation problem.

Firms process capacity, labor skills, materials and they seek to allocate their use to maximize a
profit or service objective, or perhaps meet a demand while minimizing costs. The following are
some of the models used in scheduling and production control. Linear programming
model: Here all the constraints and objective functions are formulated as a linear equation and
then problem is solved for optimality. Simplex method, transportation methods and assignment
method are major methods used here.PERT/CPM network model: PERT/CPM network is the
network showing the sequence of operations for a project and the precedence relation between
the activities to be completed.
Note: Scheduling is done in all the activities of an organization i.e., production, maintenance etc.
Therefore, all the methods and techniques of scheduling are used for maintenance management.