Production plan of an enterprise or organization. Preparation of the “production plan” section of the business plan

The product production plan consists of a production program drawn up on the basis of marketing analysis data. If the enterprise is just preparing to launch, then the production plan indicates everything that is necessary to organize the production of products in a given territory.

This is the rationale for choosing the location of the production site, the availability and need for roads, utilities, knowledge, structures, equipment, appropriately qualified labor force, and production technology.

Project location

Without the right choice of location, your project is doomed to failure or significant difficulties in implementation.

What is assessed when choosing a business location?

Availability and proximity of transport routes - highways, railways, ports, airfields. Parking lots and access roads.
Engineering networks - electrical networks, sewerage, communications, heating networks, water supply.
Proximity to major suppliers and consumers.

Depending on the type of activity and planned production volumes, these factors may have different meanings. In one case, if you want to engage in production and deliveries are planned to different regions and areas, you need to more carefully analyze the likely costs of building the necessary roads. Your project may be located in a location that is difficult to access, and this may result in supply or supply disruptions.

Without the necessary engineering networks at the site, you will have to invest additionally in their creation. Perhaps these costs could have been avoided elsewhere, especially since for industrial facilities these are huge sums that could put an end to the entire project.

Proximity to the sales market and suppliers is also a priority factor when assessing the location of a project, especially for small businesses in the service sector. The further away you are from suppliers and consumers, the higher your shipping and supply costs.

Production areas and premises

Depending on the planned production volumes, production technology and equipment used, you may need:

production premises and sites;
warehouses;
technological;
office;
auxiliary;
garage.

It is necessary to identify the real need for each type of space and possible ways to provide them.

Production technology

Remember that a business plan is your tool in finding reserves for the growth and development of an enterprise. Therefore, all the points included in it must be analyzed in order to identify all the ways to develop and improve the enterprise.

When describing production technology in a business plan, think about whether there is another option for producing products? Perhaps an alternative option will help you reduce production costs by one and a half to two times, or produce a more innovative product with the same costs. This will give you an advantage in the market and help you beat your competitors, increase profits, and reduce costs.

Equipment

Determine equipment needs. Calculate what is more profitable - buy new, buy used, rent or lease?

Owning new equipment will not always give you an advantage. Leasing and rental will reduce investment costs at the first stage of project development, reduce the price of products and provide greater freedom in determining the pricing policy. All this will help you achieve a competitive advantage in the market.

Transport, communications, engineering support

It is necessary to determine the need for the listed resources.

If you need your own transport, you need to make a list and calculate the cost of purchase. Also take into account driver salaries and vehicle maintenance. Perhaps there is a need to create a repair and maintenance department.

Calculate how much it will cost, and wouldn’t it be easier to conclude a maintenance and repair agreement with specialized enterprises. Or maybe it will be cheaper to order transport services than to maintain your own transport, garages, and service personnel.

What means of communication will you use? How many telephones, faxes, modems, and other communications devices do you need? You need to see the complete organizational structure of the enterprise in front of you in order to determine the need for means and methods of communication and calculate the preliminary costs of providing them.

Engineering and energy support

These include:

water supply;
electricity;
sewerage;
heating.

When choosing a project location, you need to take into account the availability and need for the listed engineering support facilities and take into account the costs of construction and commissioning in the event of their absence.

Staff

Thanks to qualified personnel, a company can achieve significant success. Unprofessional actions of management personnel and production workers can cause irreparable harm to the company and bring it to the brink of bankruptcy.

The implementation of any project is impossible without employees and a management team of appropriate qualifications. Therefore, in the process of developing a business plan, it is necessary to determine the staffing structure and the need for professionals.

Can you find specialists of the required category in the place where you plan to implement the project? Isn’t it worth considering the possibility of attracting specialists from other regions or cities, providing them with living conditions and financial incentives?

When drawing up a production plan, it is important to know the production and management structure of the enterprise. All costs and capital expenditures that are necessary to implement the project are presented in tabular form.

Having passed this we will move on to the next stage.

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Understanding the production plan

Within a business, the production plan can safely be considered an administrative process. With its help, questions about the number of personnel and resources required to produce goods are resolved. It covers the following areas of activity:

Requirements for inventories, raw materials.
Suppliers.
Production process.
Power.
Quality control.
Premises.
Staff.

When planning work, each department should be focused on achieving the tasks assigned to it. To this end, the plan also reflects:

Marketing.
Design.
Supply.
Finance.
Accounting.
Legislation.

The procedure for including certain items in the plan is determined by the enterprise independently, and its structure depends on the categories of goods produced, the period for which the plan is drawn up, facilities and capacities. By the way, if necessary, a daily work plan for the enterprise or its divisions can be drawn up.

Classification and directions of production plans

They are usually classified by:

Coverage.
Time boundaries.
Character and direction.
Method of application.

The production plan should ultimately include three main documents:

General (main) - a plan for areas of activity, which describes the general concept and strategic goal, and not small details. There should also be product categories, but not specific types (example: the plan of a company producing façade paints indicates the total volume of production, without distribution by color and density).
The main work schedule - indicating the number of units for each of the manufactured types of products intended for release for a specific time.
A plan with the enterprise's needs for material resources.

If in the future the enterprise plans to expand production capacity, the necessary structures and buildings must be reflected in the production plan to ensure an uninterrupted work process, and with it the indicators:

Payroll Fund.
Demand for qualified specialists.
Electricity tariffs.
Location of suppliers and consumers.

It is necessary to develop a production plan as responsibly as possible, because miscalculations in it can not only make it irrelevant, but even cause damage to the production process.

The most common mistakes:

Excess inventory. As a rule, enterprises purchase raw materials and supplies in advance. We revised the plans - and some of the materials turned out to be unclaimed, finances were immobilized, and the costs of maintaining warehouse space were unreasonably growing.
Inappropriate use of reserves. For various reasons, raw materials and materials are sent from the warehouse to purposes not planned in advance, to the production of “left” goods. Due to late subsequent deliveries, fulfillment of earlier orders and commitments to customers are at risk.
Growing work in progress. It happens that the production of a certain type of product is suspended due to an unscheduled order. This problem can be avoided if some orders are refused, and the production plan is drawn up taking into account the criteria for the labor intensity of production of specific types of products and the maximum possible profit.

