PRODUCTION

PLANNING &
CONTROLLING
SYBBA SEM 4 CHAPTER1

DR MILIND H PAREKH
 CH. 1: Production Planning
Topics to be covered:

Topic 1: Definition of Production Planning

Topic 2: Three Levels of Production Planning

Topic 3: Master Production Schedule (MPS)

Topic 4: Material Requirement Planning

[Process, Flow Diagram, Inputs & Outputs, Bill of Material (Meaning & Types)]

Topic 5: Capacity Requirement Planning (CRP)

[Process with Flow Diagram, Methods of Capacity Adjustments]

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Topic 1: Definition of Production Planning

“Production Planning is that function of management , which decides about the resources
that will be required for future manufacturing, operations & allocating these resources to
produce desired output at right time, in right amount, at right quantity and at least cost”

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Topic 2: Levels of Production Planning

Levels of Production
Planning

Strategic Tactical Operational

Planning Planning Planning

1. Strategic Planning
 Strategic Planning is a process of linking production planning with mission and
overall strategic planning of the business.
 The time horizon of Strategic Planning is of 4 to 5 years.

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  It includes various aspects like decisions on production capacity, locations of
manufacturing units, types of machines & material handling system and technology
forecasting.
 These are long term decisions i.e. once taken then difficult to alter. E.g. Once the
location of production plant is selected, it is difficult to alter / change.
 These decisions require less mathematical skills, they are more unstructured and
hence require high degree of skills, experience and creativity.
2. Tactical Planning
 It is medium term planning.
 Time horizon for this is usually 6 to 8 months or up to 1 year.
 It is concerned with the best utilisation of existing facilities rather than creating new
facilities.
 It including costing & value analysis, make or buy decisions design of inventory
policies.
 It includes preparing Aggregate Production Plan.
 E.g. For paint industry, it can be prepared for total quantity of paint to be
manufactured during this year.
 For refrigerator manufacturer, it can be prepared for number of units of refrigerator
to be manufactured during the year. Here in APP; color, size, thickness etc are not
decided.
3. Operational Planning
 It is known as Shop Floor Planning.
 The time horizon of operational planning is 1 to 3 months.
 In other words it is a short range planning.
 The immediate sales forecast, availability of material and capacity, stock of finished
products, pending purchase orders, requirement of fresh raw material etc are the
scope of operational planning.
 MPS, MRP and CRP are prepared for the Operational Planning purpose.

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Topic 2: Master Production Schedule

 Definitions of MPS

“Master Production Schedule (also known as Master Schedule or MPS) formalizes the
aggregate production plan and converts it into specific material requirement and capacity
requirement plan.”

“MPS is a process of deciding amount & timing of all the items (end items) to be produced
over a specific planning horizon.”

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 General Idea of MPS

Master Schedule is completely derived and prepared from Aggregate Production Plan. Here
a production manager decides monthly or weekly production of units of end products. MPS
is prepared for immediate planning horizon i.e. next coming month, coming quarter. MPS is
the next step after Aggregate Production Planning. The major difference between Aggregate
Production Planning is that Aggregate Planning determines the total output in units to be
produced over a specific time horizon (6 months to 18 months) whereas MPS determines
the unit of each end items to be produced over a specific planning horizon. E.g. aggregate
planning determines what total quantity of paint is going to be produced during next year.
Whereas, MPS reveal that what quantity of Yellow Oil paint is to be manufactured + what
quantity of white exterior paint is to be manufactured?

 Objectives of MPS
1. To schedule end items to be completed promptly and as & when promised to
customers.
2. To avoid overloading & under loading of production facility.

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 Procedure for Developing MPS

Step 1: Consider the sale projections and probable demand

 The total demand for the end items (to be produced) is gathered from APP, market
& demand forecasts.
 For Standardized products, MPS should be made for ‘Few Outputs’ produced from
‘many Inputs’. And for Intermittent production system, MPS should be made for ‘few
inputs’ which will produce ‘many outputs’

Few Output
Prepare Many Outputs
MPS here

Prepare
MPS here
Few Output
Many Raw Materials

Step 2: Prepare tentative Master Schedule (Rough Cut Capacity Planning)

 After gathering the information related to the demand and sale projections, next
step is that orders are now assigned to various production slots (Work centres and
machines) and delivery promises are made to customers tentatively.
 As orders are slotted in the MPS, the effect of the production work centres is
checked. This process of preliminary checking of MPS is called as Rough Cut Capacity
Planning (RCCP).
 The main purpose of RCCP is to identify any week in the MPS where under loading or
overloading of the production capacity occurs & then to revise MPS if required.

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Step 3: Check tentative MPS (RCCP) for material availability by MRP and capacity
adequacy by CRP

The prime purpose of MPS is to prepare MRP and CRP. Tentative MPS will check whether
adequate material are available or not and adequate capacity is available or not by
comparing tentative MPS with material and capacity requirements.

