Sample STP “Production planning. Analysis of planning the activities of a production unit of an enterprise using the example of Amur Cable Plant OJSC Production organization plan example
INTRODUCTION
This chapter introduces the reader to the production planning and control system. First we'll talk about the system as a whole, then we'll talk more about some aspects of production planning. The following chapters cover master production scheduling, resource planning, performance management, production control, purchasing, and forecasting.
Manufacturing is a complex task. Some companies produce a limited number of types of products, others offer a wide range. But each enterprise uses different processes, mechanisms, equipment, labor skills and materials. To make a profit, a company must organize all these factors in such a way as to produce the right products of the highest quality at the right time at the lowest cost. This is a complex problem and will require an effective planning and control system to address it.
A good planning system must answer four questions:
1. What are we going to produce?
2. What do we need for this?
3. What do we have?
4. What else do we need?
These are priority and performance issues.
A priority- this is what products are needed, how many of them are required, and when they are needed. Priorities are set by the market. It is the responsibility of the production department to develop plans to meet market demand whenever possible.
Performance is the ability of production to produce goods and services. Ultimately, it depends on the company's resources - equipment, labor and financial resources, as well as the ability to obtain materials from suppliers in a timely manner. Over a short period of time, productivity (production capacity) is the amount of work that can be completed with the help of labor and equipment in a certain period of time.
There should be a relationship between priority and performance, shown graphically in Figure 2. 1.
Figure 2.1 Relationship between priority and performance.
Over the short and long term, the production department must develop plans to balance market demand with available production resources, inventory, and productivity. When making long-term decisions, such as building new plants or purchasing new equipment, plans need to be developed several years in advance. When planning production for the next few weeks, the time period in question is measured in days or weeks. We will look at this hierarchy of planning, from long-term to short-term, in the next section.
PRODUCTION PLANNING AND CONTROL SYSTEM
The production planning and control (MPC) system consists of five main levels:
- Strategic business plan;
- Production plan (sales and operations plan);
- Master production schedule;
- Resource requirement plan;
- Procurement and control over production activities.
Each level has its own objective, duration and level of detail. As we move from strategic planning to control of production activities, the task changes from setting general direction to specific detailed planning, the duration decreases from years to days, and the level of detail increases from general categories to individual conveyors and pieces of equipment.
Since each level has its own duration and tasks, the following aspects also differ:
- Purpose of the plan;
- Planning horizon - the period of time from the current moment to one or another day in the future for which the plan is designed;
- Level of detail – detail of the products necessary to implement the plan;
- Planning cycle – frequency of plan revision.
At each level you need to answer three questions:
1. What are the priorities - what needs to be produced, in what quantity and when?
2. What production capacity do we have at our disposal - what resources do we have?
3. How can discrepancies between priorities and performance be resolved?
Figure 2.2 illustrates the planning hierarchy. The first four levels are planning levels. . The plans result in the initiation of the purchase or production of what is needed.
The last level is the implementation of plans through control of production activities and procurement.
Figure 2.2 Production planning and control system.
In the following sections, we will look at the goal, horizon, level of detail, and cycle at each level of planning.
Strategic business plan
A strategic business plan is a statement of the main goals and objectives that the company expects to achieve within a period of two to ten years or longer. This is a statement of the general direction of the company, describing the type of business that the company wants to do in the future - subject-production specialization, markets, etc. The plan gives a general idea of how the company intends to achieve these goals. It is based on long-term forecasts and involves marketing, finance, production and technical departments in its development. In turn, this plan provides direction and ensures coordination of marketing, production, financial and technical plans.
Marketing specialists analyze the market and make decisions regarding the company’s actions in the current situation: they determine the markets in which work will be carried out, the products that will be supplied, the required level of customer service, pricing policy, promotion strategy, etc.
The finance department decides from what sources to obtain and how to use the company's funds, cash flow, profit, return on invested capital, and budgetary funds.
Production must satisfy market demand. To do this, it uses units, mechanisms, equipment, labor and materials as efficiently as possible.
The technical department is responsible for research, development and design of new products and improvement of existing ones.
Technical specialists work closely with marketing and production departments to develop product designs that will sell well in the market, and which will require minimal production costs.
The development of a strategic business plan is the responsibility of the company's management. Based on information received from the marketing, finance and production departments, the strategic business plan defines a general framework in accordance with which goals and objectives for further planning are set in the marketing, financial, technical and production departments. Each department develops its own plan for achieving the objectives set by the strategic business plan. These plans are consistent with each other, as well as with the strategic business plan. This relationship is illustrated in Fig. 2. 3.
The level of detail in the strategic business plan is low. This plan addresses overall market and production requirements - for example, the market as a whole for major product groups - rather than the sales of individual products. It often contains figures in dollars rather than units.
Strategic business plans are usually reviewed semi-annually or annually.
Production plan
Based on the objectives set in the strategic business plan, the management of the production department makes decisions on the following issues:
- The number of products in each group that is required to be produced in each time period;
- Desired level of inventories;
- Equipment, labor and materials needed at each time period;
- Availability of necessary resources.
The level of detail is low. For example, if a company produces different models of children's two-wheelers, three-wheelers, and scooters, and each model has many options, then the production plan will reflect the main product groups, or families: two-wheelers, tricycles, and scooters.
Specialists must develop a production plan that satisfies market demand without exceeding the company's available resources.
Figure 2.3 Business plan.
This will require determining what resources are needed to meet market demand, comparing them with available resources, and developing a plan that coordinates one with the other.
This process of determining the required resources and comparing them with those available is carried out at each level of planning and represents the task of performance management. Effective planning requires a balance between priorities and productivity.
Along with the marketing and financial plan, the production plan affects the implementation of the strategic business plan.
The planning horizon is usually from six to 18 months, and the plan is reviewed monthly or quarterly.
Master production schedule
A master production schedule (MPS) is a plan for the production of individual finished products. It provides a breakdown of the production plan, reflecting the number of final products of each type that need to be produced in each time period. For example, this plan might specify that 200 Model A23 scooters need to be produced each week. The input to developing an MPS is the production plan, forecasts for individual end products, purchase orders, inventory information, and existing production capacity.
