CHAPTER FOUR

OPERATIONS PLANNING & CONTROL

4.1 Introduction
Planning is an integral part of a manager’s job. If uncertainties cloud the planning horizon, it can be quite
difficult for a manager to plan effectively. Firms plan their manufacturing and service operations activities
at various levels and operate these as a system. Based on time dimension planning can be long range,
medium range and short range.

4.1. Aggregate production planning

Aggregate plan: statement of a company’s production rates, workforce levels, and inventory holding
based on estimates of customer requirements and capacity limitations.
Production plan: a manufacturing firm’s aggregate plan, which generally focuses on production rate and
inventory holdings. It determines the quantity and timing of production for the immediate future.
Aggregate planning is an intermediate term planning decision. It is the process of planning the quantity
and timing of output over the intermediate time horizon (3 months to one year). Within this range, the
physical facilities are assumed to be fixed for the planning period. Therefore, fluctuations in demand must
be met by varying labor and inventory schedule. Aggregate planning seeks the best combination to
minimize costs.

APP is the process of planning the quantity and timing of production over an intermediate range by
adjusting production rate, improvement and inventory. It is also translating annual and quarterly business
plan into labor and production output plans for the intermediate term. The objective is to minimize the
cost of resources required to meet demand over that period. The aim of aggregate planning is to get over
all output levels in the near to medium future in the face fluctuating or uncertain demand. As a result of
aggregate planning decisions and policies should be made concerning over time, hiring, layoff,
subcontracting, and inventory levels. Aggregate planning determines not only the output levels planned
but also appropriate resource input to be used. Aggregation on the supply side is by product families and
on the demand side by groups of customers.

Main purpose of aggregate planning is to Specify the optimal combination of production rate, work
force level, and inventory on hand. Aggregate planning is necessary in production and operations
management because:
1. It facilitates fully loaded facilities and minimizes overloading and under loading, thus keeping
production cost low.
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2. It provides adequate production capacity to meet expected aggregate demand
3. It facilitates the orderly and systematic transition of production capacity to meet the peaks and valleys
of expected customer demand and;
4. In times of scarce production resources, it enhances the probability of getting the most output for the
amount of resources available.

AGGREGATE PRODUCTION PLANNING STRATEGIES

Managers often combine reactive (workforce adjustment, anticipation of inventory, workforce utilization,
vacation schedules, subcontractors and backlog, backorder and stocks) and aggressive (complementary
products, and creative pricing) alternatives in various ways to arrive at an acceptable aggregate plan.

Chase strategy: a strategy that matches demand during the planning horizon by varying either the
workforce level or the output rate. When a chase strategy uses the first method, varying the workforce
level to match demand, it relies on just one reactive alternative-workforce variation. This chase strategy
has the advantage of no inventory investment, overtime, or under-time. However it has some drawback,
including the expense of continually adjusting workforce levels, the potential alienation (hostility) of the
workforce, and the loss of productivity and quality because of constant change in the workforce.

The second chase strategy, varying the output rate to match demand, opens up additional reactive
alternatives beyond changing the workforce level. Sometimes called the utilization strategy, the extent
and timing of the workforce’s utilization is changed through overtime, under- time and vacation are taken.
Subcontracting, including temporary help during the peak season, is another way of matching demand.

Level strategy: a strategy that maintains a constant workforce level or constant output rate during the
planning horizon. When a level strategy used the first method, maintaining a constant workforce level, it
might consist of not hiring or laying off workers (except at the beginning of the planning horizon),
building up anticipation inventories to absorb seasonal demand fluctuations, using under-time in slack
periods and overtime up to contracted limits for peak periods.

When level strategy uses the second method, maintaining a constant output rate, it allows hiring and
layoffs in addition to other alternatives of first level strategy. The key to identifying a level strategy is
whether the workforce or output rate is constant.

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Mixed strategy: Strategies that consider and implements a full range of receive alternatives and goes
beyond a “Pure” chase or level strategy. Whether management chooses a pure strategy or some mix the
strategy should reflect the organizations environment and planning objectives.

