A Complete Guide to Production Planning Strategy

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4 years ago

A production plan is a tool that companies can use to develop a strategy for meeting forecasted demands while minimizing costs. An effective production plan also enables companies to reduce the amount of stored inventory they hold and make the best use of their manufacturing plant space and equipment.

What is Production Planning Strategy?

A production planning strategy is a planned decision made on the basis of earlier study of the costs and revenue impacts of various alternatives that give consideration to factors such as quality, technology and production and service delivery effectiveness.

Production Planning for Small Businesses

Due to the inherent unpredictability of their operating environment, smaller companies, particularly businesses that serve only a local market, can have difficulty projecting product demand. Moreover, small businesses generally have little need for sophisticated production planning tools because of lower levels of complexity in manufacturing and service operations.

For instance, a small business may need to plan for the production of an item based on the volume of client demand, which is generally easier than planning for the production of several items because the cost of failure for the former is less. When links between the markets and the products cannot be predicted, regular incremental production plans may be adequate. Also, simple short-term planning of production requirement may be manageable through a process of trial and error and regular reviews to check if sufficient production has been earmarked for the business to meet requirements and to gauge the reactions of customers.

Production Control and Scheduling

Controlling production planning starts with the scheduling process. In an effective production planning system, the demand is matched against

production schedule. Production that is not scheduled is not controlled.

Production planning that is based exclusively on market requirements is called market-based and production planning that is based on both market requirements and company production capacity is called market-based with capacity control.

Market-based production planning is generally better than market-based production planning with capacity control because it assigns a greater role to the market and minimizes costs for both the market and the firm.

To explain its importance in production planning, we can quote an example. Suppose a firm has a capacity of 10,000 units per month and market conditions are difficult. The firm decides to produce 3,000 units only, reducing this capacity to support the market and protect itself from losses. Now, a competitor enters the market and decides to produce 4,000 units because he believes the market will improve. His competitor will win the market because his lower cost production will beat his rival’s expensive production.

Production planning starts with capacity planning and scheduling. A good capacity plan involves estimation of production demand, evaluation of production plans and production schedules, implementation of the most favorable plan and monitoring of output and capacity loading.

ZBB or Zero-base Budgeting is another form of Production Planning.

Production Planning Process

The Production Planning Process (PPP) is a tool for manufacturing a product or service. The manufacturing process includes translating the design into a physical object. The Production Planning Process contains the following steps:

  1. Identify the need- Demand may be created either internally or externally. Internal demand is the paper or electronic catalog. External demand is when companies identify needs by talking/talking to clients, reading surveys, and conducting research.
  2. Profile the need- This step involves a review of the product requirements.
  3. Analyze the market- By analyzing the market, the company determines who its customers are, how the product will be sold and what type of customers will be served. 4. Assert Master Scheduling- The master schedule is the plan that matches capacity to the production demand generated by the marketing strategies. In a conventional organization, the master schedule is generated manually.
  4. Define the policies- The policies include all schedule and planning parameters. The parameters include:

. Capabilities of the equipment.

. Production process flow.

  1. Determine the part requirements- Part requirements are derived using the following steps:

. Determine the produced parts.

. Calculate the numbers of customer orders.

. Match customer order to part requirement.

  1. Determine the ordering and delivery requirements- The step involves the following:

. Determine the ordering requirements.

. Determine the delivery requirements.

  1. Determine the production routing- This step combines part requirements with the machine and shift schedule to generate the production routing.
  2. Determine the material requirements- Material requirements are determined based on the production routing. The steps involved are:

. Assign material usage to parts.

  1. Schedule the production- The steps are:

. Determine the machine requirements.

. Determine the labor requirements for each shift.

  1. Load the facilities-  Load the facilities and determine if the process is stable.
  2. Generate production orders- Production orders can be generated manually or automatically.
  3. Confirm the production orders- Production orders are confirmed to ensure that the master scheduling is accurate.
  4. Monitor Production- By monitoring production, the company avoids costly bottlenecks and idle facilities.

According to the production planning strategy, that the company applied, planning could be done in a few ways. In the following page, production planning strategy and its consequences are described. Also, a brief summary of options for production planning strategy is given. With this knowledge, companies can make adjustments as necessary to maximize efficiency and profitability.