The level of detail of the MPS is higher than that of the production plan. While the production schedule is based on product families (tricycles), the master production schedule is developed for individual end products (for example, each model of tricycle). The planning horizon can be from three to 18 months, but first of all it depends on the duration of the procurement processes or production itself. We'll talk about this in Chapter 3, in the section on master production scheduling. The term master scheduling refers to the process of developing a master production schedule.
The term master production schedule refers to the end result of this process. Plans are typically reviewed and modified weekly or monthly.
Resource requirement plan
A resource requirement plan (MRP)* is a plan for the production and procurement of components that are used in the manufacture of products provided for in the master production schedule.
It indicates the required quantities and the timing of their intended production or use in production. Purchasing and production control departments use MRP to make decisions about whether to initiate purchases or manufacture a specific product line.
The level of detail is high. The resource requirement plan indicates when raw materials, supplies, and components will be needed to produce each final product.
The planning horizon must be no less than the total duration of the procurement and production processes. As with the master production schedule, it ranges from three to 18 months.
Procurement and control over production activities
Figure 2.4 Relationship between level of detail and planning horizon.
Purchasing and production control (PAC) represents the implementation and control phase of a production planning and control system. The procurement process is responsible for organizing and controlling the receipt of raw materials, supplies and components to the enterprise. Control over production activities is planning the sequence of technological operations in an enterprise and control over it.
The planning horizon is very short, approximately from a day to a month. The level of detail is high as it deals with specific assembly lines, equipment and orders. Plans are reviewed and changed daily.
In Fig. 2.4 shows the relationship between different planning tools, planning horizons and levels of detail.
In subsequent chapters we will look in more detail at the levels discussed in previous sections. This chapter is about production planning. Next we will talk about master scheduling, planning resource requirements and controlling production activities.
Performance Management
At each level of the production planning and control system, it is necessary to check the compliance of the priority plan with the available resources and the productivity of production facilities. Chapter 5 describes performance management in more detail. For now, it is enough to understand that the basic process of managing production and enterprise resources involves calculating the productivity required to produce according to a priority plan and finding methods to achieve such productivity. Without this, there can be no effective, workable production plan. If the required performance cannot be achieved at the right time, the plan needs to be changed.
Determining the required productivity, comparing it with existing productivity and making adjustments (or changing plans) must be carried out at all levels of the production planning and control system.
Every few years, mechanisms, equipment and units may be put into operation or stopped working. However, during the periods considered at the stages from production planning to control over production activities, changes of this kind cannot be made. During these periods of time, you can change the number of shifts, overtime procedures, subcontracting of work, and so on.
SALES AND OPERATIONS PLANNING (SOP)
A strategic business plan combines the plans of all departments of the organization and is updated, as a rule, annually. However, these plans should be adjusted from time to time to take into account recent forecasts and recent changes in market and economic conditions. Sales and Operations Planning (SOP) is a process designed to continually review the strategic business plan and coordinate the plans of various departments. An SOP is a cross-functional business plan covering sales and marketing, product development, operations, and business management. Operations represents supply and marketing represents demand. . SOP is the forum in which the production plan is developed.
The strategic business plan is updated annually, and sales and operations planning is a dynamic process during which the company's plans are adjusted regularly, usually at least once a month. The process begins with the sales and marketing departments, which compare actual demand with sales plans, assess market potential, and forecast future demand. The adjusted marketing plan is then passed on to the production, technical and finance departments, who amend their plans in accordance with the revised marketing plan. If these departments decide that they cannot implement the new marketing plan, it will need to be changed.
In this way, the strategic business plan is continually reviewed throughout the year and consistency across departments is ensured. In Fig. Figure 2.5 shows the relationship between the strategic business plan and the sales and operations plan.
Sales and operations planning has a medium duration and includes marketing, production, technical and financial plans. Sales and operations planning has a number of advantages:
- It serves as a means of adjusting the strategic business plan to take into account changing conditions.
- It serves as a change management tool. Instead of reacting to changes in the market or economy after they happen, managers using SOPs study the economic situation at least once a month and are in a better position to plan for change.
- Planning ensures that the plans of the various departments are realistic, consistent and consistent with the business plan.
- It allows you to develop a realistic plan to achieve your company's goals.
- It allows you to more effectively manage production, inventories and financing.
MANUFACTURING RESOURCE PLANNING (MRP II)
Because a large amount of data and many calculations will be required, the production planning and control system will probably need to be computerized. If you do not use a computer, you will have to spend too much time and effort on manual calculations, and the company's efficiency will be compromised. Instead of scheduling needs throughout the planning system, a company may be forced to extend lead times and build inventory to compensate for the inability to quickly schedule what will be needed when.
Figure 2.5 Sales and Operations Planning.
It is intended to be a fully integrated top-down planning and control system with bottom-up feedback. Strategic business planning integrates the plans and activities of marketing, finance, and operations to develop plans to achieve overall company goals.
In turn, master production scheduling, resource planning, production control and purchasing are aimed at achieving the goals of the production plan and strategic business plan and, ultimately, the company. If performance issues make it necessary to adjust the priority plan at any planning level, the changes made should be reflected at the above levels. Thus, feedback must occur everywhere in the system.
The strategic business plan combines the plans of the marketing, financial and production departments. The marketing department must recognize its plans as realistic and feasible.
Finance must agree that the plans are financially attractive, and production must demonstrate the ability to meet the corresponding demand. As we have already said, the production planning and control system determines the general strategy for all divisions of the company. This fully integrated planning and control system is called production resource planning system, or MRP II. The concept of “MRP II” is used to distinguish the “production resource plan” ((MRP II) from the “resource requirements plan” ((MRP). MRP II ensures the coordination of marketing and production.
The marketing, finance, and production departments agree on a common, workable plan, expressed in a production plan. Marketing and production departments must collaborate weekly and daily to adjust the plan to reflect changes. It may be necessary to change the order size, cancel the order or confirm a suitable delivery date. Changes of this kind are carried out within the framework of the master production schedule. Marketing and production managers can make changes to master production schedules based on changes in forecast demand. Enterprise management can change the production plan in accordance with general changes in demand or resource situation. However, all employees work within the MRP II system. It serves as a mechanism for coordinating the work of the company’s marketing, financial, production and other departments. MRP II is a method for effectively planning all the resources of a manufacturing enterprise.