If you're having trouble creating a production plan, turn to the World Wide Web. Here you will always find more than one example of filling out this most important document for any enterprise.

INTRODUCTION

This chapter introduces the reader to the production planning and control system. First we'll talk about the system as a whole, then we'll talk more about some aspects of production planning. The following chapters cover master production scheduling, resource planning, performance management, production control, purchasing, and forecasting.

Manufacturing is a complex task. Some companies produce a limited number of types of products, others offer a wide range. But each enterprise uses different processes, mechanisms, equipment, labor skills and materials. To make a profit, a company must organize all these factors in such a way as to produce the right products of the highest quality at the right time at the lowest cost. This is a complex problem and will require an effective planning and control system to address it.

A good planning system must answer four questions:

1. What are we going to produce?

2. What do we need for this?

3. What do we have?

4. What else do we need?

These are priority and performance issues.

A priority- this is what products are needed, how many of them are required, and when they are needed. Priorities are set by the market. It is the responsibility of the production department to develop plans to meet market demand whenever possible.

Performance is the ability of production to produce goods and services. Ultimately, it depends on the company's resources - equipment, labor and financial resources, as well as the ability to obtain materials from suppliers in a timely manner. Over a short period of time, productivity (production capacity) is the amount of work that can be completed with the help of labor and equipment in a certain period of time.

There should be a relationship between priority and performance, shown graphically in Figure 2. 1.

Figure 2.1 Relationship between priority and performance.

Over the short and long term, the production department must develop plans to balance market demand with available production resources, inventory, and productivity. When making long-term decisions, such as building new plants or purchasing new equipment, plans need to be developed several years in advance. When planning production for the next few weeks, the time period in question is measured in days or weeks. We will look at this hierarchy of planning, from long-term to short-term, in the next section.

PRODUCTION PLANNING AND CONTROL SYSTEM

The production planning and control (MPC) system consists of five main levels:

Strategic business plan;
Production plan (sales and operations plan);
Master production schedule;
Resource requirement plan;
Procurement and control over production activities.

Each level has its own objective, duration and level of detail. As we move from strategic planning to control of production activities, the task changes from setting general direction to specific detailed planning, the duration decreases from years to days, and the level of detail increases from general categories to individual conveyors and pieces of equipment.

Since each level has its own duration and tasks, the following aspects also differ:

Purpose of the plan;
Planning horizon - the period of time from the current moment to one or another day in the future for which the plan is designed;
Level of detail – detail of the products necessary to implement the plan;
Planning cycle – frequency of plan revision.

At each level you need to answer three questions:

1. What are the priorities - what needs to be produced, in what quantity and when?

2. What production capacity do we have at our disposal - what resources do we have?

3. How can discrepancies between priorities and performance be resolved?

Figure 2.2 illustrates the planning hierarchy. The first four levels are planning levels. . The plans result in the initiation of the purchase or production of what is needed.

The last level is the implementation of plans through control of production activities and procurement.

Figure 2.2 Production planning and control system.

In the following sections, we will look at the goal, horizon, level of detail, and cycle at each level of planning.

Strategic business plan

A strategic business plan is a statement of the main goals and objectives that the company expects to achieve within a period of two to ten years or longer. This is a statement of the general direction of the company, describing the type of business that the company wants to do in the future - subject-production specialization, markets, etc. The plan gives a general idea of how the company intends to achieve these goals. It is based on long-term forecasts and involves marketing, finance, production and technical departments in its development. In turn, this plan provides direction and ensures coordination of marketing, production, financial and technical plans.

Marketing specialists analyze the market and make decisions regarding the company’s actions in the current situation: they determine the markets in which work will be carried out, the products that will be supplied, the required level of customer service, pricing policy, promotion strategy, etc.

The finance department decides from what sources to obtain and how to use the company's funds, cash flow, profit, return on invested capital, and budgetary funds.

Production must satisfy market demand. To do this, it uses units, mechanisms, equipment, labor and materials as efficiently as possible.

The technical department is responsible for research, development and design of new products and improvement of existing ones.

Technical specialists work closely with marketing and production departments to develop product designs that will sell well in the market, and which will require minimal production costs.

The development of a strategic business plan is the responsibility of the company's management. Based on information received from the marketing, finance and production departments, the strategic business plan defines a general framework in accordance with which goals and objectives for further planning are set in the marketing, financial, technical and production departments. Each department develops its own plan for achieving the objectives set by the strategic business plan. These plans are consistent with each other, as well as with the strategic business plan. This relationship is illustrated in Fig. 2. 3.

The level of detail in the strategic business plan is low. This plan addresses overall market and production requirements - for example, the market as a whole for major product groups - rather than the sales of individual products. It often contains figures in dollars rather than units.

Strategic business plans are usually reviewed semi-annually or annually.

Production plan

Based on the objectives set in the strategic business plan, the management of the production department makes decisions on the following issues:

The number of products in each group that is required to be produced in each time period;
Desired level of inventories;
Equipment, labor and materials needed at each time period;
Availability of necessary resources.

The level of detail is low. For example, if a company produces different models of children's two-wheelers, three-wheelers, and scooters, and each model has many options, then the production plan will reflect the main product groups, or families: two-wheelers, tricycles, and scooters.

Specialists must develop a production plan that satisfies market demand without exceeding the company's available resources.

Figure 2.3 Business plan.

This will require determining what resources are needed to meet market demand, comparing them with available resources, and developing a plan that coordinates one with the other.

This process of determining the required resources and comparing them with those available is carried out at each level of planning and represents the task of performance management. Effective planning requires a balance between priorities and productivity.

Along with the marketing and financial plan, the production plan affects the implementation of the strategic business plan.

The planning horizon is usually from six to 18 months, and the plan is reviewed monthly or quarterly.

Master production schedule

A master production schedule (MPS) is a plan for the production of individual finished products. It provides a breakdown of the production plan, reflecting the number of final products of each type that need to be produced in each time period. For example, this plan might specify that 200 Model A23 scooters need to be produced each week. The input to developing an MPS is the production plan, forecasts for individual end products, purchase orders, inventory information, and existing production capacity.

The level of detail of the MPS is higher than that of the production plan. While the production schedule is based on product families (tricycles), the master production schedule is developed for individual end products (for example, each model of tricycle). The planning horizon can be from three to 18 months, but first of all it depends on the duration of the procurement processes or production itself. We'll talk about this in Chapter 3, in the section on master production scheduling. The term master scheduling refers to the process of developing a master production schedule.

