7 Production Planning and Scheduling

Aggregate planning and inventory

Aggregate planning sets overall production rates and resource levels for a product family over a medium-term horizon, often several months. It works at a broad level, such as planning total bicycles per month rather than specifying each model and color. The resulting plan guides more detailed plans, including the master production schedule.

Managers compare forecast demand with available capacity and decide how to address any difference. The inventory relationship is:

When production is below demand, inventory falls; when production is above demand, inventory rises. A backlog can also represent demand that has not yet been fulfilled.

Choosing a planning strategy

The main strategies differ in how they respond to changes in demand. None is a universal rule: the preferred approach depends on costs, capacity, workforce availability, customer-service requirements, and the organization’s ability to store output or defer orders.

• Level production: Keep the production rate and usually the workforce relatively stable. Inventory or backlogs absorb fluctuations. This can support predictable staffing, but may raise inventory or delay deliveries.

• Chase production: Adjust output to match demand more closely, often by changing staffing, hours, or subcontracting. This can reduce inventory, but may increase hiring, training, overtime, or layoff costs.

• Hybrid planning: Combine approaches. For example, maintain a stable core workforce while using overtime, temporary workers, subcontractors, or inventory to cover peaks.

A level production example

A level production plan illustrates how inventory can buffer demand variation while production and staffing remain steady. A factory forecasts demand of $80$, $100$, and $120$ units over three months. It starts with $20$ units in inventory and aims to finish with $20$ units. Producing $100$ units each month gives the following inventory progression:

• Month 1: Beginning inventory $20$, production $100$, demand $80$, ending inventory $40$.

• Month 2: Beginning inventory $40$, production $100$, demand $100$, ending inventory $40$.

• Month 3: Beginning inventory $40$, production $100$, demand $120$, ending inventory $20$.

If each worker can produce $10$ units per month, this plan requires $10$ workers. In a real plan, managers would also test capacity, material availability, costs, and any limits on inventory.

From demand to production and workforce plans

A production plan states how much output to make in each period, usually for a product family. A workforce plan estimates the labor needed to deliver that output. Together, the production and workforce plans coordinate sales expectations with production, workforce, materials, and financial plans.

Managers typically develop and assess the plans in this order:

1. Forecast demand for each period.

2. Set desired ending inventory or backlog levels.

3. Calculate required production using the inventory relationship.

4. Translate production into labor and other capacity requirements using productivity rates.

5. Compare requirements with available labor, equipment, materials, and supplier capacity.

6. Compare feasible alternatives on cost and service, then monitor results and revise the plan as conditions change.

The production plan provides an agreed output level for more detailed scheduling; it is not a detailed instruction for each machine or order.

Assigning and timing work

Scheduling specifies when work should occur and which resources will perform it. It follows the broader production plan by assigning activities to particular time periods, work centers, machines, or employees. Routing identifies the sequence of operations; scheduling determines their timing and resource use.

Scheduling decisions commonly include:

• Loading: Assign jobs to work centers or resources.

• Sequencing: Choose the order in which jobs are processed. First-come, first-served, shortest processing time, and earliest due date are simple rules. Each prioritizes something different, such as fairness, throughput, or on-time delivery.

• Timing: Set start and finish times while accounting for processing times, setup, dependencies, and available capacity.

• Monitoring and adjustment: Compare actual progress with the schedule and respond to delays, breakdowns, or changes in demand.

Scheduling tools and feasibility

A Gantt chart displays activities against a timeline, making it easy to compare scheduled and actual progress. For a project with dependent tasks, the critical path method (CPM) identifies the longest path of dependent activities. A delay on that path delays the overall project unless the plan changes.

PERT is useful when task durations are uncertain because it uses optimistic, most likely, and pessimistic time estimates. These tools support scheduling in different circumstances, but schedules must also be feasible: work cannot be assigned beyond the capacity of available people, equipment, or materials.

Actual operations rarely proceed exactly as planned. Managers track progress and update schedules when delays, breakdowns, demand changes, or other conditions require adjustment.