The MRP II system is shown schematically in Fig. 2. 6. Pay attention to existing feedback loops.
Figure 2.6 Manufacturing resource planning (MRP II).
ENTERPRISE RESOURCE PLANNING (ERP)
An ERP system is similar to an MRP II system, but it is not limited to manufacturing. The entire enterprise as a whole is taken into account. The ninth edition of the APICS Dictionary of the American Association for Production and Inventory Control (APICS) defines ERP as: a reporting information system for identifying and planning an enterprise - the global resources required for production, transportation and reporting. customer orders. For full operation, applications must be provided for planning, scheduling, costing, and so on at all levels of the organization, in work centers, departments, divisions, and all of them together.
It is important to note that ERP covers the entire company, while MRP II relates to production.
DEVELOPING A PRODUCTION PLAN
We briefly reviewed the goal, planning horizon, and level of detail of the production plan. In this section, we’ll talk more about developing production plans.
Based on the marketing plan and knowledge of available resources, the production plan sets limits or levels of production activity at some point in the future. It integrates enterprise capabilities and performance with marketing and financial plans to achieve the company's overall business goals.
The production plan establishes the general levels of production and inventories for the period corresponding to the planning horizon. The primary goal is to determine production standards that will allow the objectives set in the strategic business plan to be achieved. These include inventory levels, order backlog (customer order backlog), market demand, customer service, cost-effective equipment operation, labor relations, and so on. The plan must cover a period long enough to provide for what labor, equipment, facilities, and materials will be needed to complete it. Typically this period ranges from 6 to 18 months and is divided into months and sometimes weeks.
The planning process at this level does not take into account details such as individual products, colors, styles or options. Since a long period of time is being considered and demand cannot be 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 its 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.
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 production). In the second week, there will be a planned shutdown of the plant for maintenance, and therefore production will be cut in half. Develop a production plan. The initial volume of inventories is 200 units, the required final volume is 300 units.
2.14.If the initial order book volume is 400 units, the forecast demand is 600 units, and the production volume is 800 units, what will be the final order book volume?
Answer: 200 units
2.15.The initial volume of the order book is 800 units. The forecasted demand is indicated in the table. Calculate the weekly production volume for uniform production if the volume of the order book is expected to be reduced to 400 units.
Answer: Total production = 4200 units
Weekly production = 700 units
Volume of the order book at the end of the 1st week = 700 units
2.16.The initial volume of the order portfolio is 1000 units.
The forecasted demand is shown in the table. Calculate the weekly production volume under uniform production if the order book is expected to increase to 1200 units. 
2.17. Based on the data given in the table, calculate the number of workers required for uniform production and the final volume of inventories at the end of the month. Each worker can produce 15 units per day, and the required final volume of inventories is 9,000 units.
Answer: Required number of employees = 98 people
Volume of inventories at the end of the first month = 12900 units
2.18. Based on the data given in the table, calculate the number of workers required for uniform production and the final volume of inventories at the end of the month. Each worker can produce 9 units per day, and the required ending inventory is 800 units.
Why is it impossible to achieve the planned final volume of inventories?
A production plan is an integral part of any business plan, which should describe all production or other work processes of the company. Here it is necessary to consider all issues related to production premises, their location, equipment and personnel, and also pay attention to the planned involvement of subcontractors. It should be briefly explained how the system for producing goods (providing services) is organized and how production processes are controlled. Consideration must also be given to the location of production facilities and the placement of tools, equipment and work stations. This section should indicate delivery times and list the main suppliers; describes how quickly a firm can increase or decrease its output of goods or services. An important element of the production plan is also a description of the company's quality control requirements at all stages of the production process.
The main task of this section of the business plan is to determine and justify the company’s choice of a particular production process and equipment.
It should be noted that industry specialized design companies are involved in the preparation of this section of the business plan, which is understandable, since the choice of technology and method of organizing the production process largely determines the effectiveness of any production project.
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 quantity will the company need to fulfill 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:
5.
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 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.
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Introduction
1.2 Features of planning the activities of enterprise divisions
2.2 Assessment of the activity planning system of the production division of Amur Cable Plant OJSC
Conclusion
Bibliography
Introduction
The relevance of the chosen topic is due to the fact that intra-company planning is necessary for the normal functioning and development of the enterprise. Planning determines the main direction of development of the company, taking into account the material sources of its support and market demand.
The purpose of planning is to correctly take into account all internal and external factors in setting specific development goals for the enterprise and ways to achieve them. Planning ensures interconnection between individual structural divisions of the enterprise, minimizes costs and opens up all possible additional sources of resources within the company. Therefore, it is necessary to carry out high-quality intra-company planning, which will ensure the further successful development of the company and its prosperity.
The purpose of this work is to study the planning of the activities of a separate division of an enterprise.
The object of the study is OJSC Amur Cable Plant, an enterprise in Khabarovsk.
The subject of the study is planning the activities of the production division of an enterprise.
Operational production planning ensures the specification and detailing of the production program, its timely delivery to the performers (shops, sections, workplaces) and the achievement of coordinated work of all departments of the enterprise.
To achieve the set goal in the work, it is necessary to solve the following tasks:
Consider the theoretical foundations for planning the activities of a separate division of an enterprise;
Conduct an analysis of the planning of the activities of the production division of the enterprise at OJSC Amur Cable Plant;
Develop directions for improving the planning system of the production division of Amur Cable Plant OJSC.
The work consists of three chapters, introduction and conclusion. The first chapter examines the essence of planning at an enterprise, the features of planning the activities of enterprise divisions, and the organizational and hierarchical subordination of enterprise plans.
In the second chapter, an assessment of the activity planning system of the production division of Amur Cable Plant OJSC was carried out.
The third chapter presents directions for improving the planning system of the production division of Amur Cable Plant OJSC.
The bibliographic list includes 19 sources, in particular, works by such authors as Alekseeva M., Bovykin V.I., Buzyrev V.V., Bukhalkov M.I., Vesnin V.R., Vissema H., Gerchikova I. N. Gribov V.D., Grishchenko V., Dogil L.F., Semenov B.D. and etc.
