Production plan example. Description of the structure of the production plan in the business plan of the enterprise. Network analysis PERT

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Business plan: organization of production of cable products (article: 15429 25775)

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Megaresearch analysts have developed a business plan for organizing the production of cable products.

Within the framework of this business plan, an investment project is considered to organize the production of cable products in the Sverdlovsk region. As part of the project, it is planned to produce low and medium voltage power cables (KVG/VVG).

The goal of the project is to identify prospects and evaluate the effectiveness of investment in the project.

The way to achieve the project goal is:
. organization of an enterprise for the production of cable products;
. sales of finished products on the regional market.

Production is planned to be organized on rented premises. For these purposes, a room has already been selected in accordance with the requirements for the production process. Detailed information on production space and equipment is presented in the “Production Plan” section.

The volume of investment in the implementation of the project will be about 29 million rubles. The payback period for the project under consideration is more than 1.5 years, taking into account discounting.

As part of the marketing plan of the business plan, an overview of the cable products market in the Sverdlovsk region is presented. The main trends in the market are considered, a consumer analysis is provided, a review of potential competitors is given, and a forecast for the development of the cable products market is given.

The production part of the business plan contains a description of buildings and premises, calculation of construction costs, description of the technological process and necessary equipment (

The financial model of the project considers an analysis of the project's sensitivity to changes in the external environment.

Megaresearch analysts came to the conclusion that the implementation of this project in the current conditions seems promising if issues of protecting the company from existing market threats and weaknesses are worked out. Detailed information can be found in the full version of the project.

The business plan reveals the essence of the project as fully as possible, collects current data on the market, the cost of resources, and makes all the necessary and sufficient calculations of the required indicators.

This project is individually finalized in accordance with the client’s wishes.

You can order a similar business plan, taking into account the individual characteristics of the business and region.

1. Project Summary 6
2. Essence of the proposed project 8
2.1. Description of the project and proposed cable products 8
2.2. Features of project organization 9
2.3. Information about project participants 12
2.4. Project location 12
3. Marketing plan 13
3.1. Cable market overview 13
3.2. Main trends in the market 15
3.3. Consumer analysis. Consumer segmentation 20
3.4. Review of potential competitors 21
3.5. Market development forecast 22
3.6. Pricing in the market 23
4. Production plan 23
4.1. Description of buildings and premises 23
4.2. Construction cost calculation 24
4.3. Description of equipment 24
4.4. Description of the technological process 27
4.5. Other technological issues 29
4.6. Raw materials, materials and components 29
5. Organizational plan 31
5.1. Personnel plan 31
5.2. Sources, forms and conditions of financing 31
5.3. Project schedule 32
6. Financial plan 33
6.1. Initial data and assumptions 33
6.2. Prices and nomenclature 34
6.3. Investment costs 35
6.4. Requirement for initial working capital 35
6.5. Tax deductions 36
6.6. Operating costs (fixed and variable) 36
6.7. Cost calculation 37
6.8. Sales plan 37
6.9. Revenue calculation 37
6.10. Profit and loss forecast 38
6.11. Cash flow forecast 39
6.12. Project effectiveness analysis 40
6.13. Project Risk Analysis 41

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Production system

Every organization has a production system that receives various inputs (personnel, technology, capital, equipment, materials, and information) and transforms them into goods or services (Figure 1).

Rice. 1. Production system

Production planning

Production plans are usually classified by scope (strategic and operational), time frame (short-term and long-term); nature (general and specific) and method of use (one-time and permanent) (Table 1).

Table 1. Types of production plans

If we talk about long-term strategic planning, then at this level decisions are made in four main areas: production capacity utilization (in what quantities will a product or service be provided), location of production facilities (where a product will be produced or a service provided), production process (what production methods and technologies will be used to produce a product or provide a service) and the placement of tools and equipment (how work centers and equipment will be located in enterprises). Having decided these strategic issues for himself, the developer must also draw up and include in the production plan of his business plan the following three documents: a general (aggregate) plan (what is the general production plan for all types of goods or services offered by the company), a master work schedule (how many units of each type of product or service the company will have to produce or provide over a certain period of time) and a plan for the company's need for material resources (what materials and in what quantities will the company need to complete the main work schedule). These plans are called tactical.

Planning of production capacity utilization

Let's assume that the ABC company decided to produce lawn mowers. Through extensive market research and market analysis, she determines that mid-range tools are in greatest demand among consumers. So the company knows what it should produce. Next, she needs to determine in what quantity to produce the product, i.e. how many lawn mowers of the selected model should be produced in a certain period of time. It is on this decision that other issues related to planning the utilization of production capacity will depend.

Planning of production capacity utilization is based on forecasts of future demand, which are transformed into requirements for production volumes. For example, if the ABC company produces lawn mowers of only one specific model, it plans to sell them for an average of 3,000 rubles. per piece and assumes that during the first year it will be able to achieve a sales volume of 3 million rubles, which means that it will need production capacity that allows it to produce 1000 mowers per year (3000 x 1000 = 3,000,000 rubles). This determines the physical requirements for the utilization of production capacity. It is clear that if the ABC company produces several models of lawn mowers and some other equipment, then in this case the calculations will be more complex.

If a company has been in business for a long time, the commercial forecast of future demand is compared with its actual production capacity, which allows it to determine whether it will need additional capacity given such demand. It should be noted that planning capacity utilization is an activity that is carried out not only by manufacturing firms, but also by service companies. Thus, educational administrators similarly determine the number of seats needed to support the educational process for the projected number of students, and managers of fast food chains determine how many hamburgers they need to prepare during rush hour.

Once the business forecast for future demand is translated into capacity utilization requirements, the company begins to develop other plans to ensure it can meet those specific requirements. However, both the company and the people to whom it will present its business plan should remember that plans for the utilization of production capacity may subsequently change, both upward and downward. In the long run, these changes are quite significant because the firm acquires new equipment or sells its existing production capacity, but in the short run the modifications should not be significant. The company may introduce additional work shifts, change the amount of overtime work, shorten the duration of some work shifts, temporarily suspend production, or invite third parties as subcontractors to perform certain operations. In addition, if a company's product can be stored for a long time and especially if it is seasonal (such as ABC lawn mowers), during periods of low demand it can create additional inventories and sell them during periods of peak sales, i.e. at a time when its existing production facilities are not able to fully satisfy the demand for its goods.

Planning for the location of production facilities

If a company plans to expand its production capacity in the future, in the section of the business plan we are describing, it must indicate what buildings and structures it will need to ensure normal work processes. This activity is called capacity planning. The location of any company's buildings and structures is primarily determined by which factors most strongly influence its overall production and distribution costs. These are factors such as the availability of qualified personnel, labor costs, electricity costs, proximity of suppliers and consumers, etc. It should be noted that the importance and significance of these factors tend to vary depending on the business in which the company operates.