The term master production schedule refers to the end result of this process. Plans are typically reviewed and modified weekly or monthly.

Resource requirement plan

A resource requirement plan (MRP)* is a plan for the production and procurement of components that are used in the manufacture of products provided for in the master production schedule.

It indicates the required quantities and the timing of their intended production or use in production. Purchasing and production control departments use MRP to make decisions about whether to initiate purchases or manufacture a specific product line.

The level of detail is high. The resource requirement plan indicates when raw materials, supplies, and components will be needed to produce each final product.

The planning horizon must be no less than the total duration of the procurement and production processes. As with the master production schedule, it ranges from three to 18 months.

Procurement and control over production activities

Figure 2.4 Relationship between level of detail and planning horizon.

Purchasing and production control (PAC) represents the implementation and control phase of a production planning and control system. The procurement process is responsible for organizing and controlling the receipt of raw materials, supplies and components to the enterprise. Control over production activities is planning the sequence of technological operations in an enterprise and control over it.

The planning horizon is very short, approximately from a day to a month. The level of detail is high as it deals with specific assembly lines, equipment and orders. Plans are reviewed and changed daily.

In Fig. 2.4 shows the relationship between different planning tools, planning horizons and levels of detail.

In subsequent chapters we will look in more detail at the levels discussed in previous sections. This chapter is about production planning. Next we will talk about master scheduling, planning resource requirements and controlling production activities.

Performance Management

At each level of the production planning and control system, it is necessary to check the compliance of the priority plan with the available resources and the productivity of production facilities. Chapter 5 describes performance management in more detail. For now, it is enough to understand that the basic process of managing production and enterprise resources involves calculating the productivity required to produce according to a priority plan and finding methods to achieve such productivity. Without this, there can be no effective, workable production plan. If the required performance cannot be achieved at the right time, the plan needs to be changed.

Determining the required productivity, comparing it with existing productivity and making adjustments (or changing plans) must be carried out at all levels of the production planning and control system.

Every few years, mechanisms, equipment and units may be put into operation or stopped working. However, during the periods considered at the stages from production planning to control over production activities, changes of this kind cannot be made. During these periods of time, you can change the number of shifts, overtime procedures, subcontracting of work, and so on.

SALES AND OPERATIONS PLANNING (SOP)

A strategic business plan combines the plans of all departments of the organization and is updated, as a rule, annually. However, these plans should be adjusted from time to time to take into account recent forecasts and recent changes in market and economic conditions. Sales and Operations Planning (SOP) is a process designed to continually review the strategic business plan and coordinate the plans of various departments. An SOP is a cross-functional business plan covering sales and marketing, product development, operations, and business management. Operations represents supply and marketing represents demand. . SOP is the forum in which the production plan is developed.

The strategic business plan is updated annually, and sales and operations planning is a dynamic process during which the company's plans are adjusted regularly, usually at least once a month. The process begins with the sales and marketing departments, which compare actual demand with sales plans, assess market potential, and forecast future demand. The adjusted marketing plan is then passed on to the production, technical and finance departments, who amend their plans in accordance with the revised marketing plan. If these departments decide that they cannot implement the new marketing plan, it will need to be changed.

In this way, the strategic business plan is continually reviewed throughout the year and consistency across departments is ensured. In Fig. Figure 2.5 shows the relationship between the strategic business plan and the sales and operations plan.

Sales and operations planning has a medium duration and includes marketing, production, technical and financial plans. Sales and operations planning has a number of advantages:

It serves as a means of adjusting the strategic business plan to take into account changing conditions.
It serves as a change management tool. Instead of reacting to changes in the market or economy after they happen, managers using SOPs study the economic situation at least once a month and are in a better position to plan for change.
Planning ensures that the plans of the various departments are realistic, consistent and consistent with the business plan.
It allows you to develop a realistic plan to achieve your company's goals.
It allows you to more effectively manage production, inventories and financing.

MANUFACTURING RESOURCE PLANNING (MRP II)

Because a large amount of data and many calculations will be required, the production planning and control system will probably need to be computerized. If you do not use a computer, you will have to spend too much time and effort on manual calculations, and the company's efficiency will be compromised. Instead of scheduling needs throughout the planning system, a company may be forced to extend lead times and build inventory to compensate for the inability to quickly schedule what will be needed when.

Figure 2.5 Sales and Operations Planning.

It is intended to be a fully integrated top-down planning and control system with bottom-up feedback. Strategic business planning integrates the plans and activities of marketing, finance, and operations to develop plans to achieve overall company goals.

In turn, master production scheduling, resource planning, production control and purchasing are aimed at achieving the goals of the production plan and strategic business plan and, ultimately, the company. If performance issues make it necessary to adjust the priority plan at any planning level, the changes made should be reflected at the above levels. Thus, feedback must occur everywhere in the system.

The strategic business plan combines the plans of the marketing, financial and production departments. The marketing department must recognize its plans as realistic and feasible.

Finance must agree that the plans are financially attractive, and production must demonstrate the ability to meet the corresponding demand. As we have already said, the production planning and control system determines the general strategy for all divisions of the company. This fully integrated planning and control system is called production resource planning system, or MRP II. The concept of “MRP II” is used to distinguish the “production resource plan” ((MRP II) from the “resource requirements plan” ((MRP). MRP II ensures the coordination of marketing and production.

The marketing, finance, and production departments agree on a common, workable plan, expressed in a production plan. Marketing and production departments must collaborate weekly and daily to adjust the plan to reflect changes. It may be necessary to change the order size, cancel the order or confirm a suitable delivery date. Changes of this kind are carried out within the framework of the master production schedule. Marketing and production managers can make changes to master production schedules based on changes in forecast demand. Enterprise management can change the production plan in accordance with general changes in demand or resource situation. However, all employees work within the MRP II system. It serves as a mechanism for coordinating the work of the company’s marketing, financial, production and other departments. MRP II is a method for effectively planning all the resources of a manufacturing enterprise.

The MRP II system is shown schematically in Fig. 2. 6. Pay attention to existing feedback loops.

Figure 2.6 Manufacturing resource planning (MRP II).