1. Theoretical foundations for planning the activities of a separate division of an enterprise
1.1 The essence of enterprise planning
Planning is one of the initial stages of the management process. This is the choice of a goal, a direction in development. Any company must carefully and well plan its activities, since the survival and profitability of the company depends on this.
The essence of planning is manifested in specifying the development goals of the entire company and each division separately for a specified period, defining business objectives, means of achieving them, timing and sequence of implementation, identifying the material, labor and financial resources necessary to solve the assigned tasks.
Thus, the purpose of planning as a management function is to strive to take into account in advance, if possible, all internal and external factors that provide favorable conditions for the normal functioning and development of enterprises included in the company. It involves the development of a set of measures that determine the sequence of achieving specific goals, taking into account the possibilities for the most effective use of resources by each production unit and the entire company. Therefore, planning is designed to ensure interconnection between the individual structural divisions of the company, including the entire technological chain: research and development, production and sales. This activity is based on identifying and forecasting consumer demand, analysis and assessment of available resources and prospects for the development of economic conditions. This implies the need to link planning with marketing and control in order to constantly adjust production and sales indicators following changes in market demand. The higher the degree of market monopolization, the more accurately companies can determine its size and influence its development.
The planning process itself takes place in 4 stages:
development of common goals;
defining specific, detailed goals for a given, relatively short period of time
identification of tasks and means of solving them;
monitoring the achievement of set goals by comparing planned indicators with actual ones.
Planning is always guided by past data, but seeks to determine and control the development of the enterprise in the future. Therefore, the reliability of planning depends on the accuracy of actual past performance.
The object of planning at an enterprise is all functional processes, including production development and management improvement.
The essence of the systems approach is planning: all areas of the enterprise, for example planning standardization, quality, strategy, consist of functional blocks; there are separate stages of the production process (planning technical preparation of production, main, auxiliary and service production); individual factors of production (personnel planning, sales).
An approximate list of functional blocks of enterprises includes: general management; linear and operational production management; economic activity management; material resources management; personnel management and social development; program-targeted management.
Planning principles: all production processes are carried out in specific departments; management processes at an enterprise are carried out at workplaces, services, departments, etc.
Strategic planning is a systematic approach to entrepreneurial behavior, and the modern interpretation of it represents incremental behavior as conservative and entrepreneurial behavior as aggressive, growth-oriented.
At the same time, the incremental style of behavior is more organic and natural for large organizations. For example, if a large diversified organization that adheres to incremental behavior has operated successfully for a number of years, then with a high degree of probability it can be assumed that its management will prefer the same style of organizational behavior in the future. Managers can make changes only if the organization is faced with insurmountable problems in the environment, and these problems force them to look for new opportunities to maintain the efficiency of the company.
1.2 Features of planning the activities of enterprise divisions
Ensuring uniform, rhythmic operation of enterprise divisions is the goal of operational planning -
Operational planning - planning of individual operations in the general economic flow in the short and medium periods. Operational planning is carried out only at enterprises and represents an organic component and the final stage of in-production planning for a month, decade), day, hour, etc.
Operational planning is a continuation of current and short-term production planning, forming production programs and tasks for departments down to a specific workplace. The main types of operational plans are an operational calendar plan, a shift-daily task and a schedule for the movement of a product within the framework of a technical process.
The operational calendar plan contains the sequence and timing of the launch and release of products and their batches by day of the week, the loading of production lines and equipment, and is the main document for the development of daily shift assignments. The daily shift assignment specifies the specific nomenclature and quantity of products necessary for the normal functioning of the production process of both this workshop and those adjacent to it. Shift daily assignments can be supplemented by a schedule for the movement of products and individual parts of products.
Operational planning consists of scheduling and dispatching (operational regulation).
The scope of operational planning includes:
Development of progressive calendar and planning standards for the movement of production;
Drawing up operational plans and schedules for workshops, sections, teams and workplaces and communicating them to the immediate executors;
Operational accounting and control of production progress, prevention and identification of deviations from planned plans and schedules and ensuring stabilization of production progress.
Scheduling includes the distribution of annual planned tasks by production departments and deadlines, as well as communication of established indicators to specific performers of work. With its help, daily shift assignments are developed, and the sequence of work performed by individual performers is agreed upon. The initial data for the development of calendar plans are the annual production volumes, the labor intensity of the work performed, the timing of delivery of goods to the market and other indicators of the socio-economic plans of the enterprise.
When implementing the developed calendar plan, operational records are kept of the progress of its implementation - information on the actual implementation of the plan is collected, processed and transferred to the relevant services of the enterprise. Based on the information received, dispatching is carried out, which consists of identifying and eliminating emerging deviations from the planned progress of production, taking measures to ensure the complete progress of production, the best use of working time and material resources, high utilization of equipment and workplaces.
Operational planning of production at the place of its implementation is divided into inter-shop and intra-shop. Intershop planning ensures the development, regulation and control of the implementation of plans for the production and sale of products by all workshops of the enterprise, and also coordinates the work of basic, design and technological, economic planning and other functional services. The content of intra-shop planning is the development of operational plans and the drawing up of current work schedules for production sites, production lines and individual workplaces based on annual plans for the production and sale of products from the main workshops of the enterprise.
In modern production, various operational planning systems are widespread, determined by both internal factors and external market conditions. In the economic literature, the system of operational production planning is usually understood as a set of various methods of planning work technologies, characterized by the degree of centralization, the object of regulation, the composition of calendar and planned indicators, the procedure for accounting and movement of products and registration of accounting documentation. A prerequisite for the effective functioning of an operational production planning system is the presence of a well-founded regulatory framework, which includes, in particular: calendar and planning standards, material consumption standards, production capacity utilization standards, and production material security standards. The choice of one or another operational planning system in market conditions is determined mainly by the volume of demand for products and services, costs and planning results, scale and type of production.
1.3 Organizational-hierarchical subordination of enterprise plans
Organizational-hierarchical subordination of enterprise plans
The target orientation of the plan system is carried out with the help of organizational-hierarchical subordination and naturally determined cooperation of planning objects (Table 1).