Four Types of Production Planning Strategy

Production can be simply put as a manufacturing process that results in a good or a service that is delivered to the customer. Today, a business cannot survive without planning. If the business is suitable for a production planning strategy, there are four types of production planning strategy, which also falls into two groups of Push-Pull, progressive and cascade. Following descriptions and opinions are based on the book ”Manufacturing Engineering and tech. Systems”, written by Elmer G. Wiens, and Professor James P. Roth, from University of Minnesota.

Production Control: A Push-Pull Strategy

For production planning control that is a push-pull strategy, the company is the passive setter of the quantity of goods to be produced in the market. The production quantity depends on the company that takes stock part of the market in the expectation of a greater part. This is the same like the manufacturer of newspapers, who does the same with their newspaper. Unfortunately, competitor can sell more of their newspapers because they were faster in the market and this can have a negative effect on revenue for the company.

Production Control: A Progressive Strategy

For production planning control where a progressive strategy is used, the company determines the order quantities and production quantities at the same time. The production quantity will be equal to the sales demand of the coming period. If the market demand is especially great, then it can change producer-based decision. Although the sales demand is not known until the end of the period, controlling and planning can be made easier than the previous.

Production Control: A Cascade Strategy

The production control cascade strategy consists of a group of producers that gives the responsibility to the nearest producer the full responsibility. The responsibility for the quantities produced for the period is sent down the line, until it reaches the end. The production quantities are established in connection with the stock part of the market. Responsibility of producing a big excess quantity is given to the producer closest to the market. The producer that have surplus products, that are produced so they can sell them to market that is not in the near time.

Production Control: An Operations Control Strategy

An operations control production planning strategy is a combination of both progressive and cascade strategies. The responsibility is passed down the chain to the nearest producer to the market. The responsibility is passed to the next producer as a producer of the next plants, etc. When the stock part of the market is close to the production capability, the responsibility is returned to the company.


Work-in-process (WIP) refers to the production in process which is not complete or finished. Production in progress which is a part of manufacturing process. Work-in-process is the opposite of the finished goods. Finished good is a part of finished production. Finished goods include the goods, which are ready for distribution to the customer. Finished goods could be anything from automobiles, electronic devices, production parts, office supplies, etc.work-in-process could be anything from production of plastics like Polypropylene and Polyethylene or products like laptop, computer, and mobile phones, may it may also be production of chemicals like Sodium Sulfate or enzyme like Lactic Acid.

Work-in-process is divided into two parts: Beginning work-in-process and end work-in-process. These two parts are further divided into three parts. These parts are in the process of assembly, finished goods and raw materials. Work-in-process accounts for all materials, both direct and indirect used in production process. Work-in-process is measured by the time it takes to produce. For example, in manufacturing industry, the time period is in hours (units/hours) and days (units/days). Work-in-process mirrors the production process and its status. Work-in-process are managed by setting up control limits. These limits are used to restrict the level of products in-process. Work-in-process serves as control thus it is imperative to know the status and levels of production in process. This is because it enables in avoiding uncertain events that are taking place in the production process. After control is set, it should be analyzed at least monthly, to see what could cause the production process to change before production starts to cause deviations from original budgeted quantities.

Work-in-Process Schematics:

A schematic is a drawing of flow intended to simplify understanding of what is occurring in a process. A schematic must show the main production steps, and the relationships between them. It is important for a drawing that illustrates the work-in-process to be as simple and even more powerful than possible. More than this, it is beneficial to make a schematic which uncovers unforced and unexpected relationships between the various production steps.

A schematic demonstrates these relationships as they occur over a period of time. This is useful in analyzing the behavior of a process, and in identifying the causes of deviations from expectations.

Problems in Production Master Schedule:

The term “problems” is used in a broad sense in this chapter to mean problems experienced in production planning, in the various stages of the scheduling process. This naturally includes cost calculations on the master schedule and throughout the process, control efforts required to analyze trends, and other problems of special consequence at various stages.

  • Define a Master Production Schedule Method
  • Management Control
  • Manage the production control using master schedule
  • Forecast the work in process for all the review periods.
  • Control the work-in-process levels.
  • Decrease the work in process levels.
  • Control the inventory level of finished goods.
  • Forecast the inventory of raw materials.
  • Planning to reduce the inventory of finished goods.
  • Planning to prevent the raw materials order from being changed.