ENTERPRISE RESOURCE PLANNING (ERP)

An ERP system is similar to an MRP II system, but it is not limited to manufacturing. The entire enterprise as a whole is taken into account. The ninth edition of the APICS Dictionary of the American Association for Production and Inventory Control (APICS) defines ERP as: a reporting information system for identifying and planning an enterprise - the global resources required for production, transportation and reporting. customer orders. For full operation, applications must be provided for planning, scheduling, costing, and so on at all levels of the organization, in work centers, departments, divisions, and all of them together.

It is important to note that ERP covers the entire company, while MRP II relates to production.

DEVELOPING A PRODUCTION PLAN

We briefly reviewed the goal, planning horizon, and level of detail of the production plan. In this section, we’ll talk more about developing production plans.

Based on the marketing plan and knowledge of available resources, the production plan sets limits or levels of production activity at some point in the future. It integrates enterprise capabilities and performance with marketing and financial plans to achieve the company's overall business goals.

The production plan establishes the general levels of production and inventories for the period corresponding to the planning horizon. The primary goal is to determine production standards that will allow the objectives set in the strategic business plan to be achieved. These include inventory levels, order backlog (customer order backlog), market demand, customer service, cost-effective equipment operation, labor relations, and so on. The plan must cover a period long enough to provide for what labor, equipment, facilities, and materials will be needed to complete it. Typically this period ranges from 6 to 18 months and is divided into months and sometimes weeks.

The planning process at this level does not take into account details such as individual products, colors, styles or options. Since a long period of time is being considered and demand cannot be predicted with certainty over such a period, such detail would be inaccurate and useless, and the development of a plan would be too expensive. Planning requires only a total unit of production or several groups of products.

Definition of product groups

Firms that produce one type of product or a range of similar products can measure output directly as the number of units they produce. For example, a brewery might use kegs of beer as a common denominator.

However, many companies produce several different types of products, and it may be difficult or impossible for them to find a common denominator to measure the total volume of production. In this case, you need to enter product groups. While marketing specialists naturally view products from the customer's perspective, based on their functionality and application, the manufacturing department categorizes products based on processes. Thus, the firm must define product groups based on similarities in manufacturing processes.

The production department must ensure sufficient productivity to produce the required products. It is more concerned with the demand for specific types of productivity resources required for the production of products than with the demand for the products themselves.

Productivity is the ability to produce goods and services. This term refers to the availability of resources necessary to meet demand. Over the period of time to which a production plan relates, productivity may be expressed as the time available, or sometimes as the number of units that can be produced in that time, or the dollars that can be generated. Demand for goods needs to be converted into demand for productivity. At the production planning level, where fine detail is required, this requires groups, or families of products, based on similarities in production processes. For example, the production of several models of calculators may require the same processes and the same productivity, regardless of differences between models. These calculators will belong to the same product family.

During the time period covered by the production plan, it is usually not possible to make major changes in productivity. During this period, it is impossible or very difficult to make additions or decommission components of workshops and equipment. However, some changes can be made, and it is the responsibility of production management to identify and evaluate such opportunities. Typically the following changes are acceptable:

You can hire and fire employees, introduce overtime and shortened working hours, increase or decrease the number of shifts.
During a downturn in business activity, you can create inventories, and when demand increases, you can sell or use them.
You can subcontract the work or rent additional equipment. Each option has its own benefits and costs. Production managers must find the cheapest option that meets the goals and objectives of the business. Basic Strategies So, the production planning problem usually has the following characteristics:
A planning horizon of 12 months is used, with periodic updates such as monthly or quarterly.
Manufacturing demand consists of one or more product families or common units.
There are fluctuations or seasonal changes in demand
During the period provided for by the planning horizon, workshops and equipment do not change.
Management faces various challenges, such as maintaining low inventory levels, efficient operation of production facilities, high levels of customer service and good labor relations.

Let's say the forecasted demand for a certain group of products is shown in Fig. 2. 7. Please note that demand is seasonal.

Three basic strategies can be used when developing a production plan:

1. Pursuit strategy;

2. Uniform production;

3. Subcontracting. Pursuit strategy (demand satisfaction). The pursuit strategy refers to the production of the volume needed at the moment. The level of inventories remains the same, and the volume of production changes in accordance with the level of demand. This strategy is shown in Fig. 2.8.

Figure 2.7 Hypothetical demand curve.

Figure 2.8 Demand satisfaction strategy.

The company produces a volume of products that is just enough to satisfy demand at a given time. In some industries it is possible to use only this strategy. For example, farmers must produce during the period when it can be grown. Post offices must process letters during the busy period before Christmas and during the slow periods. Restaurants are required to serve food when customers order it. Such enterprises cannot stock up and accumulate products; they must be able to meet demand when it arises.

In these cases, companies must have sufficient capacity to be able to meet peak demand. Farmers need to have enough machinery and equipment to harvest their crops in the summer, although this equipment will be idle in the winter. Companies are forced to hire and train employees to work during peak periods, and fire them after this period. Sometimes it is necessary to introduce additional shifts and overtime work. All these changes increase costs.

The advantage of the pursuit strategy is that the amount of inventory can be kept to a minimum. A product is produced when there is a demand for it and is not stockpiled. Thus, it is possible to avoid the costs associated with storing inventories. These costs can be quite high, as discussed in Chapter 9 on the basics of inventories.

Figure 2.9 Level production strategy.

Uniform production. With uniform production, a volume of output equal to average demand is constantly produced. This relationship is shown in Fig. 2. 9. Enterprises calculate the total demand for the period covered by the plan and, on average, produce sufficient volume to satisfy this demand. Sometimes demand is less than the volume produced, in which case inventories accumulate. In other periods, demand exceeds production volume, then inventories are used.

The advantage of a level production strategy is that operation is carried out at a constant level and this avoids the cost of changing production levels.

The enterprise does not have to maintain excess productivity resources to meet peak demand. There is no need to hire and train workers and then fire them during slow periods. There is an opportunity to form a stable workforce. The disadvantage is the accumulation of inventories during periods of decreased demand.

Storing these inventories requires cash costs.

Uniform production means that a company uses production capacity at the same pace and produces the same amount of output on each working day. The amount produced per month (and sometimes per week) will vary because different months have different numbers of working days.

EXAMPLE

A company wants to produce 10,000 units of a product over the next three months at a uniform rate. The first month has 20 working days, the second - 21 working days, and the third - 12 working days due to the annual closure of the enterprise. What quantity should the company produce on average per day to ensure uniform production?