For example, many companies operating in the field of high technology (and primarily requiring a large number of qualified technical specialists for normal functioning) are concentrated in large cities where there are universities and large research centers. On the other hand, many companies specializing in labor-intensive manufacturing locate their production facilities abroad, typically in low-wage countries. For example, many software companies are actively setting up R&D centers in India, which has recently become famous for its specialists in this field, who can perform at least as high a productivity as their American and European counterparts, but at a significantly lower cost. . American tire manufacturers have traditionally built their plants in northern Ohio, allowing them to operate in close proximity to their main customers, the giant Detroit automakers. If we talk about service firms, then for them the decisive factor is usually the convenience of consumers, as a result of which most large shopping centers are located on large highways, and cafes and restaurants are located on busy city streets.

What factors will be most important for the ABC company from our example? Obviously, she will need qualified technical personnel who can design and manufacture lawn mowers. The location of consumers plays an equally important role in this case, which means that it is best for her to locate her enterprises near large agricultural centers. After selecting a region, the company will need to select a specific location and land plot.

Production process planning

During production process planning, a company determines exactly how its product or service will be produced. When designing a production process plan for inclusion in its business plan, a firm must carefully analyze and evaluate its existing production methods and technologies and select those that can most effectively achieve its specific production goals. When choosing any production process, both in the production and in the service sector, there are various options. For example, when starting out in the restaurant business, a company may choose between a quick service establishment; a fast food establishment with a limited menu; an enterprise specializing in the delivery of ready-made meals or servicing motorists; she may choose an option such as a luxury restaurant offering gourmet dishes, etc. When planning its production process, a company must answer a number of key questions that will determine its final choice. What technology will she use: standard or customized? To what extent will its production process be automated? What is more important for a company: efficiency or flexibility of the production system?

For example, the ABC company may well choose such a common and effective method of organizing the production process as conveyor assembly, especially if it does not plan to produce lawn mowers according to special customer orders. But if a company intends to produce personalized products tailored to the specific wishes of consumers - which, admittedly, is becoming an increasingly common approach in both the manufacturing and service sectors - then it will, of course, need completely different technologies and production methods.

It should be noted that planning the production process is an extremely important and complex task. It is very difficult to determine the optimal combination of indicators such as cost levels, quality, labor efficiency, etc., since there is a close relationship between them. This means that even a small change in one component of the production process usually entails a number of changes in other components. It is precisely because of this complexity that the task of planning production processes is usually assigned to highly qualified specialists in the production field, whose activities are directly controlled by the top management of the company.

Planning equipment placement

The final strategic decision when drawing up the production section of a business plan is to evaluate and select the optimal placement of equipment, tools and work centers. This procedure is called equipment placement planning. The goal here is to physically arrange equipment, tools, work centers, and locations to maximize the efficiency of the production process while making it easy for staff—and often customers—to use.

Drawing up an equipment layout plan begins with assessing the physical space required for it. At this stage, the company must determine what production areas, rooms for storing tools and equipment, warehouses, workshops, employee rest rooms, offices, etc. she will need it to ensure the normal production process. Then, based on its existing production plans, the company can evaluate different equipment configurations and layouts for production efficiency. In this case, a variety of methods and tools help firms develop a solution - from elementary scaled plans and maps to complex computer programs that allow you to process huge volumes of variable indicators and print out different versions of layout plans for machines, tools and other equipment.

There are three main approaches to the physical organization of the production process. In a production process design, all elements (work centers, equipment, departments) are arranged in production areas based on the similarity of the functions they perform. The second way to place equipment and workplaces is a linear (or flow) layout of equipment placement. In this case, the components of the production process are distributed in space in accordance with the successive stages of product production. The third approach is a layout based on a fixed position of the product. It is used in cases where, due to its impressive size or for some other reason, the product being manufactured must remain in one place, in a fixed position, throughout the entire production process, and materials, tools, equipment and personnel are delivered to it. Examples of such layouts include hangars in aircraft manufacturing or shipyards in shipbuilding.

Drawing up a general (aggregate) plan

Having decided on strategic issues, the company begins to make tactical decisions and, above all, to general, aggregate planning of its production activities and the production resources necessary for it. The result of this process is a document known as a general (aggregate) plan, which is drawn up for a certain period of time - usually one year.

General (aggregate) planning allows a company to include what is called the overall picture in its business plan. When drawing up a general (aggregate) plan, based on forecasts of future commercial demand and planning the utilization of production capacity, the company determines inventory levels, production standards and the number of personnel (per month) that it will need over the next year. It should be remembered that the focus is on the overall production concept and not on specific details. Thus, during aggregate planning, entire categories of goods are considered, and not individual types. For example, the general plan of a company specializing in the production of paints and varnishes will indicate how many liters of facade paint it will need to produce over a certain period, but it will not specify what colors and packaging it will be produced in. Such plans are especially important for large manufacturing enterprises that produce a large range of products. In a small company that produces a single product (such as the ABC company from our example), the general plan will more closely resemble the main work schedule, except perhaps drawn up for a longer period (more on this in the next section). Thus, we can say that a correctly drawn up general (aggregate) plan reflects two main indicators of the company’s performance: the optimal production rate and the total number of personnel that the company will need in each specific period within the framework of this plan.

Drawing up a master work schedule

The main work schedule is drawn up on the basis of the general (aggregate) plan described above. We can say that this is a more detailed version of the aggregate plan. The main schedule indicates the quantity and type of each type of product produced by the company; how, when and where they will be made next day, next week, next month; it also includes information about the required labor force and the firm's inventory requirements (that is, the totality of all inventories of the enterprise, including stocks of raw materials, components and semi-finished products, work in progress and finished goods).

First of all, the main work schedule is drawn up with the aim of disaggregating the general (aggregate) plan, i.e. break it down into separate, detailed operating plans for each product or service the company offers. Subsequently, all these individual plans are combined into a common master work schedule.

Material requirements planning

Having determined exactly what types of goods or services it will produce or provide, the company must analyze each of them and determine as accurately as possible its needs for raw materials, materials, components, etc. Materials requirements planning is an advanced planning concept that includes elements of modeling and the ability to create various scenarios for the development of events depending on the situation. Using this concept, a firm can accurately schedule its future requirements for materials needed to produce its final products, expressing them in specific numerical terms. Thanks to the advent of sophisticated computer programs, modern managers have the opportunity to analyze in detail all the specifications and technical characteristics of their goods and services, as well as accurately determine all the materials, raw materials and components necessary for their production or provision. This critical information, coupled with computerized inventory data, allows managers to determine the quantity of each part in stock and therefore calculate how long the firm is stocked with inventory. Once the company has determined the lead time (that is, the time between confirmation of an order for materials and receipt of those materials) and the requirements for buffer (reserve) stocks (we will talk about these later), all this data is entered into the computer, and they become the basis for providing the company with the material resources it needs. Thus, thanks to the materials requirements planning system, the company has fairly reliable guarantees that all the materials it needs will be available and in the right quantity when they are needed in the production process.