Table 1 - Correlation of planning indicators
|
Key indicators by type of planning |
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|
strategic |
long-term |
operational-calendar |
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|
Product name |
List of the most important product range |
List and quantity of all items |
Detailed list and quantity of all items |
|
|
Approximate, subject to clarification, amount of costs, in rubles |
Amount of resource expenditure by type |
The amount of resources spent by type and range of products |
Detailed and operational standards for resource consumption by type |
|
|
Approximate completion dates |
Calendar deadlines |
Exactly set deadlines |
Hourly and daily execution schedules |
|
|
Responsible executors, without specifying co-executors |
Responsible executors and co-executors by type of work |
Detailed list of performers by stages, types and range of products |
Detailed distribution of work among performers |
|
|
Efficiency of achieving the goal, cost recovery |
Excess of income over expenses |
Net income amount |
Timely and complete implementation of the plan for the product range |
The basis of the plan system is a long-term target program containing the main performance indicators of structural units and the enterprise as a whole (Table 2).
Table 2 - Target orientation of the enterprise by priority activity
|
Kind of activity |
Target orientation of the enterprise, focused on a specific type of strategy |
Preferences for the organizational management structure being formed |
|
|
Production |
Cost minimization Updating the product range Technology update Flexible use of production space and equipment Flexible change in the composition of labor resources |
Degree of formalization (degree of rigidity of assigned functions) The predominance of vertical connections and administrative and organizational influences Adaptability to changing influences (maneuverability) |
|
|
Marketing |
Sales activity Adequate and timely response to supply and demand Adequate and timely response to price changes Forecasting trends in competition Forecasting demand trends Market expansion Development of a marketing concept |
Degree of centralization - decentralization of decision making |
|
|
Innovation |
Identification of the scientific and technical profile of the enterprise Updating the range of products Forecasting technology trends Profit-oriented product design Quick response to changes in the external environment Creation of technologies Adaptation of new technology to enterprise conditions Forecasting the transition to new products (technology) Coordination of deadlines for the creation of new products and technology Analytical, scientific approach to innovation |
Research leadership Ensuring high capacity of the research unit |
|
|
Investments |
Providing income (profit) from invested funds Ensuring investment diversification (several objects with different project implementation deadlines) Ensuring the solvency of the enterprise |
Increase in the ratio of income to share capital |
|
|
Planning |
Ensuring production profitability Ensuring Enterprise Productivity Order portfolio balance Profit margin optimization Ensuring a given rate of growth in sales or profit |
Strengthening the brand's prestige Reducing vulnerability Correspondence of growth to potential parameters Stability of operation |
Distant long-term goals are subject to planning twice - in long-term and in operationally managed plans. Initially, distant goals are included in the plan as the subject of their development, i.e. the operational and current plans define tasks for developers, start dates for work by stages and dates for their completion. Next, the necessary funds are allocated from available resources to support the work begun, which are also subject to ongoing planning.
The wider the planning interval, the higher the degree of uncertainty of the plan parameters, therefore the number of indicators and the degree of their accuracy are sharply reduced.
The scope of the strategic plan is almost always flexible, as well as the timing of the final result and the amount of expenses. As a rule, only the main responsible person is identified, since at the first stage neither the content of the work nor its volume is clear.
In general, long-term, current and operational calendar planning are interconnected and represent a planning system that integrates the entire enterprise management mechanism into a complex (Table 3).
Table 3 - Organizational-hierarchical scheme of subordination and cooperation planning
|
Plan frequency |
Order form |
Structure of planning indicators |
Responsible executors of the plan |
|
|
Operational calendar |
Consumer orders |
Detailed natural norms and standards |
Workshops, sections, teams |
|
|
Mainly consumer orders |
Natural - by type of product, cost - in detail, norms and regulations, labor - in detail |
Workshops, functional departments, laboratories |
||
|
Medium term |
Consumer orders, forecasts |
Integrated, cost, natural, labor, norms and standards |
||
|
Long term |
Mainly forecasts, partly orders |
Enlarged product range, funding volumes, income |
Functional departments, laboratories, some workshops |
|
|
Strategic |
Forecasts |
The most important types of products, volumes of financing, efficiency |
Departments: marketing, technical, financial, capital construction |
Over time, the goal is divided into individual specific tasks: manufacturing and fine-tuning prototypes of new products, purchasing the necessary materials and tools, training qualified workers to work on new equipment, etc.
After mastering the production of new products, all activities related to their development and preparation for production are excluded from the long-term plan. New products are re-included in the operational-calendar system of an existing production facility, not a promising one, and a new goal is outlined for the distant future and the whole process is repeated.
Interconnection and mutual adjustment in the event of divergence in the plans of various services of the enterprise are promptly carried out throughout the entire period of development and implementation of the long-term plan. Complete combination of plans, as well as accounting and control methods used by the administration and accounting department, is achieved, as a rule, only at the final stage.
Moving from a long-term plan, which is developed at the level of functional departments and administrations, to plans for internal divisions of the enterprise, detailed tasks are solved:
Determination of tasks for the planning period and planning indicators for each division, which, as a rule, performs only part of the overall plan of the enterprise;
Identifying and eliminating the causes of inconsistency between internal plans between departments;
Disaggregation of generalized indicators of long-term and medium-term plans of the enterprise when they are described in current and operational calendar shop plans;
Distribution of material, labor and financial resources between workshops, services and types of work and their redistribution when imbalances are detected.
The main task of managers and specialists is to skillfully and correctly combine the requirements associated with the implementation of long-term target tasks with the current daily tasks of the enterprise. This is the key to long-term successful operation of the enterprise.
The classification of plans into long-term, current and operational-calendar is to a certain extent conditional. Their difference lies in the timing of obtaining the final result, and the planning object, as a rule, does not change. The same product element by element can be included in all types of plans. For example, preparation for the production and sale of a new product is included in the long-term plan; product design, purchase of equipment and materials for its production - in current plans; the allocation of personnel to facilities associated with the production of a new product and the payment of operating expenses are included in operational plans.
