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M&DC Operations Management: Production & Operation Management
Developing The Production Plan

Contents
1. Objective
2. Information Needed
3. Developing a Make-to-Stock Production Plan
a. Level production plan
b. Chase strategy
4. Developing a Make-to-Order Production Plan
5. Resource Planning

1. Objective
The objective in developing a production plan is to minimize the costs of carrying inventory,
changing production levels, and stocking out (not supplying the customer what is wanted
when it is wanted).

Production and Operations Definitions

Operation Strategy
Manufacturing Planning And Control MPC
Sales & Operation Planning SOP (Aggregate Planning)
Master Production Schedule MPS
Material Requirement Planning MRP
Theory of Constraints TOC
Simulation
Benchmarking & Best Practice
Productivity
Glossaries, Knowledge Portals & Resource Centers
Associations
Academic
Journals & Periodicals
Articles, Material & Presentations
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2. Information Needed
The information needed to make a production plan is as follows:
forecast by period for the planning horizon,
opening inventory,
desired ending inventory, and
any past-due customer orders (back orders).
3. Developing a Make-to-Stock Production Plan
Products are made and put into inventory before an order is received. Sale and delivery are made
from inventory.
Make to stock when
demand is fairly constant and predictable,
there are few product options,
delivery times demanded by the marketplace are much shorter than the time needed to
make the product, and
product has a long shelf life.
a. Level production plan
The general procedure for developing a plan for level production is total the
forecast demand for the planning horizon, determine the opening inventory and the
desired ending inventory,
calculate the total production required
(Total Production = total forecast + back orders + ending inventory
opening inventory), calculate the production required each period by
dividing the total production by the number of periods, and calculate the
ending inventory for each period.



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Example on Level production plan
Opening Inventory = 100
Required End Inventory = 80
Equal Number of working days/month
No Back orders
Forecast as in the table below
Inventory carrying cost = $5 per unit
Required
Production per period
Ending Inventory per period
Total Carrying cost
Answer
Total Production Required = 600 + 80 -100 = 580 Unit
Production/ period = 580 / 5 = 116 Unit / month
Ending Inventory after each period = Opening Inventory + Production - Demand
Ending Inventory after the first period = 100 + 116 - 110 = 106 Unit
Ending Inventory after the second period = 106 + 116 - 120 = 102 Unit
Total Carrying cost = (106+102 +88 +84 +80) x 5 = $2300
1.Level
Period 1 2 3 4 5 Total
Forecast 110 120 130 120 120 600
Production 116 116 116 116 116 580
Ending Inventory 100 106 102 88 84 80 460
Invent Carrying Cost 530 510 440 420 400 2300

b. Chase strategy
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Example on Chase production plan
Opening Inventory = 100
Required End Inventory = 80
Production level in the period before the first period = 100
Cost of changing production level= $20 per unit
2. Chase
Period 1 2 3 4 5 Total
Demand 110 120 130 120 120 600
Production 100 90 120 130 120 120 580
Change in Production 10 30 10 10 0 60
Ending Inventory 100 80 80 80 80 80 400
Invent Carrying Cost 400 400 400 400 400 2000
Change in Production Cost 200 600 200 200 0 1200
Total Cost 600 1000 600 600 400 3200

The required production at a period = Demand - (Inventory the period before- required
Inventory this period)
The required production in the first period = 100 - (100- 80) = 90 Unit


4. Developing a Make-to-Order Production Plan
Wait until an order is received from a customer before starting to make the goods. Make to order
environment has backlog of unfilled customer orders instead of an inventory of finished goods.
The backlog will be for delivery in the future and does not represent orders that are late or past
due.
Firms make to order when:
goods are produced to customer specification,
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the customer is willing to wait while the order is being made,
the product is expensive to make and to store, and
several product options are offered.
Assemble to order
Where several product options exist and where the customer is not willing to wait until the product
is made, manufacturers produce and stock standard component parts.
When an order is received, they assemble the component parts from inventory.
Since the components are stocked, the firm needs only time to assemble before delivering the
product.
Assemble to order is a subset of make to order.
To make a production plan, one will need
a forecast by period for the planning horizon,
an opening backlog of customer orders and
desired ending backlog.
To develop a level production plan,
total forecast demand for the planning horizon,
determine the opening backlog and the desired ending backlog,
Calculate total production required
Total production = total forecast + opening backlog ending backlog),
calculate the production required each period, and
spread the existing backlog over the planning horizon according to due date per
period.
Example
Opening Backlog = 100
Expected Demand = 100 per Week
Required Ending Backlog = 80
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Answer
Total production = Total forecast + Opening backlog Ending backlog)
Total Production Required = 500+ 100 - 80 = 520
Weekly production = 520 / 5 = 104
Projected backlog = Old backlog + Forecast - Production
Projected backlog week 1 = 100 + 100 - 104 = 96
Projected backlog week 1 = 96 + 100 - 104 = 92

Make-To-Order
Period 1 2 3 4 5 Total
Forecast 100 100 100 100 100 500
Planned Production 104 104 104 104 104 520
Projected Backlog 100 96 92 88 84 80 440

5. Resource Planning
Once the preliminary production plan is established, it must be compared to the existing
resources of the company.
If enough capacity to meet the production plan cannot be made available, the plan must be
changed.
Resource bill shows the quantity of critical resources (materials, labor, and bottleneck
operations) needed to make one average unit of the product group.