The latest MRP software offers incredible capabilities when it comes to plant planning and scheduling. Thanks to it, managers, when making decisions about the allocation of company resources, can take into account various limiting and situational factors, such as equipment downtime, lack of labor resources, bottlenecks in the production process, shortages of important raw materials, etc.

Production Planning Tools

Next, we consider tools for drawing up production plans, thanks to which a company can significantly increase the efficiency of this process and present in its business plan a truly clear and complete plan for its future production activities.

If you observe the work of lower-level managers for several days, you can be sure that they are constantly discussing what work needs to be done by their subordinates, in what order, who exactly will perform what operations and by what time this or that work should be completed . All this activity is united under one common name - time-based (scheduling) planning. Below we look at three main tools that managers use in this process: the Gantt chart, the workload chart, and the PERT network analysis.

Gantt chart

This tool, the Gantt chart, was created in the early 1900s by Henry Gantt, an associate of the famous theorist and practitioner in the field of scientific management Frederick Taylor. Essentially, a Gantt chart is a histogram on which time periods are plotted horizontally, and all types of work activities for which, in fact, the schedule is drawn up vertically. The columns display the planned and actual results of the production process over a certain period of time. Thus, the Gantt chart clearly displays which production tasks should be completed and when, and allows you to compare the planned result with the actual completion of work. This is a fairly simple, but convenient and useful tool with which managers can fairly accurately determine what still needs to be done to complete a particular work task or project, and evaluate whether it is being completed ahead of schedule, on schedule, or behind schedule. In the latter case, they should take steps to correct the situation.

Load distribution scheme

The load distribution scheme is nothing more than a slightly modified Gantt chart. Unlike the Gantt chart, it does not indicate types of work vertically, but departments or specific organizational resources. Thanks to this tool, firms can more effectively plan and control the use of the organization's production capacity.

Network analysis PERT

It should be noted, however, that the Gantt chart and load distribution scheme are convenient if it is necessary to control the implementation of a relatively small number of different types of work, and not interrelated. If a company needs to plan a large-scale project—for example, aimed at completely reorganizing one of its divisions, reducing costs, or developing a new type of product or service—then it will need to coordinate the actions of employees from a variety of departments and services. Sometimes these projects involve coordinating hundreds or even thousands of activities, many of which must be completed simultaneously, while others can only be started after the previous ones are completed. It is clear, for example, that during the construction of a building it is impossible to put on a roof without erecting walls. In such situations, managers use another tool known as PERT (Program Evaluation and Review Technique) network analysis.

A PERT network analysis is a diagram that displays the sequence of all the activities that must be performed as part of a project, as well as the time and money costs for each of them. This method was developed in the late 1950s to coordinate work on the Polaris submarine, a project that involved more than three thousand different contractors. Through PERT network analysis, the project manager can determine what exactly needs to be done in the project and what events will depend on each other, as well as identify potential project problems. In addition, using PERT, he can easily compare how certain alternative actions could affect the schedule and costs of the project. As a result, thanks to the PERT network analysis, the manager, if necessary, can redistribute the resources available to his company, thereby preventing the project from deviating from the planned schedule.

To build a PERT network diagram, you need to know and understand four important concepts: events, activity types, slump period, and critical path. Events are endpoints that separate major activities and indicate the completion of one and the beginning of the next. Activities are the time or resources required to move from one event to another. A slump period is a period of time during which a particular activity can be slowed down without slowing down the entire project. The critical path is the longest or most time-consuming sequence of events and activities in the PERT network. Any delay in completing events on the critical path will invariably delay the completion of the project as a whole. In other words, activities on the critical path have a zero decay period.

To create a PERT network diagram, a manager needs to identify all the major activities needed to complete an upcoming project, arrange them in the order they should be completed, and estimate how much time it will take to complete each one. This process can be represented in five stages.

1. Identify all significant activities that need to be performed to complete the project. During each of these types of work, certain events occur or certain results are achieved.

2. Determine the order of events that occurred in the previous stage.

3. Draw up a flow diagram of work types from start to finish, identifying separately each type of work and its relationship with other types of work. Events on the diagram are indicated by circles, and jobs by arrows; the result is a clear block diagram, which is called a PERT network (Fig. 2).

4. Estimate the time required to complete each type of work. This operation is performed by using a so-called weighted average. To obtain this indicator, take an optimistic estimate of time, t 0, i.e. assessment of the duration of a particular type of work under ideal conditions; the most probable estimate of time, t m, i.e. assessment of the duration of this type of work under normal conditions; and a pessimistic estimate of time, t p , i.e. assessment of the duration of work under the worst possible conditions. As a result, we have the following formula for calculating the expected time t e:

6. Using a network diagram that estimates the duration of each type of work within the project, plan the start and end dates of each type of work and the project as a whole.

Rice. 2. Example of a PERT network diagram

As we said above, a tool such as PERT network analysis is typically used to plan very complex projects consisting of hundreds or even thousands of events. Therefore, calculations in this case are performed using computer technology using special software.

Production planning methods

Modern managers have to solve a very difficult task - planning the activities of their organizations in a complex and extremely dynamic external environment. To solve it, project management and scenario-based planning have proven themselves well. Both methods pursue one primary goal - to increase the company's flexibility, without which it is impossible to succeed in today's ever-changing business world.

Project management

Today, many manufacturing firms operate on a project basis. A project is a series of interrelated works that has clear starting and ending points. Projects vary in significance and scope; This could range from a spaceship launch project to a local sporting event. Why are companies increasingly organizing and planning their activities on the basis of projects? The fact is that this approach best suits the dynamic external environment, which requires modern organizations to have increased flexibility and the ability to quickly respond to any changes in the situation. Modern companies implement unusual and even truly unique production projects related to solving a huge variety of complex interrelated tasks, the implementation of which requires specific skills and qualifications. All this absolutely does not fit into standard production planning procedures that a company can use in its routine, everyday activities. What are the features of project planning?

Project planning process

In a typical project, work is performed by a dedicated project team whose members are assigned to work on the project temporarily. They all report to a project manager, who coordinates their work in collaboration with other departments and divisions. However, since any project is a temporary undertaking, the project team exists only until the tasks assigned to it are completed. The group is then disbanded, and its members are transferred to work on other projects, either they return to the departments where they work permanently, or they leave the company.

The planning process for any project, including production, includes a number of stages. It starts with clearly defining the project's goals. This stage is mandatory because the manager and team members must clearly know what they must achieve by the time the project is completed. Then it is necessary to determine all the types of work to be performed within the project and the resources required for this. In other words, at this stage it is necessary to answer the following question: what labor and materials will be required to implement this project? This stage is often associated with certain difficulties and requires a considerable amount of time, especially if the project is fundamentally new or even unique, i.e. when the company does not have any experience in implementing projects of this type.