Proper Strategy is selected based on:

1) how much of each production resource is available
2) How much capacity is provided by each type of resource? The amount of resource required to
produce a single unit of a particular product or service allows the translation of demand into
production capacity plans.
3) At what step in production we determine capacity /labour hour available, or machine hour available
4) How much does it cost to scale capacity up or down cost of hiring, laying off, recalling/

The Aggregate Production Process

Determining demand requirements: the first step in planning process is to determine the demand
requirements for each period of planning horizon. The planner can derive future requirements for finished
goods from backlog (for make to order operations) or from forecasts for product families made to stock
(for make to stock operations).

Identifying alternatives, constraints, and costs: the second step is to identify the alternatives,
constraints, and costs for the plan. Constraints represent the physical limitations or managerial policies
associated with the aggregate plan. Typically, many plans can satisfy specific set of constraints. The
planner usually considers several types of costs when preparing aggregate plans:
 Regular time costs (wages health insurance, dental care, social security, and retirement funds pay for
vacation, holidays, and certain other types of absence).
 Overtime costs:
 Hiring and layoff costs
 Inventory holding costs
 Backorder and stock out costs

Preparing an acceptable plan: developing an acceptable plan is alternative process i.e. plan may need to
go through several revisions and adjustments. A prospective, or tentative plan is developed to start. The
plan must then be checked against constraints and evaluated in terms of strategic objectives.

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Implementing and updating the plan: the final step is implementing and updating the final plan.
Implementation requires the comment of manager in all functional areas. The planning committee may
recommend changes in the plan during implementation or updating to balance conflicting objectives
better. Acceptance of the plan does not necessarily mean that everyone is in total agreement, but it does
imply that everyone will work to achieve it.

MATERIALS REQUIREMENTS PLANNING (MRP)

MRP is a means for determining the number of parts, components, and materials needed to produce a
product. It provides time scheduling information specifying when each of the materials, parts and
components should be ordered or produced. The basic purposes of MRP are to control inventory levels,
assign operating priorities for items, and plan capacity to load the production system. The theme of MRP
is “getting the right materials to the right place at the right time.”
BASIC MRP CONCEPTS
Independent demand: It exists when a demand for a particular item is unrelated to a demand for other
item or when it is not a function of demand of other inventory item. Independent demands are not
derivable or calculable from the demand of something else hence they must be forecast.

Dependent demand: It is defined as dependent if the demand of an item is directly related to, or derived
from the demand of another item or product. In dependant demand, the need for any one item is a direct
result of the need for some other item, usually a higher level item of which it is part. In concept,
dependent demand is relatively straight forward computational problem. Needed quantities dependant
demand items are simply computed based on the number needed each higher level item in which it is
used. MRP is the appropriate technique for determining quantities of dependent demand item. For
example, if an automobile company plans to produce 50 cars per day, then obviously it will need 200
wheels and tires (plus spares). The number of wheels and tires needed is dependent on the production
level and is not derived separately. The demand for car is independent.
Inputs to MRP
MRP is a processor which processes inputs (relating data) to give a time phased detailed schedule for raw
materials and components. An MRP system has three major inputs:-
A. Master Production Schedule (MPS)
One of the three principal inputs of MRP system, the master production schedule, is a list of what end
products are to be produced, how many of each product is to be produced, and when the products are to be
ready for shipment. It is a driving input which an MRP system depends for its real effectiveness and

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usefulness because it is the determinant of future load, inventory investment, production, and delivery
service. The MPS is derived from the aggregate schedule.
Lead time: In purchasing systems, lead time is the time between recognition of need for an order and
receiving it. In production systems, it is the order, wait, move, queue, setup and runtimes for each
component produced.
Cumulative lead time: The sum of the lead times that sequential phases of a process require from
ordering of parts or raw materials to completion of final assembly.