Answer

Total production volume – 10,000 units

Total number of working days =20 +21 +12 =53 days

Average daily production =10,000 /53 =188.7 units

Figure 2.10 Subcontracting.

Some types of products for which demand varies greatly between seasons, such as Christmas tree decorations, will require some form of uniform production. The costs of maintaining idle production resources, of hiring, training, and firing employees using a pursuit strategy will be excessive.

Subcontract. As a pure strategy, subcontracting means constantly producing at minimum demand and subcontracting to meet higher demand. Subcontracting can mean purchasing shortfalls or rejecting additional demand. In the latter case, you can raise prices when demand increases or increase lead times This strategy is shown in Figure 2.10.

The main advantage of this strategy is the cost.

There are no costs associated with maintaining additional production resources and, since production is carried out uniformly, there are no costs for changing production volume. The main disadvantage is that the purchase price (cost of the product, procurement, transportation and inspection) may be higher than the cost of the product when manufactured at enterprise.

Businesses rarely make everything they need themselves, or, on the contrary, buy everything they need. The decision about which products to buy and which to make themselves depends mainly on cost, but there are several other factors that can be taken into account .

A company may decide in favor of production in order to maintain the confidentiality of processes within the enterprise, guarantee the level of quality, and ensure employment of employees.

It is possible to purchase from a supplier who specializes in the design and manufacture of certain components, to enable the enterprise to focus on its area of specialization, or to be able to offer accepted and competitive prices.

For many items, such as nuts and bolts or components that the company does not normally produce, the decision is obvious. For other items within the company's area of expertise, a decision will need to be made whether to subcontract.

Hybrid strategy. The three strategies discussed above are variants of pure strategies. Each has its own costs: equipment, hiring/firing, overtime, inventory, and subcontracting. In fact, a company can use a variety of hybrid hybrid hybrid hybrid hybrid, or combined strategies. Each of them has its own set of cost characteristics. It is the responsibility of the production department management to find a combination of strategies that will minimize the total cost, while ensuring the required level of service and meeting the objectives of the financial and marketing plans.

Figure 2.11 Hybrid strategy.

One of the possible hybrid plans is shown in Fig. 2.11.

Demand is met to some extent, production is somewhat uniform, and some subcontracting is done during the peak period. This plan is just one of many options that can be developed.

Developing an inventory production plan

In a situation where products are produced for the purpose of replenishing warehouse stocks, the products are manufactured and inventories are created from them before receiving an order from the customer. Those goods that constitute inventories are sold and delivered. Examples of such products are ready-made clothing, frozen foods and bicycles.

Firms typically produce inventory when:

Demand is fairly constant and predictable;
Products vary slightly;
The market requires delivery in a much shorter time than the production time of the product;
The products have a long shelf life. To develop a production plan, the following information is required:
Demand forecast for the period covered by the planning period;
Data on the volume of inventories at the beginning of the planning period;
Data on the required volumes of inventories at the end of the planning period;
Information about current customer refusals of orders and about orders with overdue payment, customer orders. That is, about orders for which the decision on shipment is delayed;
The purpose of developing a production plan is to minimize the costs of storing inventories, changing production levels, as well as the likelihood of the required products not being in stock (the inability to deliver the required product to the client on time).

In this section, we will develop a uniform production plan and a pursuit strategy plan.

Let's consider the general procedure for developing a plan for uniform production.

1.Calculate the total forecast demand for the planning horizon period.

2. Set the initial volume of inventories and the required final volume.

3.Calculate the total volume of products that need to be produced using the formula:

Total production volume = total forecast + backlog orders + final volume of inventories – initial volume of inventories

4. Calculate the volume of products that need to be produced in each period; to do this, divide the total volume of products by the number of periods.

5.Calculate the final volume of inventories in each period.

EXAMPLE

Amalgamated Fish Sinkers manufactures fishing rod sinkers and wants to develop a production plan for this type of product.

The expected initial quantity of inventory is 100 sets, and by the end of the planning period the company wants to reduce this volume to 80 sets. The number of working days in each period is the same. There are no refusals or unpaid orders.

The projected demand for sinkers is shown in the table:

Period	1	2	3	4	5	Total
Forecast (sets)	110	120	130	120	120	600

a.What volume of output should be produced in each period?
b.What is the ending inventory in each period?
c.If inventory holding costs are $5 per set in each period based on ending inventory, what will be the total inventory holding costs?
d.What will be the total cost of the plan?

Answer
a. Required total volume of products produced = 600 +80 – 100 ==580 sets

Volume of products produced in each period = 580/5 = 116 sets
b.Final volume of inventories = initial volume of inventories + volume of manufactured products - demand

The final volume of inventories after the first period = 100 + 116 – 110 == 106 sets

The final volume of inventories in each period is calculated in the same way, as shown in Fig. 2.12.

The final volume of inventories in period 1 is the initial volume of inventories for period 2:

Final volume of inventories (period 2) = 106 +116 – 120 == 102 sets
c. The total cost of storing inventories will be: (106 +102 +88 +84 +80)x $5 = $2300
d. Since there were no situations where goods were out of stock and the level of production did not change, this will be the total amount of costs according to the plan.

Figure 2.12 Level production plan: inventory production.

Pursuit Strategy: Amalgamated Fish Sinkers produces another line of products called “fish feeders.” Unfortunately, this is a perishable product and the company does not have the ability to build up inventories to sell them later. It is necessary to use a pursuit strategy and produce the minimum volume of products that will satisfy demand in each period. The costs of storing inventories are minimal, and there are no costs associated with the lack of goods in the warehouse. However, costs arise due to changes in the level of production.

Consider the example above, assuming that changing the production level by one set costs $20. For example, moving from producing 50 sets to producing 60 sets would cost (60 – 50))x $20 = $200

The initial inventory quantity is 100 sets, and the company wants to reduce it to 80 sets in the first period. In this case, the required production volume in the first period is: 110 – ((100 – 80)) = 90 sets

Let's assume that the volume of production in the period preceding period 1 was 100 sets. Figure 2.13 shows changes in the level of production and the final volume of inventories.