After determining the types of work, it is necessary to determine the sequence of their implementation and the relationships between them. What should you do first? What jobs can be done at the same time? In this case, the person planning the production project can use any of the production planning tools described earlier: create a Gantt chart, a workload distribution chart, or a PERT network diagram.

Next, you should create a schedule for the project. The first step is to preliminarily estimate the completion time of each work, and on the basis of this assessment, a general project schedule is drawn up and the exact completion date is determined. After this, the project schedule is compared with previously established goals and the necessary changes and adjustments are made. If a project turns out to be too long to complete—which is inconsistent with the company's goals for the project—the manager can allocate additional resources to the most critical activities to speed up the overall project completion time.

With the advent of many different computer programs running on the Internet, the procedure for planning and managing production projects has become significantly simplified. It should also be noted that often the company's suppliers and even its consumers take an active part in this activity.

Scenario planning

A scenario is a forecast of probable future developments of events, which is characterized by a certain sequence of these events. In this case, it is assessed how this or that development of events will affect the environment in which the company operates, the company itself, the actions of its competitors, etc. Different assumptions can lead to different conclusions. The purpose of such an analysis is not to try to predict the future, but to clarify the situation as much as possible and make it as definite as possible, “playing out” possible scenarios taking into account different initial conditions. Even the process of scenario writing forces company leaders to rethink and better understand the business environment because the activity forces them to view it from a perspective they may never otherwise have considered.

Although scenario planning is a very useful way to predict future events (which can be predicted in principle), it is clear that predicting random, arbitrary events is very difficult. For example, hardly anyone could have predicted such a rapid spread and incredible popularity of the Internet in recent decades. Similar events will undoubtedly occur in the future. And although they are extremely difficult to predict and respond to correctly, managers must strive to somehow protect their organizations from their consequences. Scenario planning serves this purpose, including in the production sector.

Production control

An important element of the production plan within any business plan is a description of how the firm intends to control its production system, particularly its elements such as costs, purchasing, maintenance and quality.

Cost control

It is believed that American managers often treat cost control as a kind of corporate "crusade", which is undertaken from time to time and carried out under the leadership of the company's accounting department. It is accountants who set cost standards per unit of production, and managers must find an explanation for any deviation. Have the company's material costs increased? Maybe the labor force is not being used effectively enough? Perhaps, in order to reduce the volume of defects and waste, it is necessary to improve the skills of workers? However, now most experts are convinced that cost control should play a major role already at the stage of development and planning of an organization's production system and that all managers of the company, without exception, should be constantly engaged in this activity.

Currently, many organizations are actively using an approach to cost control based on the so-called cost centers. These are responsibility centers for which separate cost accounting is maintained, but which are not directly related to making a profit; the efficiency of such departments is determined based on the compliance of actual costs with the planned or standard volume.

Since all costs must be controlled at some organizational level, the company needs to clearly define at what level certain costs are controlled and require company managers to report on those costs that fall within their area of responsibility.

Control over procurement

In order to efficiently and effectively produce certain goods and provide services, the company must be constantly provided with all the necessary resources, including materials. She needs to constantly monitor supply discipline, monitor the characteristics of goods, their quality, quantity, as well as prices offered by suppliers. Effective control over procurement not only ensures the availability of all the resources the company needs in the required volume, but their proper quality, as well as reliable, long-term and mutually beneficial relationships with suppliers. All these points should be reflected in the production section of the business plan.

So what can a company do to make it easier and more efficient to control its inputs? Firstly, collect the most complete and accurate information about the dates and conditions of deliveries. Secondly, collect data on the quality of supplies and how well they correspond to the company's production processes. And thirdly, obtain data on suppliers’ prices, in particular, on the correspondence of actual prices to the prices that were indicated by them when placing the order.

All this information is used to compile ratings and identify unreliable suppliers, which allows the firm to select the best partners in the future and monitor various trends. Thus, suppliers can be assessed, for example, by the speed of their response to changes in demand, the quality of service, the level of reliability and competitiveness. We'll talk more about relationships with suppliers in the next section.

Control over suppliers

Modern manufacturers strive to form strong partnerships with suppliers. Instead of dealing with dozens of sellers who will certainly compete with each other for the customer, manufacturing firms today often choose two or three suppliers and establish close relationships with them, ultimately increasing both the quality of the products supplied and the efficiency of this cooperation.

Some firms send their design engineers and other specialists to their suppliers to solve all sorts of technical problems; others regularly send teams of inspectors to suppliers' plants to evaluate various aspects of their operations, including delivery methods, manufacturing process features, statistical controls used by suppliers to identify defects and their causes, etc. In other words, today companies in all countries are doing what Japan has traditionally always done - they are striving to establish long-term relationships with their suppliers. Suppliers who partner with a manufacturing company are able to provide higher quality resources and reduce defect rates and costs. If any problems arise with suppliers, open and direct communication channels allow them to be resolved quickly and efficiently.

Inventory control

To effectively and efficiently achieve its goals, any company must control the replenishment of its inventory. For this purpose, a re-order system is used when a certain stock level is reached.

This type of reordering system is used to minimize the ongoing costs associated with holding inventory and ensure the appropriate level of customer service (since it reduces the likelihood that at some point the desired product will not be in stock).

Using various statistical procedures, companies typically set the reorder point at a level that ensures that they have enough inventory to last between reorder placement and fulfillment. At the same time, they usually retain some additional “safety” reserve, which allows them to avoid complete depletion of the reserve in unforeseen circumstances. This so-called “buffer” or reserve serves as a reliable protection for the company if, in the period between a re-order and its fulfillment, a greater than usual need for a product or material arises, or if replenishment of stock is delayed for unforeseen reasons.

One of the simplest but very effective ways to use a reorder system once a certain inventory level is reached is to store tracked inventory in two different containers. In this case, goods or materials are taken from one container until it is empty. At this point, a reorder is made, and until it is completed, the products are taken from the second container. If the company has correctly determined the demand, then the reordered goods will arrive before the second container is empty, and there will be no delay.

The second modern and already very common method of reordering upon reaching a certain stock level is based on computer control. In this case, all sales are automatically recorded by the central computer, which is programmed to initiate a new order procedure when the stock in the warehouse reaches a certain critical level. Currently, many retail stores actively use such systems. Another fairly common system is the re-order system after a certain time interval. In this case, inventory control is exercised solely on the basis of a clearly defined time factor.

Maintenance control

The production section of the business plan should also indicate how the firm will monitor the effectiveness of maintenance. In order to quickly and efficiently provide consumers with goods or services, a company must create a production system that guarantees the most efficient use of equipment and its minimum downtime. Therefore, managers, among other things, must constantly monitor the quality of maintenance. The significance and importance of this activity largely depends on the production technologies used by the company. For example, even a minor glitch on a standard assembly line can stop hundreds of workers from working.