2. Analysis of planning the activities of a production division of an enterprise using the example of Amur Cable Plant OJSC
2.1 Brief description of the enterprise OJSC Amur Cable Plant
Open Joint Stock Company "Amur Cable Plant" registered on August 12, 1992 by Resolution No. 526/7 of the Head of the Leninsky District Administration of Khabarovsk (registration number 1241.368.401.1197).
OJSC "Amur Cable Plant" specializes in the development, production, service and maintenance of automation and regulation of technological processes in automated process control systems, industrial control devices, incl. heat-flow metering devices, and is characterized as a mechanical-assembly type enterprise with a multi-product, small-scale and serial production producing electric actuators and instrumentation equipment. The manufactured products are mainly of the particularly complex type with a production cycle duration of within one month. The range of components is about 5 thousand items, materials - 8 thousand items, parts and assemblies of our own production - about 30 thousand items.
The organizational structure of the Company includes functional blocks:
Production, which includes main and auxiliary production workshops, technical services, capital construction department (CCD), department of automated systems and control processes (UACP). The management of the unit is the responsibility of the vice president;
Marketing - includes the marketing department and the shipping department. Based on market research and marketing analysis, forms a promising assortment policy: develops trade and commercial activities. The unit is headed by the assistant general director - head of the marketing department;
Financial, which includes financial and economic services, leading operational accounting and reporting of the Company;
Engineering Center (EC) - carries out activities in the field of research, development and marketing work to create competitive (including new) products in accordance with the technical policy of the Company, the EC is headed by the director of the center, is an independent self-supporting unit with an account in the bank.
Divisions with the status of the Central Federal District independently carry out production and economic activities, distribution of self-supporting income, hiring and firing of personnel (except for the manager).
Galvanic and paint coating shop No. 4 - specializes in galvanizing (zinc plating, nickel plating, oxidation, etc.) and painting parts.
Foundry No. 7 - specializes in injection molding of silumin and plastics.
The structure of the plant currently provides for the presence of auxiliary workshops and maintenance services.
Tool shop No. 20 - specializes in the manufacture of dies, molds, fixtures, auxiliary and cutting tools.
The Electromechanical Department (EMD) carries out major and medium repairs of the mechanical and energy parts of the enterprise equipment, and maintains the energy sector.
Maintenance services - include warehousing, bookkeeping warehouses, and a transport workshop.
The form of relationships between the production structure (assembly, procurement and auxiliary shops) is based on a rental form, i.e. complete independence in labor organization, remuneration, personnel selection and financial responsibility.
The enterprise has adopted a complete unit system of operational and production planning. Assemblies corresponding to subclasses 2, 3, 4 according to the unified classifier of products are accepted as a planning and accounting unit.
2.2 Analysis of the planning system for the activities of the enterprise’s production unit
In accordance with the purpose of operational production planning, the enterprise has the following functions: operational planning; operational accounting and control of production progress; analysis and operational regulation of the production process.
Operational and production planning at the enterprise is carried out in three successive stages:
1. Formation of the enterprise’s annual program to determine the costs of production preparation.
2. Further detailing of the enterprise’s annual program by deadlines and setting production targets for workshops.
3. Distribution of planned work among departments for a month and for individual decades with final clarification of planned tasks. Tasks of operational production planning: forming production plans for production shops, monitoring the progress of plans, calculating the production program for shops in volumetric terms, summing up the implementation of the nomenclature plan, the rhythm of product release; calculations of work in progress; formation of operational planning and accounting for procurement shops, calculations of the percentage of completion of the nomenclature plan, accounting for the consumption of materials per plan, fact, determination of the level of completeness; planning and accounting for outsourced volumes of services; calculation of in-plant prices for main production workshops, mutual settlements between workshops.
A characteristic feature of operational production planning tasks is their close connection with operational accounting data and their use for economic analysis. One of the most important requirements for organizing operational accounting is the need to clearly link accounting indicators with planned ones and ensure timely reflection and accurate recording of deviations in the production process.
The enterprise uses a complete group system of operational production planning.
Operational and production planning at the enterprise is carried out at two levels: at the intershop level - the production and dispatch department; at the intra-shop level - planning and distribution bureaus of workshops.
The following is accepted as calendar planning time: at the inter-shop level - year, quarter, month; at the intra-shop level - a month, a five-day period, a shift.
Inter-shop breaks are due to the fact that the completion dates for the production of component parts of assembly units in different shops are different and the parts lie waiting for completeness. This laying down (breaks in picking) occurs. when finished blanks, parts or assemblies must “stay” due to the unfinished state of other blanks, parts, assemblies included in one set together with the first ones. Such interruptions occur when products move from one stage of production to another or from one workshop to another.
A conditional set has been adopted as a planning and accounting unit in planning.
The system involves grouping and assembling all parts (regardless of their belonging to a particular product) that are structurally and technologically similar, according to the same amount of advance, the same frequency of launch-release and supply for assembly.
3. Improving the planning system for the production division of Amur Cable Plant OJSC
The use of a complete group system of operational production planning at the analyzed enterprise is not justified. Most often, the complete-group system is used in enterprises and workshops that produce multi-part products in medium series.
At the analyzed enterprise, uneven production of products is observed. This can be illustrated by the production program of the enterprise (Table 4).
Under existing conditions, it is more appropriate to use a complete-unit system for operational production planning, since a complete-unit system is effective when products have a long manufacturing cycle and are produced in small batches. The unit of measurement in this system is a node, that is, an assembly unit.
The production time for parts included in an assembly unit is selected so that the end of their production coincides with the start date of assembly.
