Unit 5: Operations Management — 5.6 Production Planning
What is Production Planning?
Production Planning involves organizing manufacturing processes and resources to meet demand efficiently. It covers scheduling, inventory management, capacity utilization, productivity, and decision-making on costs.
Goal: Ensure the right products are made at the right time, with minimal waste and optimal resource use.
Just-In-Time (JIT) Production
Just-In-Time (JIT) is a system where resources, components, and products are produced or acquired only as needed, minimizing inventory and reducing costs.
- Benefits: Lower inventory, reduced waste, improved cash flow
- Drawbacks: Risk of delays, supply chain disruptions, high dependence on suppliers
Case Example: Toyota uses JIT to manage its supply chain, delivering parts right when needed for assembly.
Stock Control Charts
Stock Control Charts track inventory levels over time. They help ensure optimal stock levels, avoid shortages/overstocking, and plan reorders.
- Maximum stock level: Highest quantity allowed
- Minimum stock level: Safety threshold for reordering
- Re-order level: Point to place new stock orders
- Lead time: Time between order and delivery
Re-order Level Formula:
Re{-}order\ Level = Lead\ Time\ Demand + Safety\ Stock
Re{-}order\ Level = Lead\ Time\ Demand + Safety\ Stock
Capacity Utilization
Capacity Utilization measures how efficiently production resources are used relative to maximum output.
- Shows efficiency and potential extra capacity
- Affects costs, pricing, and profitability
- Low utilization = underused resources; high = risk of strain
Capacity\ Utilization\ (\%) = \frac{Actual\ Output}{Maximum\ Possible\ Output} \times 100\%
Example:
Actual Output = 7,000 units
Max Output = 10,000 units
Capacity Utilization = \frac{7,000}{10,000} \times 100\% = 70\%
Actual Output = 7,000 units
Max Output = 10,000 units
Capacity Utilization = \frac{7,000}{10,000} \times 100\% = 70\%
Defect Rate & Labour Productivity Rate
Defect Rate and Labour Productivity Rate are key metrics for quality and efficiency in production.
- Defect Rate Formula: Defect\ Rate = \frac{Number\ of\ Defective\ Units}{Total\ Units\ Produced} \times 100\%
- Labour Productivity Rate Formula: Labour\ Productivity\ Rate = \frac{Total\ Output}{Number\ of\ Workers}
Example:
50 defective units out of 2,500 produced → Defect Rate = \frac{50}{2,500} \times 100\% = 2\%
2,000 units produced by 10 workers → Productivity Rate = \frac{2,000}{10} = 200 units/worker
50 defective units out of 2,500 produced → Defect Rate = \frac{50}{2,500} \times 100\% = 2\%
2,000 units produced by 10 workers → Productivity Rate = \frac{2,000}{10} = 200 units/worker
Cost-To-Buy vs. Cost-To-Make Decisions
Cost-To-Buy vs. Cost-To-Make is the analysis of buying components from suppliers versus making them in-house.
- Buy if purchase is cheaper/easier than production
- Make if self-production is more cost-effective or gives strategic advantage
- Consider fixed & variable costs, time, quality, flexibility
Comparison Formulas:
Cost{-}To{-}Buy = Purchase\ Price \times Quantity
Cost{-}To{-}Make = Fixed\ Costs + (Variable\ Cost\ Per\ Unit \times Quantity)
Cost{-}To{-}Buy = Purchase\ Price \times Quantity
Cost{-}To{-}Make = Fixed\ Costs + (Variable\ Cost\ Per\ Unit \times Quantity)
Decision Rule: Choose the lower total cost, considering quality, reliability, and strategic fit.
Conclusion
Efficient production planning uses JIT, stock control, capacity analysis, and productivity measures to optimize outputs. Sound make-or-buy decisions can significantly affect profitability and competitiveness.