There are three main types of maintenance in manufacturing organizations. Preventative repairs are carried out before an accident. Restorative repair requires complete or partial replacement of the mechanism or its repair on site immediately after a breakdown. Conditional repair is a major repair or replacement of parts based on the results of a previously conducted technical inspection.

It should be noted that the need for control over maintenance must be taken into account already at the design stage of the equipment. So, if a failure or downtime of equipment leads to serious problems in the production system or is too expensive for the company, then it can increase the reliability of mechanisms, machines and other tools by incorporating additional characteristics into the equipment design. In computer systems, for example, redundant, backup subsystems are often introduced for this purpose. In addition, equipment can be initially designed in such a way as to simplify and make its subsequent maintenance cheaper. It should be borne in mind that the fewer components included in the equipment, the less often breakdowns and malfunctions occur. In addition, it is advisable to place parts that often fail in an easily accessible place or even mount them in separate units, which can be quickly removed and replaced if they break down.

Quality control

Quality control is a comprehensive, consumer-oriented program designed to continually improve the quality of a company's production processes and the goods or services it produces. The production section of the business plan should indicate how the company will carry out quality control.

This activity involves constantly monitoring the quality of products to ensure that they consistently meet the established standard. Quality control must be performed several times, beginning with the initial entry of inputs into the firm's production system. And this activity must continue throughout the entire production process and end with the control of finished goods or services at the exit of the production system. This procedure also provides for quality assessment at intermediate stages of the transformation process; It is clear that the sooner you identify a defect, or an ineffective or unnecessary element of the production process, the lower your costs will be to correct the situation.

Before implementing quality control, managers must ask themselves whether 100% of the goods (or services) produced need to be inspected or whether samples can be done. The first test option is appropriate if the cost of ongoing assessment is very low or if the consequences of statistical error are extremely serious (for example, if the company produces complex medical equipment). Statistical sampling is less expensive and is sometimes the only cost-effective quality control option.

Sampling control during acceptance consists of evaluating materials or goods purchased or manufactured by the company; it is a form of feedforward or feedback control. In this case, a certain sample is made, after which the decision as to whether to accept or reject the entire batch is made based on the results of the analysis of this sample, based on a risk assessment.

Process control is a procedure in which sampling is carried out during the process of converting inputs into goods or services, thereby determining whether the production process itself is out of control. With this type of control, statistical tests are often used to determine at different stages of the production process the extent to which deviations have exceeded the acceptable level of quality. Since no production process can be considered perfect and some minor deviations are simply inevitable, such tests allow the company to identify serious problems in time, i.e. quality problems that the company should respond to immediately.

Production Control Tools

It is obvious that the success of any organization is largely determined by its ability to efficiently and effectively produce goods or provide services. This ability can be assessed using a number of production control methods.

Production control, as a rule, consists of monitoring the production activities of an organization or a separate department in order to ensure its compliance with a previously drawn up schedule. Production control is used to determine the ability of suppliers to provide the appropriate quality and quantity of supplies at the lowest cost, and to monitor the quality of products to ensure they meet established standards and check the condition of production equipment. We've already discussed the basic aspects of controlling manufacturing operations, but two critical manufacturing control tools—the TQM control schedule and the economic order quantity model—deserve more attention.

TQM control charts

It should be remembered that effective quality control, which we discussed above, is not only aimed at producing quality goods or providing quality services. To ensure the high quality of both the products themselves and the processes by which they are produced, a company must control all aspects of its production system. Modern firms accomplish this task thanks to a tool known as the TQM control chart.

The TQM control chart is an effective production control tool. Essentially, it is a graph that indicates statistically determined upper and lower control limits and displays the measurement results for the reporting period. Control charts clearly show whether a production process has exceeded its pre-established control limits. As long as the results of checks at various stages of the production process are within a certain acceptable range, the system is considered to be in control (Figure 3). If the measurement results fall outside the established limits, then the deviations are considered unacceptable. Continuous quality improvement efforts should, over time, result in a narrower range between the upper and lower control limits as they eliminate the most common causes of deviation.

Rice. 3. Example of a control chart

When drawing up such a schedule, it is necessary first of all to take into account that in each production process there can be two sources of deviations. The first of these is unpredictability, due to which corresponding deviations may arise. Such deviations are possible in any process, and it is impossible to control them without fundamental changes to the process itself. Another source is non-random circumstances. Such deviations can be identified and are subject to control. It is clear that control charts are used to identify precisely such causes of deviations.

Control charts are created using some basic statistical concepts, including the well-known law of normal distribution (which states that variations tend to be distributed in a bell-shaped curve), and standard deviation (a measure of variability in a group of numerical data). When drawing up a control chart, the upper and lower limits are determined by the degree of deviation that is considered acceptable. According to the law of normal distribution, about 68% of the set of values are in the range from +1 to -1 from the standard deviation. (As the sample size increases, the sampling distribution becomes closer to normal.) In this case, 95% of the values lie in the range from +2 to -2 from the standard deviation. In the process of monitoring manufacturing operations, limits are usually set in the range of three standard deviations; this means that 97.5% of the values should be within the reference range (Fig. 4).

Rice. 4. Example of a control chart with a control range of three standard deviations

If the sample mean is outside the control range, i.e. is above its upper limit or below its lower limit, this means that the production process appears to be out of control and the company needs to do everything possible to identify the causes of the problem.

Model EOQ

We have already said that control over a firm's inventory is the most important aspect of production control. Firms' investments in these inventories are typically significant; Therefore, each organization strives to determine as accurately as possible how much new goods and materials to order and how often this should be done. The so-called EOQ model helps them with this.

The economic order quantity (EOQ) model is designed to determine the quantity of goods that should be ordered to satisfy forecast demand and minimize the cost of storing and purchasing inventory.

Using the EOQ model, two types of costs are minimized: order fulfillment and operating costs. As the volume of orders grows, the average amount of inventory increases, and the current costs of maintaining them also increase accordingly. However, placing larger orders means fewer orders and therefore lower fulfillment costs. The lowest total costs and, accordingly, the most economical order size are observed at the bottom point of the total costs curve. This point at which order fulfillment costs and operating costs are equal is called the point of most economic order sizing. To calculate this indicator, the following data is needed: predicted need for inventories for a certain future period (D); costs of placing one order (OS); costs or purchase price (V) and the ongoing costs associated with storing and processing the entire volume of inventory, as a percentage (CC). Having all this data, you can use the standard EOQ formula:

It should be remembered, however, that the use of the EOQ model assumes that the demand and lead time of the order are precisely known and constant. Otherwise it should not be used. For example, it is generally not applicable to determining order quantities for parts used in the production process, since they tend to come from the warehouse in large and uneven quantities. But does this mean that the EOQ model is useless for manufacturing firms? Not at all. It can be used to determine the optimal cost and identify the need to change the order batch size. Although, it should be recognized that more complex models are used to determine batch sizes in conditions of variable needs and in other non-standard situations.