Table 4 - Production program of the enterprise
|
Name of product |
Sales volume statistics |
Number of performances |
Deviation from the forecast for 2006 |
Production volume (forecast for 2007) |
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|
1. Single-turn |
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executive |
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|
mechanisms |
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|
modernization |
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|
Modernization |
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|
modernization |
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|
Actuators for Pipe Fittings (Single Turn Flange Electrical Mechanisms) |
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|
3. Position Alarm Mechanisms |
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|
(modernization) |
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|
4. Contactless reversible starters |
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|
Including: |
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|
(modernization) SMD technology |
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|
(modernization) SMD technology |
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5. Manual control unit |
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including: |
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6.Manual dial |
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including: |
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7. Display device |
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8. Regulating devices |
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including: |
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9. Three-position thyristor amplifiers |
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|
including: |
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10. Setting block |
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12.Alarm block |
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13. Damping block |
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14. Block of nonlinear transformations |
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15. Selection block |
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16. Computing block |
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17. Regulating microprocessor controllers |
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18. Local microprocessor controller |
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19. Ultrasonic water flow meter |
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|
20. Heat meter-ultrasonic water flow meter |
UFEC-001, UFEC-Volga, UFEC-TBM |
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|
21. Measuring transducers |
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|
including: |
IP-T10(T10I) |
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|
IS-S10(IS01) |
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|
power unit |
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22. Normalizing converters |
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|
including: |
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|
(modernization) SMD technology |
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|
Erase block |
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|
Gateway block |
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|
23. Automated process control system for coolant metering |
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|
24. Universal household woodworking machines |
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|
25. Third-party orders for the production of parts and assemblies (thousands/hour) |
The choice of a complete unit system for operational production planning is due to the following factors: lack of stability in product output; nomenclature of parts and assembly units in the product; uneven production of different product ranges; specialization of workshops and areas; unification of parts and assembly units in products; selection of planning accounting unit; production rate; the composition of calendar and planning standards, taking into account the following positive characteristics in the conditions of multi-item small-scale production: visibility, clarity and validity of planned targets; the ability to clearly link nomenclature and volume indicators; the possibility of decentralizing intra-shop operational and production planning while maintaining effective implementation of the plan by shops in terms of nomenclature and volumetric indicators; connection between production plans and logistics plans for workshops; close connection and continuity between the inter-shop and intra-shop planning levels; sufficient independence and initiative...
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The basis for planning the work of any enterprise is the production plan. This document records the volume and procedure for the production of goods or the provision of services with associated characteristics: the volume of raw materials used, cost, labor costs. Let's consider how to draw up a production plan, what purposes it serves, what must be reflected in this document and its sample.
What is a production plan
A production plan is a document with the help of which the management of an enterprise organizes work and controls the labor process, consumption of raw materials and energy, and the employment of personnel. The production plan is the basis of the company's activities. Without it, it is impossible to effectively control the enterprise, track profits and losses, and find ways to optimize.
Such a document sets a task for each department/structural unit. The production plan is drawn up at each enterprise independently. It is virtually impossible to find a ready-made template: each organization has its own specifics. At the same time, there are generally accepted approaches and algorithms for compiling this document. Their use greatly simplifies the procedure. It is also important to know that you cannot write a plan once and use it constantly. The document requires regular updating.
Working in accordance with the production plan is more promising
What does it give
Any production plan serves several purposes simultaneously:
- Determining the number of units of goods and services needed to make a profit.
- Planning a specific profit margin, the ratio of expenses and income, and any other important financial indicators.
- Assessment of the efficiency of use of resources and raw materials.
- Quality control. The document can record specific characteristics of goods and achieve them.
- Planning of raw material costs.
- Finding ways to optimize the process and work options.
- Capacity control.
- Monitoring the efficiency of use of labor resources.
- Sales efficiency assessment.
- Development of optimal ways to use the budget.
- Standardization of reporting.
Thus, the list of tasks solved by the production plan is very wide. In addition, depending on the wishes of management, the document may include any other indicators and goals for structural units. The document helps to develop a development strategy - a list of specific actions of the enterprise necessary to achieve work goals. The plan helps to allocate resources effectively.
Types of production plans
All production plans can be divided into the following types:
- Short-term - 1-2 years. Divided into quarters and half-years. They establish what goals the company must achieve within a year.
- Medium-term - from 2 to 5 years. The main goal is to determine the organizational structure, the number of employees, capital investments and production capacity, the volume of annual income and growth dynamics, the need for investments and loans.
- Long-term - from 10 years and above. The goal is to develop an economic strategy, determine the organization’s place in the market, and position among competitors.
The long-term plan is concretized in the medium-term, the medium-term - in the short-term. All three plans must be consistent with each other. They cannot contradict each other. Planning must provide for the dynamics of development. The documents should indicate what indicators the enterprise will consistently achieve.
Large organizations draw up all 3 types of plans, smaller ones - only medium-term and short-term ones. The work of any enterprise, especially one producing material assets, is ineffective without a plan. A development strategy is necessary even in the service sector and trade.
It is better to entrust drawing up a plan to specialists with specialized education
Features of drawing up a plan
A production plan is not one document, but several at once. The most standard kit includes:
- A plan for the main activity, fixing the goals of the enterprise, categories of goods and volumes of their production.
- Work schedule - a list of categories of goods indicating their quantity, cost, and required raw materials. Production dynamics - how much goods to produce and sell in each month, in each year.
- Table of the company's needs for funds, investments, loans.
Among the important indicators that should be recorded in the plan of any manufacturing enterprise are:
- tariffs for utilities, costs for their payment;
- wage fund;
- consumption of raw materials per unit of product or service;
- production process technology;
- marginal profit;
- availability of specialists with a certain level of qualification;
- amount of borrowed funds, interest rate.
Identification of capacity utilization
Determining capacity utilization - that is, the optimal methods of using equipment and raw materials to produce the maximum volume of products - is one of the most important parts of the production plan. How is it calculated?
- Determine the categories and specific product models most in demand on the market.
- Calculate the amount of resources that must be used to produce one unit.
- They predict the number of units of goods that can be sold in the shortest possible time.
- They determine how many units of goods and in what time frame the existing equipment can produce.
- They analyze how long it will take to produce the required batches of goods using existing equipment.
This is a simplified algorithm for calculating power. As a rule, these operations are trusted to professional economists. To correctly calculate modalities, you need to know the productivity of the equipment, the speed of work of personnel and the consumption of raw materials. This process involves planning and guessing about the market situation. Establishing the exact required production volume is almost impossible. Success is considered to be achieving the indicators that are closest to reality.
Sample production plan indicating units of production for each month of work
Reflection of the production process
Any sample production plan for an enterprise must include a description of the production process: both global and for each product model. Only accurate recording of the entire process will help you plan and optimize your work correctly.
It is most convenient to reflect the production process in the form of a diagram, where each action will be displayed in stages.