Raw Materials

The raw materials are the first and most important part of the plan, raw materials are sooner went on in the production.

The planning for raw materials’ purchase and storage is a critical part of product manufacturing.

Planning for the raw materials inventory (be able to control need to generate good budget for raw materials

  • control the level of inventory of raw materials
  • store and inventory the raw materials correctly


The Forecasting is done off-line using a yield management system

Forecasting, in general, is the modern process for determining demand for a product or service.

It is the process of looking into the future to determine the short run level of demand for a product, service, or activity. Forecasting is a method of making predictions about a future situation. Forecasting is an indispensable aid in decision-making. It is. The forecasting activity is a vital part of the business activity in which a company uses information, data and their own judgment about future demand and supply for products. There are two main methods of forecasting:

(a) top down

(b) bottom up

All of the activities mentioned above of the master production schedule are dependent on forecasting. Forecasting is a technique, which is used for the demand of a service or product.

The forecasting is a method of estimation, which is used to predict the future demand of a product or service. Forecasting can be done from two ways, they are:

(a) Bottom Up

(b) Top Down

The bottom-up method is based on the historical pattern of demand which was in the recent past. The top-down method is the analysis of statistical, economic, social and technological factors, which shows the near future demand.

Master Production Scheduling

The master production schedule, also called as the inventory scheduling, is an important manufacturing division used in the production planning, with its main objective being the plan the production and inventory levels.

The Forecast

One of the important steps of the master production schedule is the forecast for demand for the product. The forecasting about the production and inventory levels is the part of master production schedule.

The demand forecast is an important part of master production schedule as it helps to know the planned production schedules.

The demand forecast is used to analyze the month-to-month and quarters time series of the quantities of product required. By using the forecast, we can predict the future demand of our product along with the other production data. The demand forecast is therefore the way to know the future production plans to meet the demand.

The master production schedule is designed after forecasted demand for a product is calculated by the demand breakdown for a product. Before planning the production and inventory levels of a product, we should know the breakdown of the demand of the product into detailed categories along with the forecast rate of each of these categories. The demand breakdown can be done by channel level or by region.

Once the demand breakdown is done, we can plan the production by calculating the capacity of each product and the new rate of each of the product group for the next 1 month.


The master production schedule consists of many dates and data. The analysis is done to monitor the deviations from budgeted scheduler to the actual productions. The variation can be analysed by the following variation analysis tools:

  • Cost of goods sold variance
  • Production performance variance

Direct labour variance In this article we discuss the variations in the production performance, the direct labour variance.

The cost of the commodities sold is the cost required to manufacture the product out of all the materials. The master production schedule is designed to meet the requirements. The Master production schedule consist of the schedule which is used to forecast the production and inventory level.

The production variance is used to record the comparison of the actual production to the standard production for the product use to cost the product. The production variance is better to be used for the actual production of the goods.

The production variance can be calculated by the following formula:

S = B i – Bi

S < 0 is the negative quantity of the production that means the production is less than the standard production.

S > 0 is the positive quantity of the production that means the production is more than the standard production.

P = B i – Bi

P < 0 means that the actual production is less than the standard production.

P > 0 means that the actual production is more than the standard production.

There are two types of variances in the production evaluation:

i. The direct labour variance:

The direct labour variance is the budgeted amount of direct labour costs divided by the standard number of the direct labour hours.

This variance is used for the comparison of the actual output hours and the standard output hours, which is divided by the standard direct labour hours. The direct labour variance is calculated by the following formula:

V D = D Li

V D < 0 means that the actual direct labour cost is less than the standard direct labour cost. In that case, the production level is greater than the standard level.

V D > 0 means that the actual direct labour cost is more than the standard direct labour cost.

The production variance, direct labour variance is influenced by the production efficiency.


The Planning, control and checking of the production, inventories are the part of the master production schedule.

There are many different types of planning for production, they are:

(a) the Master Production Schedule

(b) Production Budgeting

The Master Production Schedule is the basic activity, which is used for the production, control and checking of the production.

The Master Production Schedule is the schedule used for the planning, control and checking of the production and inventory levels. The Master Production Schedule is more budgeted or forecasted production as compared to actual production.

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