The planned costs will be:

Cost of changing production level =60 x $20 =$1200

Inventory holding costs = 80 sets x 5 periods x $5 = $2000

Total plan expenses =$1200 +$2000 =$3200

Development of a custom production plan

In made-to-order manufacturing, the manufacturer waits for the customer to receive an order and only then begins manufacturing the product.

Examples of such products are made-to-order clothing, equipment and any other goods that are made according to the customer's specifications. Very expensive products are usually made to order. Typically, businesses work to order when:

The product is manufactured according to the customer's specifications.
The client is ready to wait for the order to be completed.
Manufacturing and storing the product is expensive.
Several product options are offered.

Figure 2.13 Demand Compliance Plan: Inventory Production.

Assemble to order: When there are several variations of a product, as is the case in automobiles, and when the customer does not agree to wait for the order to be completed, manufacturers make and hold standard components in stock. Once a customer order is received, manufacturers assemble the product from the components they have in stock. according to the order. Because the components are already ready, the business only needs time to complete the assembly before the product is shipped to the customer. Examples of assembled-to-order products include cars and computers. Build-to-order is a variant of the make-to-order system. order.

To draw up a production plan for products that are assembled to order, the following information is required:

Forecast by periods for the duration of the planning horizon.
Information about the initial order portfolio.
Required final order portfolio.

Order portfolio. In a make-to-order system, the business does not hold inventories of finished goods. The work is based on a backlog of customer orders. The order backlog typically assumes future delivery and does not contain any refusals or backlogs. A custom woodworking workshop may have orders from customers for several weeks in advance. This will be the order book. New orders received from customers are queued, or added to the order book. Manufacturers prefer to control the order book so that they can ensure a high level of client service.

Plan for uniform production. Let's consider the general procedure for developing a uniform production plan:

1. Calculate the total forecast demand for the planning horizon.

2. Determine the initial order book and the required final order book.

3. Calculate the required total production volume using the formula:

Total production volume = total forecast + initial order book – final order book

4.Calculate the required production volume in each period by dividing the total production volume by the number of periods.

5. Distribute the existing order book over the planning horizon period according to the completion dates of orders in each period.

EXAMPLE

A small printing company carries out custom orders. Since different jobs need to be completed each time, demand is forecast as hours per week. The company expects demand to be 100 hours per week in the next five weeks. The order backlog is currently 100 hours, and after those five weeks the company wants to reduce it to 80 hours.

How many hours of work per week will it take to reduce the order book? What will the order book be at the end of each week?

Answer

Total production volume =500 +100 - 80 = 520hours

Weekly production =520/5 = 104 hours

The order portfolio for each week can be calculated using the formula:

Forecasted order book = old order book + forecast – production volume

For the 1st week: Forecasted order portfolio = 100 + 100 – 104 = 96 hours

For the 2nd week: Forecasted order book = 96 + 100 – 104 = 92 hours

The resulting production plan is shown in Figure 2.14.

Figure 2.14 Level production plan: production to order.

Resource Planning

Having completed the development of a preliminary production plan, it is necessary to compare it with the resources available to the company. This stage is called resource requirements planning, or resource planning. Two questions must be answered:

1.Does the enterprise have the resources to fulfill the production plan?

2.If not, how can you fill the missing resources?

If productivity cannot be achieved to meet the production plan, then the plan must be changed.

One of the frequently used tools is a resource inventory. It indicates the number of critical resources (materials, labor and a list of equipment units indicating productivity) required to produce one average unit of products of a given group. Figure 2.15 shows an example of an inventory of the resources of a company that produces three types of products that make up one family - tables, chairs and stools.

If a firm plans to produce 500 tables, 300 chairs, and 1,500 stools in a given period, it can calculate how much wood and labor it will need to produce.

For example, the required volume of wood:

Tables: 500 x 20 = 10,000 board, linear feet

Chairs: 300 x 10 = 3000 board, linear feet

Stools: 1500 x 5 = 7500 board, linear feet

Total required volume of wood = 20500 boards, linear feet

Figure 2.15 Inventory of resources.

Required amount of labor resources:

Tables: 500 x 1.31 = 655 standard hours

Chairs: 300 x 0.85 = 255 standard hours

Stools: 1500 x 0.55 = 825 standard hours

Total required amount of labor resources = 1735 standard hours

The company must now compare the wood and labor requirements with the resources available. For example, let's say that the labor resources normally available during this period are 1600 hours. The priority plan requires 1735 hours, a difference of 135 hours, or about 8.4%. either find additional production resources or change the priority plan. In our example, it may be possible to organize overtime work to provide the missing volume of productivity. If this is not possible, it is necessary to change the plan to reduce the need for labor resources. It is possible to partially reschedule production to an earlier date deadline or postpone shipment.

SUMMARY

Production planning is the first stage of the production planning and control system. The planning horizon is usually one year. The minimum planning horizon depends on the time of procurement of materials and production of products. The level of detail is low. Typically, a plan is developed for product families based on similarities in manufacturing processes or a common unit of measurement.

Three basic strategies can be used to develop a production plan: pursuit, smooth production, and subcontracting. Each has its own advantages and disadvantages in terms of operations and costs. Manufacturing managers must select the optimal combination of these baselines that will keep total costs to a minimum while maintaining high levels of customer service.

The inventory production plan determines how much output should be produced each period to:

Forecast implementation;
Maintaining the required level of inventories.

While it is necessary to meet demand, it is also necessary to balance the costs of holding inventories with the costs of changing production levels.

The production-to-order plan determines the volume of products that must be produced each period to:

Forecast implementation;
Maintaining the planned order portfolio.

When the order backlog is too large, the costs associated with it are equal to the costs of rejecting the order. If customers have to wait too long for delivery, they may decide to order from another firm. As with an inventory production plan, demand must be met, and the costs of changing levels production must be balanced in plan with the costs that arise when the size of the order book turns out to be larger than required.

KEY TERMS
A priority
Performance
Manufacturing Resource Planning (MRP II)
Pursuit strategy (to meet demand)
Level production strategy
Subcontracting strategy
Hybrid strategy
Level production plan
Order portfolio
Inventory of resources

QUESTIONS

1.What four questions should an effective planning system answer?

2. Define capacity and priority. Why are they important for production planning?

3. Describe each of the following plans, including the purpose, planning horizon, level of detail, and planning cycle for each:

Strategic business plan
Production plan
Master production schedule
Resource requirement plan
Control of production activities.