A clear diagram indicating the equipment, personnel and raw materials involved will help management evaluate the effectiveness of the existing work procedure and, if necessary, find ways to optimize. Based on the analysis, it will be possible to determine optimal operating methods.
Operating schedule
The production plan includes a section that describes the work schedule, namely:
- number of shifts, duration;
- number of days off/no days off;
- number of workers per shift;
- expected productivity of each shift.
Room or area for equipment placement
Such a document describes all available premises indicating their purpose. It is necessary to record the area, ceiling height, condition (whether repairs are required), connected communications, entrances, exits, windows, and, if necessary, describe the finishing. Make a conclusion about the suitability of the premises for production in the medium and long term.
If the analysis of the premises shows that it is unsuitable for increasing productivity, the search for suitable real estate with clarification of specific requirements should be included in the medium-term plan. It is important to reflect the advantages and disadvantages of the existing workshop to achieve maximum profits.
An enterprise can plan to open new workshops, create representative offices in other regions - all this must also be recorded in medium- and long-term planning. Mandatory with a description of the requirements for real estate.
The planners independently think through its structure
Material requirements and raw material suppliers
Planning helps to use resources wisely, but only if it contains information about materials and their suppliers. Information about the quality and cost of raw materials will help evaluate the quality of products and the feasibility of working with a specific supplier. Information about the conditions of working with counterparties will help, if necessary, quickly predict how a change in the price of any of its goods will affect production.
The most convenient way to describe the need for materials and their suppliers is through tables for each product. Please indicate:
- weight/color/size of goods;
- its key characteristics;
- full composition indicating the volumes of raw materials used;
- the ability to replace any components;
- supplier information;
- the price of each component.
Fixed costs
An important section that will present a list of fixed expenses similar to most enterprises:
- rental of premises;
- Communal expenses;
- raw materials and starting materials;
- taxes and mandatory payments;
- logistics and transport;
- wage fund.
The document should record the current and planned values of each flow rate, possibly indicating acceptable limits. This approach will help make the plan more flexible, adapted to changing market conditions. Knowing the acceptable limits of each area of fixed costs will help, if necessary, more quickly regulate product prices.
Product cost
The manufacturer must calculate the full cost of each of its products. Without knowing this indicator, it is impossible to correctly select the price, which means it threatens losses. To calculate the total cost, add up all the values of expended resources:
- starting materials;
- depreciation of equipment;
- utility and other energy costs;
- employee salary;
- salary of management personnel;
- insurance premiums;
- transportation costs;
- advertising;
- sales expenses.
Example of a production plan
A typical example of a 1 year production plan is shown in the image below. It is made according to the most common structure and reflects the most important indicators for the manufacturer. You shouldn’t use someone else’s plans, but you can analyze them and adapt them for your own production.
Production plan option
Common errors
The most common mistakes when drawing up such a document are incorrect accounting of material consumption, incorrect assessment of equipment capacity, and inflated expectations of demand. These inaccuracies have a detrimental effect on the content of the document: it is less connected with reality. An incorrect development strategy built on erroneous calculations will inevitably lead to bankruptcy.
Therefore, it is extremely important to track indicators as accurately as possible and, if necessary, adjust them. The more the company monitors the content of the production plan, the more likely it is to achieve the optimal ratio of income and expenses.
When planning, it is extremely important to take into account the likelihood of sudden circumstances: equipment breakdown, a large private order or a disruption in the supply of raw materials. The enterprise must have measures in place for each such case. It makes more sense to initially set lower indicators, not at the limit of the equipment’s capabilities, and if successful, increase them slightly.
Analysis of planning the activities of a production division of an enterprise using the example of Amur Cable Plant OJSC
Brief description of the enterprise OJSC "Amur Cable Plant"
Open Joint Stock Company "Amur Cable Plant" registered on August 12, 1992 by Resolution No. 526/7 of the Head of the Leninsky District Administration of Khabarovsk (registration number 1241.368.401.1197).
OJSC "Amur Cable Plant" specializes in the development, production, service and maintenance of automation and regulation of technological processes in automated process control systems, industrial control devices, incl. heat-flow metering devices, and is characterized as a mechanical-assembly type enterprise with a multi-product, small-scale and serial production producing electric actuators and instrumentation equipment. The manufactured products are mainly of the particularly complex type with a production cycle duration of within one month. The range of components is about 5 thousand items, materials - 8 thousand items, parts and assemblies of our own production - about 30 thousand items.
The organizational structure of the Company includes functional blocks:
- - production, which includes main and auxiliary production workshops, technical services, capital construction department (CCD), department of automated systems and control processes (UACP). The management of the unit is the responsibility of the vice president;
- - marketing - includes the marketing department and the shipping department. Based on market research and marketing analysis, forms a promising assortment policy: develops trade and commercial activities. The unit is headed by the assistant general director - head of the marketing department;
- - financial, which includes financial and economic services, leading operational accounting and reporting of the Company;
- - engineering center (EC) - carries out activities in the field of research, development and marketing work to create competitive (including new) products in accordance with the technical policy of the Company, the EC is headed by the director of the center, is an independent self-supporting unit with bank account.
Divisions with the status of the Central Federal District independently carry out production and economic activities, distribution of self-supporting income, hiring and firing of personnel (except for the manager).
Galvanic and paint coating shop No. 4 - specializes in galvanizing (zinc plating, nickel plating, oxidation, etc.) and painting parts.
Foundry No. 7 - specializes in injection molding of silumin and plastics.
The structure of the plant currently provides for the presence of auxiliary workshops and maintenance services.
Tool shop No. 20 - specializes in the manufacture of dies, molds, fixtures, auxiliary and cutting tools.
The Electromechanical Department (EMD) carries out major and medium repairs of the mechanical and energy parts of the enterprise equipment, and maintains the energy sector.
Maintenance services - include warehousing, bookkeeping warehouses, and a transport workshop.
The form of relationships between the production structure (assembly, procurement and auxiliary shops) is based on a rental form, i.e. complete independence in labor organization, remuneration, personnel selection and financial responsibility.
The enterprise has adopted a complete unit system of operational and production planning. Assemblies corresponding to subclasses 2, 3, 4 according to the unified classifier of products are accepted as a planning and accounting unit.
