Introduction To Production Planning

Supply chain management
PGE-M5-OPS-602-E-L-BOD-M1
Introduction to Production
Planning
Yann BOUCHERY
Associate Professor in Operations Management

& Logistics
Introduction to production planning
• Overall hierarchy of production planning decisions
• Bill of Materials (BoM)
 Key ideas
 An exercise
• Master Production Schedule (MPS)
 Principle and connection with S&OP
 Available to Promise
 An exercise
• Material Requirement Planning (MRP)
 Principle
 MRP calculations
© Yann Bouchery, KEDGE Business School 2
How do we match supply and demand?
Plan for demand fluctuation:
- Seasonality (see forecasting)
- Marketing campaigns
- New products
- Market changes
- Special events (ex: world cup)
Plan for supply fluctuation:

- Closing of a factory
- Preventive maintenance
- Seasonal changes in capacity

Overall hierarchy of production planning decisions
Items
Bill of Materials
Technical
data
Ressources
Manufacturing
process

S&OP Demand
Items Forecast
Bill of Materials
Technical
data
Ressources
Manufacturing
process
Sales & Operations Planning (S&OP)

Mid term horizon (6 to 18 months)
How to globally match supply and demand?

S&OP Demand
Items Forecast
Bill of Materials
Technical Orders and
MPS
data Sales forecast
Ressources
Manufacturing Inventory
process
Master Production Schedule (MPS)

Shorter term horizon (several weeks)
When to produce each type of products?

S&OP Demand
Items Forecast
Bill of Materials
MPS
data Sales forecast
Ressources
MRP
process
Material Requirements Planning (MRP)

When to order to meet production requirements on time?

S&OP Demand
Items Forecast
Bill of Materials
MPS
data Sales forecast
Ressources
MRP
process
Production Purchasing orders

orders Delivery
Production Supply
Follow up Reception

 Key ideas
 An exercise
 An exercise
 Principle
Bill of Materials
Items
Technical
Bill of Materials  The list of ingredients with their quantity…
data
Ressources
Manufacturing
process

Bill of Materials
Quantity
needed
A Level 0
(4) (2) (1)
B C D Level 1
(2) (1) (3) (3)
E G H Level 2
F
(3) (1) (6)
J K Level 3
I

Exercise
PFS produces two types of product (PF1 and
PF2). Each are built from components (A1,
A2 and A3) and sub-assemblies (S1 and S2).
Purchasing costs for components are as

follows:
A1 : 300 €, A2 : 100 €, A3 : 200 €.
• Production time are as follows:
S1 : 4 h, S2 : 4 h, PF1 : 6 h, PF2 : 4 h.
• Production costs are 30€/hour.
1/ What are the total costs (purchasing of components + production

costs) of S1, S2, PF1 and PF2?
2/ How many pieces of each component are required to produce 10 PF1
and 25 PF2?
 Key ideas
 An exercise
Exercise
 Principle
S&OP Demand
Items Forecast
Bill of Materials
MPS
data Sales forecast
Ressources
process

When to produce each type of products?

Principle and connection with S&OP
Recall: S&OP is made on a monthly basis per product family
Can we plan production only with this level of information?
We need more precision / more details:

- Product families need to be split (per product).
- Monthly data need to be disaggregated (per week).

Principle and connection with S&OP
Month 1 Month 2 …
The double-split logic:
Demand for 160 180 …
family 1 S&OP
 A split in time (generally Production for … … …
from monthly to weekly) family 1
Inventory of … … …
familiy 1
 A split in type (from
product family to product)
Demand week 1 week 2 week 3 week 4 …
Product A 18 25 8 15 …
Product B 10 20 10 6 … MPS
Product C 12 15 7 14 …
Total 40 60 25 35 …
Connection between MPS and S&OP
Two approaches:
Derive directly the MPS from the S&OP Derive the MPS independently from
results by the double-split logic S&OP results AND check for consistency
Mid term Mid term

S&OP Demand forecast S&OP Demand forecast
Consistency check
Short term
MPS MPS demand forecast

How to decide on the time horizon for the MPS?