Modern aspects of production

When preparing the production section of a business plan, it is important to remember the modern realities of the production sector. Today, companies face many daunting challenges to improve productivity. They should strive to make the most of the benefits of new technologies, implement the described TQM concept; certify your products by obtaining ISO 9000 certification; constantly reduce inventory; establish partnerships with suppliers; achieve competitive advantage through flexibility and quick response to changes in demand, etc. Therefore, the company should reflect in its business plan how all these tasks will be accomplished.

Technologies

Increasing competition in most markets is forcing manufacturers to provide consumers with increasingly high-quality products at increasingly lower prices, while significantly reducing their time to market. Two factors contribute to accelerating the development of new types of products: the company's focus on reducing the development cycle and the efficiency of investments in new technologies.

One of the most effective tools with which modern manufacturers reduce the time to bring new products and services to market is complex production automation (Computer Integrated Manufacturing - CIM). CIM is the result of combining a company's strategic business and operational plan with computer software. It is based on computer-aided design (Computer-Aided Design - CAD) and computer-aided manufacturing (Computer-Aided Manufacturing - CAM) technologies. As a result of the emergence and widespread use of all kinds of automation tools, the old way of developing products has become hopelessly outdated. With the help of computer technology to visually display graphical objects, design engineers are designing new products much faster and more efficiently than before. Automated manufacturing is made possible by the use of computers to control the production process. Thus, numerically controlled machines can be programmed to produce new models literally in a matter of seconds.

According to experts, further improvement of CIM technology will ensure continuity of the entire production cycle. If each stage - from placing an order for raw materials to shipping finished products - is displayed in the form of numerical indicators and processed on a computer, companies will be able to respond very quickly to any market changes. They will be able to make hundreds of design changes in a matter of hours, quickly move to a wide variety of product variations, and produce them in very small batches. An organization that uses comprehensive production automation will not have to stop the assembly line and waste valuable time replacing pressing dies or other equipment to produce a new standard or non-standard product. One change in the computer program, which takes a few seconds, and the production process is completely rebuilt.

The most important condition for the effective operation of modern companies is the constant updating of technology, with the help of which the input stream of raw materials is transformed into a stream of finished products. Major technological changes usually involve the automation of production, which we discussed above, as well as the introduction of new equipment, tools or work techniques and computerization.

However, by all accounts, the most significant technological change in recent years has been the widespread computerization. Most organizations today have developed sophisticated information systems. For example, many retail chains use scanners connected to computers, with the help of which you can instantly obtain complete information about the product you are interested in (its price, code, etc.). And of course, these days you will not find a single office that does not use computer technology.

Implementation of TQM

Currently, many companies have already implemented the TQM philosophy. The idea of total quality management covers not only large but also small firms and enterprises. TQM (total quality management) is a concept that implies the participation of all employees of the company in improving the quality of products and services, optimizing production processes and management, etc.

Unfortunately, we must admit that not all efforts aimed at implementing TQM concepts were successful. Research in this area does not confirm that firms that have adopted TQM consistently operate at higher levels of efficiency than firms that have not. There are a number of factors that can significantly reduce the effectiveness of TQM. In particular, the researchers found that the success of some core TQM concepts—such as the use of teams, benchmarking, additional training, and employee empowerment—depended significantly on the company's ongoing performance.

From a technological perspective, the TQM concept focuses on developing flexible processes that support continuous quality improvement. The fact is that employees who have adopted the TQM philosophy are constantly looking for what can be improved or corrected, so work processes must be able to easily adapt to constant changes. In this regard, to successfully implement a TQM program, a company must constantly improve the qualifications of its personnel. It needs to provide its employees with opportunities to acquire and develop skills in areas such as problem solving, decision making, negotiation, statistical analysis and teamwork. Employees of these companies must be able to analyze and interpret data, and firms should provide their work teams with all the necessary information about the quality of their products, in particular about the rates of damage, defects, waste, etc. They should also inform staff about customer opinions and provide them with the information needed to create and manage control charts. And of course, the organization's structure must provide teams with sufficient authority to continually improve operations.

Reengineering

Reengineering is a term used to describe radical changes to all or part of a company's work processes in order to increase productivity and improve financial performance. In the process of reengineering, the structure, technology and personnel of the company undergo major changes, since in this case the methods of doing work in the organization are revised almost from scratch. During reengineering, managers constantly ask questions: “How else can this process be improved?” or “What is the best way to complete this work task faster and better?” etc.

Regardless of what caused the need for change - fluctuations in demand, a change in the economic situation or a change in the strategic direction of the organization - the person who decided to carry out reengineering must first evaluate the effectiveness of the staff and the quality of interaction between people within the organization. After a critical assessment of work processes, the company begins to look for ways to improve productivity and product quality: begin implementing a TQM program, change the organizational culture, or implement other changes. However, in any case, the essence of reengineering is that the company completely abandons the old ways of working and decides to radically change its work process.

You might be wondering: isn't the term "reengineering" synonymous with TQM? In no case! Although both of these processes are aimed at introducing change in the organization, their goals and means are completely different. The TQM program is based on the idea of continuous, incremental change. This means continually improving the performance of an organization that is generally doing well. In addition, TQM is implemented from the bottom up and the emphasis is on employee participation in decision making regarding the planning and implementation of the program. And reengineering is a radical change in the way an organization operates. This process involves fundamental changes and a complete overhaul of work practices. Reengineering activities are initiated by the firm's top management, but when the process is completed, virtually all employees typically gain greater authority in their jobs.

A characteristic feature of reengineering is that you have to start from scratch and rethink and rebuild the entire work scheme, i.e. structure of all work processes. Traditional, well-known ways and methods are immediately excluded. In other words, the company completely abandons incremental changes in the production system, since the ways and methods by which the company will produce goods or provide services are radically changed. Entirely new work processes and operations are invented and implemented. When reengineering, what was before should in no case even serve as a starting point, because reengineering is a radical, fundamental change in the very foundations of the organization. Despite the significant stress and increased uncertainty among staff that typically accompany the reengineering process, it can produce excellent results.

ISO Standards

To openly and clearly demonstrate their commitment to quality, modern organizations strive to achieve ISO certification. What is its essence? These are the quality management standards that companies around the world are guided by. They cover literally everything: from contract rules to product development and delivery. ISO standards are set by the International Organization for Standardization and are used as an international benchmark to compare firms operating in the global marketplace. A company's certificate indicates that it has developed and implemented an effective quality management system.

Quality certificates today are received by small sales and consulting companies, software development firms, city public utilities, and even some financial and educational institutions.