Step 4: If material and capacity requirements are not adequate, again MPS shall be revised
and try to prepare modified MPS.

Step 5: When both material and capacity requirements are adequate enough, MPS will be
finalised at this stage.

SPECIMEN OF MASTER PRODUCTION SCHEDULE

Week Number
End Item
1 2 3 4 5 6 7 8 9 10
A 200 200
B
C 300 300

 Functions of MPS
1. Translate Aggregate Production Plans
2. Evaluate alternative Master Schedules
3. Generate Material Requirements
4. Generate Capacity Requirements
5. Facilitate Information Processing
6. Maintain Valid Priorities
7. Effectively utilize capacity

Let us see all these function in brief.

1. Translate Aggregate Plans

The master schedule translates APP into specific number of end items to be produced
during specific time periods. In short it means conversion of aggregate plan into specific end
items plan.

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 2. Evaluate alternative Master Schedules

Master Scheduling is a trial and error, work and rework activity. Nowadays there are many
computerised software are available in the form of simulation capabilities that provide
many alternative Master Schedules and help production managers to “trial-fit” the
schedule. So, it is advisable for a production manager to evaluate as many as possible MPSs.

3. Generate Material Requirements

MPS is the first input for MRP. MPS shows end items to be produced and this becomes
signal for MRP to generate further dependent items requirements of purchasing and
producing them on or before the due dates.

4. Generate Capacity Requirements

MPS becomes prime requirement for capacity requirement planning. It reflects the
determination of labour and equipments requirement. If capacity requirements are
inappropriate, MPS needs to be revised.

5. Facilitate Information Processing

MPS also determines when deliveries are to be made both for make-to-order & for make-to-
stock items.

6. Maintain valid priorities

Priorities reflect absolute priorities or relative (ranking i.e. J4, J3, J1 & J2) priorities. This
means that due date specifies the actual time when the order is to be delivered. But,
sometimes it so happens that customers may change their orders, customers may change
their time, raw material are not available at last moments etc. In all such cases revision of
MPS will be helpful in determining the new & valid priorities.

7. Effective utilisation of Capacity

By specifying the end items requirements, the master schedule also establishes the load and
utilisation parameters for labour and equipments.

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Topic 3: Material Requirement Planning

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Before going to study the concept of MRP, let us first understand the concept of Dependent
Demand Items and Independent Demand Items.

Independent Demand Items

Independent Demand Items are those finished goods, service parts and other end items
whose demand arises more directly from uncertain market environment. Independent
demand items need careful forecasting for demand estimation.

Dependent Demand Items

Dependent Demand Inventory consists of raw material, components and subassemblies that
are used in the production of parent item/finished product. E.g. Demand for computer
keyboards, mouse, and mother boards depend on the demand of the parent item computer.
The demand for dependent demand item can be calculated.

In short demand for items that are subassemblies and components parts to be used in
manufacturing final products are dependent demand items.

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 Definition of Material Requirement Planning (MRP)

Material Requirement Planning (MRP) is a technique for determining the quantity and
timing for the acquisition of dependent demand items needed to satisfy master schedule
requirements.

 Introduction

MRP is a computer based information system that translate the finished product
requirements of MPS into time phased requirements of assemblies, subassemblies,
components and parts & other information to determine when to order and how much to
order. Hence requirements of end items generate requirements of further lower level
components, which are broken down by planning periods. E.g. Requirements of ‘n’ units of
Wheelbarrows (end-item) generates the lower level requirements of Handle Assembly,
Wheel Assembly, Box and Paints.

 Objectives of MRP
1. To improve customers service by meeting delivery schedule on or before promised
dates.
2. To reduce inventory costs by reducing inventory levels
3. To improve operating efficiency and capability of productive resources (man and
machines)

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 Inputs & Outputs of MRP System

Inputs to MRP Outputs to MRP

Modifcation in MPS
MPS
(if needed)

Product Structure File / BOM Order Relaeses Information

Order Relaeases & Planned

Inventory Status File
Order Releases

Inputs to MRP:

Mainly there are 3 inputs of MRP.