- It should be longer than the time required for sourcing
parts/raw material + the time required for manufacturing.
In a MPS, we usually distinguish between a frozen planning

period and an open period.
- Frozen period: no change is allowed regarding production and
quantity needed.
- Open period: changes are still possible.

An example:
Week w1 w2 w3 w4 w5 w6 w7
Orders 10 20 30 40 45 40 50
Production 30 25 30 30 40 35 30
Inventory 20 40 45 45 35 30 25 5
Frozen horizon Open period

Available to Promise (ATP)
Available to promise:
- Quantity directly available that can be sold to additional customers without
comprising the ability to satisfy all orders already booked.
- ATP calculations are only done for the frozen horizon period!
Frozen horizon
Week week 1 week 2 week 3 week 4 week 5
Orders 80 30 10 0 30
Production 0 100 0 100 0
Inventory 100 20 90 80 180 150
ATP 20 60 70

Frozen horizon
Orders 80 30 10 0 30
Inventory 100 20 90 80 180 150
ATP 20 60 70
100-30-10
Frozen horizon
Orders 80 30 10 0 30
Inventory 100 20 90 80 180 150
ATP 20 60 70

ATP calculation:
- First period: Beginning inventory + (Production) − Sum of orders before the
first period containing a production batch.
- Period with production (if ≠ first period): Scheduled production − Sum of
orders before next period containing a production batch.
- WARNING!! If an ATP is negative, reduce the previous ATP by the necessary
amount to reach 0 (instead of a negative value).
TRICK!!
Frozen horizon
Orders 80 30 10 0 30
Inventory 100 20 90 80 180 150
ATP 20 60 70

Exercise:
- A company has the following information on forthcoming orders:
Orders 300 250 300 410 245 250 500
- Assume that the initial inventory is 200 units.

- What is the optimal production plan (minimizing inventory without
backorders) if the production lot size is 600 units?
- Compute the ATP.
Exercise:
Orders 300 250 300 410 245 250 500
Production 600 0 600 0 600 0 600
Inventory 200 500 250 550 140 495 245 345

Exercise:
Orders 300 250 300 410 245 250 500
Production 600 0 600 0 600 0 600
Inventory 200 500 250 550 140 495 245 345
ATP 250 -110

200+600-300-250
Exercise:
Orders 300 250 300 410 245 250 500
Production 600 0 600 0 600 0 600
Inventory 200 500 250 550 140 495 245 345
ATP 140 0 N/A N/A N/A

• Bill of Materials (BoM):
 Key ideas
 An exercise
• Master Production Schedule (MPS):
 An exercise
 Principle
Material Requirement Planning (MRP)
S&OP Demand
Items Forecast
Bill of Materials
MPS
data Sales forecast
Ressources
MRP
process
Material Requirements Planning (MRP)

When to order to meet production requirements on time?

Material Requirement Planning (MRP)
Objective of MRP:
- Determine which quantity and when to order raw material.
- Determine when to launch production (for sub-assemblies and finished goods).
Overall logic:
- We start for the requirements for finished goods and we deduce how much
and when to produce (based on inventory level).
- This gives requirement for sub-assemblies. We repeat the same logic…
- This gives requirements for raw material.

Overall logic of MRP
Level 0 : Finished goods Gross requirements =
Orders
Inventory of finished
goods + WIP
Net requirements Production orders of finished goods
BoM
Level 1 : Sub-assemblies
Gross requirements
Inventory of sub-
assemblies + WIP
Net requirements Production orders of sub-assemblies
BoM
Level 2 : Raw material
Gross requirements
Inventory of raw material
+ outstanding orders
Net requirements Purchasing orders

How to handle time?
Launch of Requirement for

production finished good
Production time
Requirement for
Purchasing Order raw material
Leadtime

MRP calculations
Consider the following BoM:
PF
(4) (2) (1)
P1 C1 C2
(0.8) (2) (2.4)
M1 P2 M2

MRP calculations
Consider the following production times and leadtimes:
• Production time PF …….. 2 weeks.
• Production time C1 …….. 2 weeks.
• Production time C2 …….. 3 weeks.
• Leadtimes P1 and P2 …….... 3 weeks.
• Leadtimes M1 and M2 ……... 2 weeks.
When do we need to order

P1, P2, M1 and M2 if we
want to obtain PF in week S?