However, it should be remembered that although the certificate provides the company with a lot of advantages and significantly strengthens its competitive position, the main goal of the company should be the process of improving the quality of its goods or services. In other words, obtaining a certificate should not be an end in itself; In order to achieve this, the company must create work processes and a production system that will allow all its employees to perform their work with consistently high quality.

Reduction of inventories

As we have already said, a very significant part of the assets of most companies is its inventory. Firms that manage to significantly reduce their inventory levels—i.e. raw materials, semi-finished products and finished goods in the warehouse - can significantly reduce the cost of storing them and thus increase their productivity. How the company intends to solve this problem should also be reflected in the production section of the business plan.

Modern companies take this problem very seriously. In recent years, managers in all countries have been actively looking for ways to improve the efficiency of inventory management. Thus, during the input phase, they seek to improve the communication between internal production schedules and forecast consumer demand. Marketing managers are increasingly being asked to provide accurate and timely information about future sales volumes, which is then combined with specific data about the company's production systems to determine the optimal production volume to meet existing demand. Production resource planning systems are ideally suited to perform this function.

Today, companies around the world are actively experimenting with another technique, which has been successfully used in Japan for a long time and is called the Just-In-Time (JIT) system. Under this system, goods and materials arrive at the manufacturer exactly when they are needed in the production process, rather than being stored in a warehouse. The ultimate goal of implementing a JIT system is to completely eliminate raw material warehouses through precise coordination of the production and delivery processes. If such a system works effectively, it provides significant benefits to the manufacturer: its inventory is reduced, equipment set-up time is reduced, the cycle of product transformation processes is accelerated, production time is reduced, production space is freed up and often even the quality of the products is improved. Of course, in order to achieve all this, it is necessary to find suppliers who will deliver quality materials on time.

However, it should be taken into account that not every manufacturer can use the JIT system. Thus, for its implementation it is necessary that suppliers are located close to the buyer’s enterprises and supply materials without defects. This system also requires reliable transport links between suppliers and the manufacturer, efficient methods of receiving, processing and distribution of materials, and careful planning of the production process. If all these conditions are met, JIT will help to significantly reduce the company's warehouse costs.

Outsourcing and other types of partnerships with suppliers

The production section of the business plan should also indicate how the company intends to work with suppliers and improve the efficiency of this process. As already mentioned, one of the most important trends in the manufacturing sector recently has been a strong trend towards the formation of partnerships between manufacturers and suppliers. It should be noted that, among other things, this often involves outsourcing some of the work, where manufacturers, in an effort to reduce high labor costs, outsource the production of some parts and components to their suppliers, who can produce them at a lower cost. This relationship is called outsourcing.

Today, alliances between manufacturers and suppliers have become much closer and stronger. Suppliers are becoming increasingly involved in the product manufacturer's production process. Many operations that were previously the sole responsibility of manufacturers are now carried out by their main suppliers, i.e. Some of the work is transferred to third-party contractors. At the same time, manufacturers are increasingly playing the role of “conductors” and limit themselves to only coordinating the activities of different suppliers. According to experts, the trend towards strong and close partnerships between suppliers and manufacturers will continue in the future, as the latter are constantly looking for new sources of competitive advantage in the global market, and one of such sources is close relationships with suppliers.

Flexibility as a competitive advantage

In today's fast-paced business world, companies that cannot quickly adapt to change are doomed to failure. Because this capability comes from flexibility in the manufacturing process, many organizations are actively developing and implementing flexible manufacturing systems.

Modern factories often resemble scenes from a science fiction movie, in which remote-controlled carts transport workpieces to computerized machining centers. Robots automatically change the position of the workpieces, and the machine, manipulating hundreds of tools, turns the workpiece into a finished part. Every minute and a half, a finished product comes off the assembly line, slightly different from the previous ones. There are no workers or usual machines in the workshop. No costly downtime required to replace dies or tooling. One modern machine is capable of producing dozens and even hundreds of very different parts, producing them in any programmed order.

A unique feature of flexible manufacturing systems is the integration of computer-aided design, engineering design and manufacturing processes, allowing factories to produce small, custom runs at prices previously only possible with mass production.

As a result of the use of flexible production systems, economies of scale are being replaced by economies of breadth. Organizations no longer need to produce thousands of identical products to reduce their unit costs. To move on to the release of a new product, they do not need to change machines and equipment, but only make changes to the computer program.

Speed as a competitive advantage

It is known that a company that is able to quickly develop and bring new products and services to the market provides itself with a significant competitive advantage. Consumers prefer a particular company not only because its products or services are cheaper, have an original design or are of high quality, but often because they highly value the opportunity to receive them as quickly as possible. There are many examples of companies that have achieved significant success in reducing the design and production time of goods and services. To speed up the production process and increase competitive pressure, many organizations around the world are looking to reduce bureaucratic constraints and simplify their organizational structures; They create complex work groups, rebuild the sales structure, use JIT methods, CIM systems, flexible manufacturing systems, etc. And all this needs to be reflected in the production plan, indicating what opportunities are at your disposal to speed up the cycle of introducing new products or services to the market.

Is business planning always carried out on the initiative of an entrepreneur or investor in connection with the opening of a new business? Not always. Often, the practice of preparing a business plan is integrated into the general context of managing a multi-industry company in the context of implementing a development strategy. In most cases, this is done by a special unit within the financial department, and not by the project office. Developing a production plan in a business plan for business units or an entire company is a universal area of planning activity. Let's consider its expanded context.

Main aspects of the production program

It is necessary to look directly at the difference in approaches to business planning in cases of an external business project and internal planning of the activities of business units. The goals for these situations are different. This is especially true for the production plan. In the first case, the emphasis is on demonstrating to the customer and investor that the project is provided with production resources: equipment, personnel and material and technical resources. In the second case, business owners and general management of the company must be convinced that:

the production program takes into account the required stocks of finished products and probable losses;
capacities are used optimally, bottlenecks are eliminated;
imbalances in internal production units have been eliminated;
cooperation between strategic business units (SEB) is effective;
from the perspective of marginal analysis and sales plan, a verified production profitability is planned for each SEB.

Considering the above, it should be remembered that the importance of such a section as the production plan when integrating business projects into the plans of a multi-industry company is higher than for an individual business. It is proposed to understand a strategic unit of business as a line of activity that in the financial structure has the characteristics of the central financial institution “profit” or “marginal profit”. SEB is the carrier of a separate business product or a whole range of products. In an ideal situation, SEB, being part of a company, nevertheless has the characteristics of a legal entity - a subsidiary.

In any case, the production plan is based on the program for the sale of products and (or) services. And the first aspect of this section is the forecast of production volumes, taking into account the required stock of finished products and losses. The volume of production of work, services, goods is determined through a certain set of indicators, the formulas of which are given at the end of the section.

