Aggregate Production Planning - Part III

We will learn few more terminology related to Production Planning and then finally link whatever we learnt to understand the Production Planning concept in a comprehensive way.


Given below the figure which contains overall process involved in the production planning.

So far we have seen Demand Management, Aggregate Production Planning(APP), Master Production schedule(MPS) and Material Requirement Plan(MRP) in our earlier blogs. We will not focus our attention to Production Activity Control (PAC) which is hard core production function. However we need to know the fundamentals of various capacity Planning techniques used in the production plan and its relevance.

A problem commonly encountered in operating MRP systems is the existence of an overstated MPS. An overstated master production schedule is one that orders more production to be performed (released) than the expected production capacity. For example in Maruti Suzuki car plant, rough cut capacity plan states that a worker can paint 2 Alto model cars in a day (8 Hours), there are 20 workers are allotted to do painting job per shift and there are two shifts per day(i.e., totally 16 Hrs production). As per rough cut capacity plan the company can paint roughly 80 Alto model cars per day (i.e., 20 workers, 2 shift, 2 cars/worker). Let us assume the Master production schedule without checking the rough cut capacity plan has agreed to paint 100 units of Alto models per day. In such case 100 units of Alto model car will be waiting in the production line to be painted on a particular day but the company can paint only 80 units as per the rough capacity plan and release them for next activity. An overstated MPS causes raw materials and WIP inventories to increase because more materials are purchased and released to the shop (i.e., 100 units of Alto model are given to paint work shop) than are completed and shipped (i.e., 80 units of Alto models are completed on that day as per capacity). It also causes a buildup of queues on the shop floor (i.e., balance 20 units of Alto model need to be painted and released to the next job). Since jobs have to wait to be processed, actual lead times increase, causing ship dates to be missed (Maruti factory expected 100 units of painted Alto model to be released on particular day but actually ending up with releasing 80 units). Thus, overstated master production schedules lead to missed due dates and other problems. Otherwise the company can think of going for additional man power or extra shift to meet the demand. Validating the MPS with respect to capacity is an extremely important step in MRP. This validation exercise has been termed rough cut capacity planning (RCCP).

Material requirements planning (MRP) uses a master production schedule (MPS) of end items to determine the quantity and timing of component part production. MRP system assume that capacity available is infinite. It assumes that sufficient capacity is available to produce components at the time they're needed. But in reality the capacity (e.g., machine or worker production capacity) is finite. Hence the MRP system should be finalized after checking against the capacity requirement plan.

Given below the figure which explain the overall relationship exist between Demand and Production (supply) planning.

I have covered the important aspects of Production Planning related to SCM in this blog. I would like to invite query / comments from the users. In my next blog I intend to cover Inventory Management concepts.

I wish the readers

"MERRY X-MAS AND HAPPY & PROSPEROUS NEW YEAR 2010"

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