1. Master Production Schedule

 MPS specifies what end items are to be produced and when. Remember, MPS is a
production plan not necessarily a sales forecast.
 MRP system accepts whatever the MPS requirements are and translates MPS end
items into specific component and parts requirements. Then with the help of
simulation trial and error method proposed master schedule requirements can be
satisfied.
2. Product Structure File / Bill of Material
 To plan for the production of an end item, an MRP system must plan for all the
dependent demand items i.e. materials, parts, components, subcomponents and
parts that will go into manufacturing final product.
 The bill of material is the computer system that provides this information of all sub-
products. The BOM file identifies each part and sub-part by a unique number and
facilitates further explosion of end-item requirements. There are mainly two types of
Bill of Materials: Single Level BOM and Multi Level or Indented BOM.
PRODUCT STRUCTURE TREE (SPECIMEN)

Filing
Cabinet

Case Assembly Lock Drawer

Assembly
(1) (1) (3)

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 3. Inventory Status File

Week Number 0 1 2 3 4 5 6 7 8
Items:
Gross Requirements
Scheduled Receipts
Projected On Hand
Net Requirements
Planned Order Receipts
Planned Order Releases

 The inventory status file gives complete information regarding on-hand inventory,
gross requirements, scheduled receipts, and planned order releases for the item.
 Moreover, inventory status file also includes information such as lot sizes, lead
times, safety stock levels and scrap allowances.
 Inventory status file should be updated on regular bases i.e. as & when changes
occur.
 Let us first understand the each and every particular which is mentioned in inventory
status file.
(a) Gross Requirements: The total quantity of an item needed at the end of a period to
meet the planned output levels. Remember, it will not consider any availability of
the item in on-hand inventory or scheduled receipts.
(b) Scheduled Receipts: The quantitiy of an item that will be received at the beginning
of the time period to meet the net requirement for that time period.
(c) On-Hand Inventory: The quantity of a material, physically held in inventory at a
point of time. It may include safety stock plus allocated inventory.

On hand Inventory for ‘n’ period = (On hand inventory for the period ‘n-1’) +
(Scheduled Receipts for ‘n’ period) – (Gross Requirements for ‘n’ period)

(d) Planned Order Release: Number in planned order release row when (in which
week) the order should be placed to meet the requirements for the item. Time
period at which the order should be placed can be found out by subtracting the lead
time from the time of ‘net requirement’.
(e) Net Requirements: The amount of net requirements in any period can be found out
by subtracting the gross requirements for that period and any scheduled receipts for
that period and any quantity of on-hand-inventory.

Net Requirements for period ‘n’ = (Gross Requirement for period ‘n’) – (Scheduled
receipts for period ‘n’) – (On hand inventory at the end of period ‘n-1’)

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Outputs to MRP:

(a) Planned Orders: It is the schedule indicating the amount & timing of future orders.
(b) Order Releases: It shows implementation of planned orders.
(c) Performance Control Reports: It is report showing evaluation of system operation,
including deviations from the plan and cost information
(d) Exception Reports: Shows attention to major discrepancies like late and overdue
orders, excessive scrap rates, reporting errors and requirements of non-existence
parts.
(e) It facilitates modification in MPS if needed.

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Topic 4: Bill of Material

 Definition of BOM

A Bill of Material contains a listing of all the assemblies, sub-assemblies, parts and raw
materials that are needed to produce one unit of a finished product. Thus each end-item
has its own Bill of Material.

 Meaning

The listing in the bill of material is hierarchical; it shows the quantity of each item needed to
complete one unit of the following level of assembly. Bill of material shows visual depiction
in the form of A Product Structure Tree. The BOM file defines product in very precise and
unambiguous way so that component requirements are clearly determined.

A SPECIMEN OF BILL OF MATERIAL

B
C
(2)

D E F
E
(3) (2) (2)

E
(4)
 The BOM are of 2 types:
(a) Single Level BOM
(b) Multi-Level / Indented BOM

(a) Single Level Bill of Material

 A single level Bill of Material specifies the requirements for only the immediate or
next level components that are needed to assemble a parent / end item.
 E.g. A firm produced wheelbarrows that are produced from a box, a handlebar
assembly and a wheel assembly and some paint.

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 The single level BOM will contain only one level under the parent item as depicted in
the following diagram.
 Numbers inside the boxes represent the quantity of that particular part or sub-part
to be manufactured. And number outside the box represents the unique identity of
that particular part or assembly.
 By giving the unique identity number to components and parts; it will be
advantageous in the case when the subcomponents are repeatedly used. At that
time a computer will identify the part or sub part from its unique identity number, if
at all it is repeated.

Wheel
Barrow

Handle Wheel
Box Paint
Assembly Assembly
(1) (1)
(1) (1)

BILL OF MATERIAL
Part No. W099: Wheel Barrow
Part No. Description Quantity Units
1011 Box: Deep Size, Aluminium 1 Each
1020 Handle Assembly 1 Each
1030 Wheel Assembly 1 Each
1042 Paint: Blue 1 Pint

(b) Indented / Multilevel Bill of Material / Explosion of Bill of Material

 Many finished items/end-items are too complicated that it cannot be properly

described with single level Bill of Materials and in such cases Multi level or Indented
Bill of Materials are used. There may be hundreds of raw materials and parts are
needed sometimes to manufacture an end item and at such times it is advisable to
prepare Multilevel Bill of Material.
 Indented BOM are structured to show the manufacturing sequence of the parent
item.