MRP calculations
Fill in the following MRP table for PF:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20
Net req. PF
Production PF

MRP calculations
Fill in the following MRP table for PF:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20 20 20 20 0 0 0 0 0 0 0
Net req. PF 30 10 40 20 30 50 60
Production PF 30 10 40 20 30 50 60
Net req. PF: 20x4-50=30

Production PF:
coz takes 2 weeks to produce so
w2 starts produce 30 units

MRP calculations
Fill in the following MRP table for P1:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20 20 20 20 0 0 0 0 0 0 0
Net req. PF 30 10 40 20 30 50 60
Production PF 30 10 40 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. P1
Inventory P1 200
Net req. P1
Production P1

MRP calculations
Fill in the following MRP table for P1:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20 20 20 20 0 0 0 0 0 0 0
Net req. PF 30 10 40 20 30 50 60
Production PF 30 10 40 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. P1 120 40 160 80 120 200 240
Inventory P1 200 200 80 40
Net req. P1 120 80 120 200 240
Production P1 120 80 120 200 240

MRP calculations
Fill in the following MRP table for C1:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20 20 20 20 0 0 0 0 0 0 0
Net req. PF 30 10 40 20 30 50 60
Production PF 30 10 40 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C1
Inventory C1 70
Net req. C1
Production C1

MRP calculations
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20 20 20 20 0 0 0 0 0 0 0
Net req. PF 30 10 40 20 30 50 60
Production PF 30 10 40 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C1 60 20 80 40 60 100 120
Inventory C1 70 70 10
Net req. C1 10 80 40 60 100 120
Production C1 10 80 40 60 100 120

MRP calculations
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20 20 20 20 0 0 0 0 0 0 0
Net req. PF 30 10 40 20 30 50 60
Production PF 30 10 40 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C2
Inventory C2 50
Net req. C2
Production C2

MRP calculations
Week 1 2 3 4 5 6 7 8 9 10
Gross req. PF 50 10 40 20 30 50 60
Inventory PF 20 20 20 20 0 0 0 0 0 0 0
Net req. PF 30 10 40 20 30 50 60
Production PF 30 10 40 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C2 30 10 40 20 30 50 60
Inventory C2 50 50 20 10
Net req. C2 30 20 30 50 60
Production C2 30 20 30 50 60

MRP calculations
Then we move down in levels…
Fill in the following table for M1:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C1 60 20 80 40 60 100 120
Net req. C1 10 80 40 60 100 120
Production C1 10 80 40 60 100 120
Week 1 2 3 4 5 6 7 8 9 10
Gross req. M1
Inventory M1 100
Net req. M1
Production M1

MRP calculations
Then we move down in levels…
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C1 60 20 80 40 60 100 120
Net req. C1 10 80 40 60 100 120
Production C1 10 80 40 60 100 120
Week 1 2 3 4 5 6 7 8 9 10
Gross req. M1 8 64 32 48 80 96
Inventory M1 100 92 28
Net req. M1 4 48 80 96
Production M1 4 48 80 96

MRP calculations
Fill in the following table for P2:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C2 30 10 40 20 30 50 60
Net req. C2 30 20 30 50 60
Production C2 30 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. P2
Inventory P2 220
Net req. P2
Production P2

MRP calculations
Fill in the following table for P2:
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C2 30 10 40 20 30 50 60
Net req. C2 30 20 30 50 60
Production C2 30 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. P2 60 40 60 100 120