4.Describe the responsibilities and contributions of the marketing, production, finance, and technical departments in developing the strategic business plan.

5.Describe the relationship between the production plan, the master production schedule, and the resource requirements plan.

6.What is the difference between strategic business planning and sales and operations planning (SOP)? What are the main benefits of SOP?

7.What is closed loop MRP?

8.What is MRP II?

9.How can you change performance over a short period of time?

10.Why is it necessary to choose a common unit of measurement or define product groups when developing a production plan?

11.On what basis should product groups (families) be determined?

12.Name five typical characteristics of a production planning problem.

13.Describe each of the three basic strategies that are used to develop a production plan. State the advantages and disadvantages of each.

14.What is a hybrid strategy? Why is it used?

15.Name four conditions, depending on which a company produces inventories or produces to order.

16.What information is needed to develop an inventory production plan?

17.Name the stages of developing an inventory production plan.

18.Name the difference between production to order and assembly to order. Give examples of both options.

19.What information is needed to develop a custom production plan? How is it different from the information needed to develop an inventory production plan?

20.Describe the general procedure for developing a uniform production plan when using a make-to-order system.

21.What is a resource inventory? At what level of the planning hierarchy is it used?

TASKS

2.1.If the initial volume of inventories is 500 units, demand is 800 units, and production volume is 600 units, what will be the final volume of inventories?

Answer: 300 units

2.2.A company wants to produce 500 units of output at a steady pace over the next four months. These months have 19, 22, 20 and 21 working days, respectively. What volume of output should the company produce on average per day if production is uniform?

Answer: Average production per day = 6.1 units

2.3.The company plans to produce 20,000 units of product in a three-month period. These months have 22, 24 and 19 working days, respectively. What volume of products should the company produce on average per day?

2.4.According to the conditions of problem 2.2, what volume of products will the company produce in each of the four months?

1st month: 115, 9 3rd month: 122

2nd month: 134, 2 4th month: 128, 1

2.5.According to the conditions of problem 2.3, what volume of products will the company produce in each of the three months?

2.6.The production line must produce 1000 units per month. The sales forecast is shown in the table. Calculate the forecasted volume of inventories at the end of the period. The initial volume of inventories is 500 units. All periods have an equal number of working days.

Answer: in the 1st period, the final volume of inventories will be 700 units.

2.7. A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 100 units; by the end of the planning period, this volume is expected to increase to 130 units. Demand in each period is shown in the table. How much output should the company produce in each period? What will be the final volume of inventories in each period? All periods have an equal number of working days.

Answer: Total production = 750 units

Production volume in each period = 125 units

The final volume of inventories in the 1st period is 125, in the 5th period - 115.

2.8. A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 500 units, by the end of the planning period this volume is expected to be reduced to 300 units. Demand in each period is shown in the table. All periods have an equal number of working days. How much output should the company produce in each period? What will be the ending inventory volume in each period? In your opinion, are there any problems in executing this plan?

2.9.The company wants to develop a plan for uniform production.

The initial volume of inventories is zero. Demand in the next four periods is shown in the table.

a.At what rate of production in each period will the volume of inventories at the end of the 4th period remain zero?

b.When will debts on orders arise and in what volume?

c.What uniform rate of production in each period will avoid the occurrence of backlogs on orders? What will be the final volume of inventories in the 4th period?

Answer: a. 9 units

b. 1st period, minus 1

c. 10 units, 4 units

2.10.If inventory holding costs are $50 per unit in each period, and out-of-stock inventory costs $500 per unit, what will be the cost of the plan developed in Problem 2.9a? What would be the cost of the plan developed in Problem 2.9c?

Answer: Total plan costs in Problem 2.9 a = $650

Total costs according to the plan in problem 2.9 c = $600

2.11.A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 100 units; by the end of the planning period, this volume is expected to increase to 130 units. Demand in each period is shown in the table. Calculate total production, daily production, and production and inventory for each month.

Answer: Monthly production in May = 156 units

Final volume of inventories in May = 151 units

2.12. A company wants to develop a plan for uniform production for a family of products. The initial volume of inventories is 500 units, by the end of the planning period this volume is expected to be reduced to 300 units. Demand in each month is shown in the table. How much product should the company produce in each month? month? What will be the final inventory volume in each month? In your opinion, are there any problems in executing this plan?

2.13. In accordance with the employment contract, the company must hire enough employees to ensure the production of 100 units per week when working on one shift or 200 units per week when working in two shifts. Hire additional workers, fire someone and organize Overtime is not allowed. In the fourth week, employees from another department may be assigned to work part or all of an additional shift (up to 100 units of production). In the second week, there will be a planned shutdown of the plant for maintenance, and therefore production will be cut in half. Develop a production plan. The initial volume of inventories is 200 units, the required final volume is 300 units.

2.14.If the initial order book volume is 400 units, the forecast demand is 600 units, and the production volume is 800 units, what will be the final order book volume?

Answer: 200 units

2.15.The initial volume of the order book is 800 units. The forecasted demand is indicated in the table. Calculate the weekly production volume for uniform production if the volume of the order book is expected to be reduced to 400 units.

Answer: Total production = 4200 units

Weekly production = 700 units

Volume of the order book at the end of the 1st week = 700 units

2.16.The initial volume of the order portfolio is 1000 units.

The forecasted demand is shown in the table. Calculate the weekly production volume under uniform production if the order book is expected to increase to 1200 units.

2.17. Based on the data given in the table, calculate the number of workers required for uniform production and the final volume of inventories at the end of the month. Each worker can produce 15 units per day, and the required final volume of inventories is 9,000 units.

Answer: Required number of employees = 98 people

Volume of inventories at the end of the first month = 12900 units

2.18. Based on the data given in the table, calculate the number of workers required for uniform production and the final volume of inventories at the end of the month. Each worker can produce 9 units per day, and the required ending inventory is 800 units.

Why is it impossible to achieve the planned final volume of inventories?

Regardless of the type of future business activity, the basis of the business plan is its production section. It can be less or more detailed, which is determined by the knowledge and practical experience of the compiler.

For example, when a previous company is liquidated, all positive developments are taken from there, which are subsequently adjusted taking into account the mistakes or oversights made. But most often this point has to be started from scratch.

What should be included there?