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  In Indented BOM, parent item stays at zero level and all that parts and components
that go into manufacturing zero level item, are assigned to Level 1, all that parts and
components that go into manufacturing Level 1 items, are assigned to Level 2, all
that parts and components that go into manufacturing Level 2 items, are assigned to
Level 3 and so on. Suppose, if one component is such which is required at more than
one level (i.e. level 2 and level 3), then it would be assigned at lower level i.e. Level 3.

Wheel
Barrow

Handle Wheel
Box Paint
Assembly Assembly
(1) (1)
(1) (1)

Bars (1) Grips (2) Axle (1) Bearings (2) Wheel (1)

Tyre
(1)

INDENTED BILL OF MATERIAL

Part No: W099 Wheel
Barrow
Part No. Description Quantity Units Level
1011 Box: Deep Size, Aluminium 1 Each 1
1020 Handle Assembly 1 Each 1
2022 Aluminium Bars 2 Each 2
2025 Grips: Neoprene 2 Each 2
1030 Wheel Assembly 1 Each 1
2031 Axle 1 Each 2
2032 Bearing 2 Each 2
2035 Wheel 1 Each 2
3026 Tyre: Size A 1 Each 3
1042 Paint: Blue 1 Pint 1
Why BOM is known as The Heart of MRP?

Bill of Material shows the full manufacturing sequence of the product. One can easily
identify what components are needed to manufacture parent items or item at level 1 or at
any level; and in what quantity they are needed by just seeing at the bill of material. Hence,
it is known as the Heart of MRP.

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Topic 5: Capacity Requirement Planning

 Definition of Capacity

Capacity is a measure of the productive capacity of a facility per unit of time.

 Definition of Capacity Requirement Planning (CRP)

CRP is techniques for determining what personal and equipment capacities are needed to
meet the production objectives mentioned in master schedule and material requirement
plan.

 Overview of the CRP Process / Methodology

1. End-items requirements are reflected in and extracted from APP and MPS.
2. The CRP system (computer system) will then convert orders to be released and
processed into standard Labour Hours and Machine Hours of load. This information is
given in work centre status and shop routing file. In short CRP system will convert
orders into standard time of load on Work Centre.
Here, one point is to be remembered is that, when the orders are initially converted
into the loads, it will consider Infinite Loading for the initial loading process. The
process of loading work centres with all the loads when they are required without
seeing the actual capacity is known as infinite loading. Infinite loading is important
for planners because it provides idea for capacity adjustments like using overtime,
using alternative routings, delaying selected orders etc.
3. The output will be a Load Projection Report by a work centre. If work centre
capacities are adequate then planned order releases are verified by MRP system and
released orders become purchase or shop orders (Remember: Purchase Order from
vendor and shop order for in-house production).
4. Workload Reports are also made for use in Capacity Control. (In case of Finite
Loadings)
5. If Load Projection Reports reveal inadequate capacities, either capacity must be
adjusted or MPS should be revised.

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Inputs of CRP

1. Planned orders and Planned order releases from MRP system.

2. Loading information from work centre status file.
3. Routing information from Shop Routing File
4. Changes which will modify the capacity either by adjusting capacity or by making
changes in MPS.

Outputs of CRP

Major output of CRP system is the verification that....

1. They are complete i.e. they have both planned and released orders
2. They are based on valid priorities
3. They facilitate for future planning

Methods for Capacity Adjustments

1. Overtime of Existing Workers

2. Work during vacations
3. Hiring casual workers
4. Outsourcing or Subcontracting some jobs
5. Adjustments in quantities during vacation season or peak season
6. Expansion of Capacity

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IMPORTANT NOTE:

 Master Production Schedule

o If asked in 10 to 12 marks.....................Write down Full Content given in material
o If asked in 7 to 8 marks................. Write Definition, Objectives, Flow Chart,
Procedure and only points of functions
o If asked in 5 marks..........................Definition, Flow Chart and Process
o If asked in 2 marks..................... Only definition
 Material Requirement Planning
o If asked in 10 to 12 marks ...................Write down Full Content given in material
o If asked in 7 to 8 marks................ Definition, Objectives, Inputs and Outputs (brief
only) & Flow Chart
o If asked in 5 marks.......................Definition, Only Points of Inputs and Outputs, Flow
Chart
o If asked in 2 marks ................Only definition
 Bill of Material
o If asked in 10 to 12 marks.............. Full Content
o If asked in 7 to 8 marks............ Definition + Only example of BOM + Types + Why it is
known as Heart of MRP
o If asked in 4 to 5 marks.............. Definition + Only Example of BOM
o If asked in 2 marks......................... Only Definition

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