Volume of products sold at planned prices. This volume includes products shipped to consumers that meet the conditions of quality standards, specifications, manufacturing technology and pre-sale preparation.
Commodity and gross output of the company. Commercial products (TP) mean not only manufactured products for external and internal consumption, but also works, services of a capital and production nature, semi-finished products that can be considered as goods. Gross output, in addition to commodity output, also includes changes in work in progress.
Unfinished production. This type should be understood as incompletely manufactured products that are at different stages of the production cycle and are not accepted as commercial products.
Added value, taken into account in the production plan as gross output, but minus material costs.

Formulas for calculating planned sales volumes, TP and VP

Auxiliary calculations of production volumes

As you know, industrial production is the most difficult type of business to plan and organize. This is especially evident when production is multi-stage in nature, requiring a larger number of support and auxiliary measures (equipment, tooling, etc.). Product innovation also leaves its mark on planning processes.

Let's imagine an example of a medium-sized manufacturing enterprise operating in the oil and gas engineering industry, however, having several main and supporting production facilities. Let's ask ourselves: what else should be taken into account when developing a production program for such a complex product as a pipeline element and related communications? Although many products for consumers in the oil and gas sector are manufactured exclusively to order, for serial products the business plan should always include a certain stock of products in the warehouse. In addition, defect-free production simply cannot exist.

Therefore, under the total production volume, a stock of finished goods (GP) should be included for prompt response to requests from potential buyers and a reserve for losses. The size of the planned GP for reserves must be standardized. The stock standard is calculated based on available statistics, adopted sales policy, taking into account the conditions of a specific project, market and industry conditions. When rationing, seasonality factors and standards for replacing defective products are taken into account.

Formula for calculating adjusted production volume for GP stock and losses

Let's simplify our example to three product items. Standard values of GP inventories are usually formed as a percentage of the planned level of product sales. The standard for expected losses (for defects and replacement of products under other warranty conditions) is formed in the same way. Below is a table of estimated production volumes taking into account inventories and losses.

Example of calculating adjusted production volume for GP stock and losses

In addition to the specified volume of production, the production plan also includes detailed information about the needs for the raw materials of production, semi-finished products, and components. Based on the identified needs in the dynamics of the business plan, a plan of work with suppliers is built to ensure the purchase of components to support the production process.

In addition to the composition of circulating goods and materials, fuels and lubricants and services in the field of energy supply for production, production capacities and production areas play an important role. When planning, the optimization of the main parameters of the use of capacity and space is carried out, which is based on the standard values of a number of key indicators. Formulas for such planning and optimization are given below.

Calculation formulas for preparing “bottlenecks” in planning for “expansion”
(click to enlarge)

Production and capacity plan in relation

One of the elements of competent planning of a production program is the analysis and taking into account in calculating the production capacity of the main and auxiliary divisions of the enterprise (shops and production facilities). Only after this can you design relationships with suppliers and achieve rhythm in the incoming flows of raw materials, components and equipment. In addition, in addition to issues of interaction with external partners, the implementation of the program may be severely limited by intra-farm cooperation if the composition of capacities along the value chain turns out to be unbalanced.

This point is important even if the enterprise has only a few production areas. And if the enterprise has 100 or more workshops (such giants operate in the country, for example, in metallurgy, in the automotive industry), this aspect of planning is critical. Of course, sales are the driving force of business. Without them, production is powerless to lead the company to success, but the implementation plan is tied to the production potential of the enterprise, the criterion of which is its power.

In turn, the power parameter is based on three main indicators.

A static indicator of production capacity at the end of the project’s billing period (year), calculated by the balance sheet method.
Average annual production capacity.
The coefficient of utilization of the enterprise's production capacity.

Formulas for production capacity parameters when planning a production plan

Production departments involved in main business processes or auxiliary (supporting) ones have varying degrees of interconnection with each other. For example, structures, units and equipment of auxiliary workshops may not directly participate in the main value chain. Such production facilities (pilot, specialized sites, laboratories) are not included in the calculation of production capacity for the purpose of determining production capacity. To calculate this production planning criterion, the contingency coefficient formula is used, presented below.

Formula for the contingency coefficient when calculating production capacity

There is another important question that usually always arises when developing a business plan in its production aspect. This is a matter of changing equipment operation. Hidden here are significant opportunities for increasing sales, based on the emerging or formed market demand for the product. Moreover, the more unique and expensive the equipment is used, the higher the likelihood of using a two-shift or even three-shift operating mode.

Novice investment economists often make the same mistake. An idealized option is taken into consideration, which does not take into account: the need for GP reserves and its probable losses. Moreover, the loss of working time due to the development of equipment and technology is not taken into account. A new workforce, even a trained and certified one, makes mistakes at first, defects occur, and newly installed equipment malfunctions. All these circumstances must be included in the production plan. The adjustment of power parameters is facilitated by such an indicator as the shift ratio of equipment for an enterprise with a continuous production process.

Shift factor formula for calculating production capacity

Our story about the production plan of a business plan at the level of an operating enterprise is coming to an end. The broad question of marginal analysis localized to each product and planning activities regarding the search for optimal profitability for the purposes of project success remained unaddressed. An entire sub-branch of financial management deals with this – profit and working capital management. I am confident that we will cover this block of issues in a separate article.

When touching on business planning issues, I can’t get rid of the feeling of deja vu, because I remember Soviet technical industrial and financial plans. This is where the school of management was, not inferior to the most modern methods of business planning. It only lacked the market part, but the level of integration, multifactorial consideration of the nuances of technology, organization and economics was one of the best in the world, although the calculations were performed using today's archaic EU-class computers. The Russian school of business planning needs to be revived from the perspective of the best domestic traditions, which will inevitably happen in the next decade. For some reason there is no doubt about this.

It will not be possible to create efficient production without quality planning. Forming a plan is not an easy task, and its task is to comprehensively cover, as far as possible, the activities for organizing the production process, so that there are enough materials, equipment, and workers.

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 materials 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 time frame.

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 forecast with certainty over such a period, such detail would be inaccurate and unhelpful, 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 assemble 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 costs result in costs of $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 output). 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?

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Production system

Production planning

Planning of production capacity utilization

Planning for the location of production facilities

Production process planning

Planning equipment placement

Drawing up a general (aggregate) plan

Drawing up a master work schedule

Material requirements planning

Production Planning Tools

Gantt chart

Load distribution scheme

Network analysis PERT

Production planning methods

Project management

Project planning process

Scenario planning

Production control

Cost control

Control over procurement

Control over suppliers

Inventory control

Maintenance control

Quality control

Production Control Tools

TQM control charts

Model EOQ

Modern aspects of production

Technologies

Implementation of TQM

Reengineering

ISO Standards

Reduction of inventories

Outsourcing and other types of partnerships with suppliers

Flexibility as a competitive advantage

Speed ​​as a competitive advantage

Main aspects of the production program

Auxiliary calculations of production volumes

Production and capacity plan in relation

Understanding the production plan

Classification and directions of production plans

Speed as a competitive advantage