Inventory P2 220 160 120 60
Net req. P2 40 120
Production P2 40 120

MRP calculations
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C2 30 10 40 20 30 50 60
Net req. C2 30 20 30 50 60
Production C2 30 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. M2
Inventory M2 150
Net req. M2
Production M2

MRP calculations
Week 1 2 3 4 5 6 7 8 9 10
Gross req. C2 30 10 40 20 30 50 60
Net req. C2 30 20 30 50 60
Production C2 30 20 30 50 60
Week 1 2 3 4 5 6 7 8 9 10
Gross req. M2 72 48 72 120 144

Inventory M2 150 78 30
Net req. M2 42 120 144
Production M2 42 120 144

MRP in a nutshell
- Start for the requirements for finished goods and we deduce back.
- The overall logic is quite simple… but the implementation in practice
might be quite difficult.
(Ton de Kok)
- MRP needs to be used with caution: Account for uncertainty!!

- Don’t use MRP for low value items: Compare what it costs with what
you can gain!!

For next week
Prepare and submit the exercises:
 See Learn/Assignments/Exercises production planning.
 You will be in charge of correcting them during next session.
 Submit your preparation via Learn.

For next week
Prepare the synopsis of the video for the group project.

Thank you for
your attention…
Yann BOUCHERY
Associate Professor in OM & Logistics
KEDGE BUSINESS SCHOOL
Office 1524, 680 cours de la Libération
33405 Talence Cedex - France
[email protected]
Tel.: +33 (0) 5 56 84 55 37

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Supply chain management

Associate Professor in Operations Management

Plan for supply fluctuation:

© Yann Bouchery, KEDGE Business School 3

© Yann Bouchery, KEDGE Business School 4

Sales & Operations Planning (S&OP)

© Yann Bouchery, KEDGE Business School 5

Master Production Schedule (MPS)

© Yann Bouchery, KEDGE Business School 6

Material Requirements Planning (MRP)

© Yann Bouchery, KEDGE Business School 7

Production Purchasing orders

© Yann Bouchery, KEDGE Business School 8

© Yann Bouchery, KEDGE Business School 10

(2) (1) (3) (3)

© Yann Bouchery, KEDGE Business School 11

Purchasing costs for components are as

1/ What are the total costs (purchasing of components + production

Master Production Schedule (MPS)

© Yann Bouchery, KEDGE Business School 14

Recall: S&OP is made on a monthly basis per product family

Can we plan production only with this level of information?

We need more precision / more details:

© Yann Bouchery, KEDGE Business School 15

Mid term Mid term

© Yann Bouchery, KEDGE Business School 17

How to decide on the time horizon for the MPS?

In a MPS, we usually distinguish between a frozen planning

© Yann Bouchery, KEDGE Business School 18

Frozen horizon Open period

© Yann Bouchery, KEDGE Business School 19

Week week 1 week 2 week 3 week 4 week 5

Production 0 100 0 100 0

Inventory 100 20 90 80 180 150

© Yann Bouchery, KEDGE Business School 20

Week week 1 week 2 week 3 week 4 week 5

Production 0 100 0 100 0

Inventory 100 20 90 80 180 150

Week week 1 week 2 week 3 week 4 week 5

Production 0 100 0 100 0

Inventory 100 20 90 80 180 150

© Yann Bouchery, KEDGE Business School 22

Week week 1 week 2 week 3 week 4 week 5

Production 0 100 0 100 0

Inventory 100 20 90 80 180 150

© Yann Bouchery, KEDGE Business School 24

Frozen horizon Open period

Orders 300 250 300 410 245 250 500

- Assume that the initial inventory is 200 units.

Frozen horizon Open period

Orders 300 250 300 410 245 250 500

Production 600 0 600 0 600 0 600

Inventory 200 500 250 550 140 495 245 345

© Yann Bouchery, KEDGE Business School 26

Frozen horizon Open period

Orders 300 250 300 410 245 250 500

Production 600 0 600 0 600 0 600

Inventory 200 500 250 550 140 495 245 345

ATP 250 -110