It is assumed that the industry of future economic activity is well known to the newly minted businessman, otherwise at least one conscientious and faithful assistant will be required. If the enterprise is conceived alone, then you should start with a comprehensive assessment of the business’s prospects for the next few years. As a result, a forecast of the demand for products or services in a given region is compiled and then analyzed.

If the result of the analysis is positive, you should consider the prospects of the adopted technology - it should be at least 20-25% more advanced than its closest competitors. Special knowledge in this case weighs more than the services of a consulting firm: it is unlikely that the author of a business plan will immediately develop a plan for an ideal enterprise to the slightest accuracy; most likely, consultants will limit themselves to general assessments of the degree of favorability of the business.

At the same time, it is characteristic that almost all analytical notes include the concept of a probabilistic assessment (“with a probability of 97% it can be assumed that ...”). You should always remember that the chance to get into those same 3% for which the analytical assessment did not work means not only wasted money, but also a delay in the business start.

So, your own knowledge, capabilities and experience are the surest conditions for a successful business plan.

The technology selected for implementation determines the need for premises for the installation of production equipment, mechanization, warehouse equipment, etc. In this matter, it is worth assessing both the location of production facilities and their composition.

The infrastructure of the future enterprise will also play a great role. Depending on the main technological processes, the presence of certain transport equipment will be required, and not only cargo - many businessmen increase the prestige of their enterprises through convenient and quick delivery of their company’s personnel to the place of work.

How you can simulate and optimize a production section using a specialized program - see the following video:

Selection of main technological processes

The key features of the choice are not only the above-mentioned 20-25% of equipment perfection, but also its availability and the possibility of application in the specific operating conditions of the future enterprise. To do this, you should use the following sources of information:

Expanded technical characteristics of the equipment, for which it is necessary to use information from the official websites of manufacturers, as well as objective results of the use of this device by consumers. If information from the sources of the first group should be considered more or less reliable, then the assessment of usefulness by individual consumers should be approached more carefully: sometimes positive “cheating” of reviews is used, which, when checked, are not always fair.
Practical assessment of the performance of the closest analogues at enterprises of the same profile located in neighboring regions. At the same time, you should avoid excursions to nearby enterprises: no one is happy about potential competitors, and therefore actual advantages can be presented as disadvantages, and in the worst case, access may be denied altogether for various reasons.

In the process of making decisions on equipment, they are guided by the following operational advantages:

Durability(number of hours of warranty work against failure): if this parameter is not included in the basic characteristics, this may be a serious argument against purchasing this equipment.
Availability of a network of service centers in the region: if it exists, then the issues of supervision of installation of the purchased equipment, as well as its routine maintenance during the warranty period, are automatically resolved.
Degree of equipment versatility and its ability to perform a wide range of operations. In the operating conditions of a small enterprise, the serial production of products or provision of services is often quite low. To prevent equipment from being idle, it makes sense to use it for another purpose. Therefore, attention is often paid to the versatility of the unit’s design and to equipping it with additional tools or accessories.
The presence in the design of components produced by subcontractors– their routine maintenance may be difficult if there is no dealership center of this enterprise in the region. Modern technical means require high-quality maintenance of units, without which the risk of forced downtime results in noticeable losses and loss of prestige of the newly created enterprise.

Do not forget that the production section should also include calculation of the required quantity and standard sizes of the required office equipment.

Production facilities: buildings and premises

Having determined the overall dimensions of the equipment, its technological layout is carried out in accordance with the course of the main technological process. When developing a planning solution, the following are taken into account:

Direct-flow production, which eliminates loops and returns of semi-finished products.
Compliance with production, hygiene and fire safety standards.
Availability of optimal areas for warehouses: raw materials, interoperational and finished products.
Placement of all auxiliary areas - ventilation units, air conditioners, energy devices for lighting and heating of the building, water supply and sewerage systems.

An equipment layout plan should be developed for the prospect of possible expansion of production(usually the coefficient of reserve areas is taken within 10%).

An appropriate room is found for a ready-made planning solution. It is better if it already has built-in energy and water drainage systems. However, a number of energy carriers (for example, compressed air, hot water - both for heating and for technological needs) still have to be supplied independently.

Often abandoned or rented out large garages or empty production facilities of repurposed businesses are suitable options. Sometimes it is beneficial to enter into a space leasing agreement with the previous owners, which saves the new owner from many expenses. With the development of your own business, the purchase of such premises is provided for by the leasing system itself.

During the selection process, pay attention to the following:

Availability of natural light.
The height of the room, which should provide for a technologically competent arrangement of equipment.
Insulation of walls and roof, normal waterproofing, absence of cracks and deformations of the building.
A reliable foundation that must withstand technological and vibration loads.
Possibility of convenient travel and access to production sites, as well as removal of finished products to warehouses or direct consumers.
The degree of technological flexibility of the building, i.e. the possibility of its relatively inexpensive redevelopment in the event of changes in the main technological process.

Vehicles

The production plan includes the best selection of both internal and external transport. In the first case, we mean various types of loaders, manipulators, and conveyors operating on the territory of the enterprise itself. External transport means that which is used for the delivery of raw materials and materials, as well as for the export of finished products.

Internal transport is selected simultaneously when selecting basic technological processes and equipment.

For example, if automatic lines are to be purchased, then they usually include specialized vehicles. It is much worse to “save” on this and select transport separately: it may not be suitable for its production characteristics, as a result of which the productivity of the main equipment will decrease and more personnel will be required.

The situation is different with external transport. In many cases, there is no need to purchase it: it is enough to rent it for a long time, or even conclude an appropriate service agreement with a transport company. This solves several problems simultaneously:

No need for a garage.
The need for personnel who must deal with the daily qualified maintenance of this equipment is reduced.
The need for energy, fuel, consumables and spare parts will be reduced.
The costs of equipping production with fire-fighting and security equipment systems will be reduced.

Production personnel

Since an increase in staff beyond the required level has a negative impact on product costs, preference should be given to employees who have experience combining professions.

The staffing table is drawn up according to the already known composition of the equipment and the features of technological processes. The main categories of personnel are:

Production personnel, including also inland transport operators.
Office and management personnel.
Employees of supply and sales services (this can also include warehouse employees).
Security service (although here it is more advisable to enter into an agreement with a specialized company).

Production plan of an enterprise or organization. Preparation of the “production plan” section of the business plan

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