B. Bill of materials (BOM)

Computation of the raw material and component requirements for end products listed in the master
schedule is done by the product structure. The product structure is specified by the bill of materials, which
is a structured list of all the component parts, assemblies and subassemblies that make up each product. A
file which lists all assemblies together is the bill-of-materials file. Product structure tree is a visual
depiction of the requirement in a BOM, where all components are listed by levels. Also a bill of material
file identifies the specific materials used to make each item and the correct quantities of each.
Level 0 Table

Level 1 Leg assembly (1) Top (1)

L 2 Short rails (2) Long rails (2) Legs (4)

Figure: product structure for product table
For example leg assembly contains two of short nails and two of long nails. The other information
contained in the bill-of-material file are the part number, child parent numbers, the date each child is to
become effective or to be removed from use in the bill (effective date control for schedule engineering
changes), dropout and yield percentages, shop floor delivery destination, and engineering revision level.

C. Inventory records File (IRF) /Item Master File/

One of the three primary inputs in MRP is inventory record file. It includes information on the status of
each item by time period. It contains data such as the number of units on hand and on order. It comprises
the individual item inventory records containing the status data required for the determination of net
requirements. This file is kept update by the position of inventory transactions which reflect the various
inventory events taking place.

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 Material Requirement Planning Process
Gross requirement (GR): it is the total amount required for a particular item. These requirements can be
from external customer demand and also from demand calculated due to manufacturing requirements. GR
is the projected needs for raw materials, components, subassemblies, or finished goods by the end of the
period shown. Gross requirement comes from the master schedule (for end items) or from the combined
needs of other items. But in MRP it is the quantity of item that will have to be disbursed, i.e. issued to
support a parent order (or orders), rather than the total quantity of the end product.

Scheduled receipts (SR): represents the orders that have already been released and that are scheduled to
arrive as of the beginning of the period. Once the paper work on an order has been released, what was
prior to that event a planned order now becomes a scheduled receipt.
Projected available balance (PAB): it is the amount of inventory that is expected as of the beginning of
a period.
This can be calculated as follows:
PABt = PABt-1 - GR t-1 + SR t-1 + POR t-1 – safety Stock
On hand or available: the expected amount of inventory that will be on hand at the beginning of each
time period.
Net requirements: is the amount needed when the projected available balance plus the schedule receipts
in a period are not sufficient to cover the gross requirements.
Planned order receipt (POR) is the amount of an order that is required to meet a net requirement in the
period. It is the quantity expected to be received by the beginning of the period in which it is shown under
lot-for-lot (lot4lot) ordering, this quantity will equal net requirements. That is, under lot4lot ordering one
can ask his supplier the exact quantity of the item needed for a particular time. Hence, the order size may
vary depending on the requirement. Under lot-sizing ordering, this quantity may exceed net requirements.
Any excess is added to available inventory in the next time period for simplicity, although in reality, it
would be available in that period. Under lot-sizing ordering a buyer cannot vary the order size depending
on the requirements. Thus, each time equal quantity of item is ordered.

Planned order release (POR) is the planned order receipt offset by the lead time. This amount generates
GR at the next level in the assembly or production chain.
Generally, the MRP processing takes the end item requirements specified by the MPS and “explodes”
them into time phased requirements for parts, assemblies, components, and raw materials using the BOM
and IRF offset by lead time.

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 EXERCISE: One unit of A is made of two units of B, three units of C and two units of D. B is
composed of one units of E and two units of F. C is made of two units of F and one units of D. E is made
of two units of D. Items A, C, D and F have one week lead time; B and E have lead times of 2 weeks.
Item C has an on-hand (beginning) inventory of 15; D has on-hand inventory of 50; all other items have
zero beginning inventory. We have schedule to receive 20 units of item E in week two; there are no other
scheduled receipts.
Required
(A) Construct BOM ( product structure tree)
(B) Prepare MRP table for each item; if 20 units of A are required in week 8.

5.2 OPERATIONS SCHEDULING

Scheduling is the processes of determining the starting and completion times to jobs. It is the
determination of when labor, equipment and facilities are needed to produce a product or provide a
service. Scheduling is a time table for performing activities, using resources, or allocating facilities.
Generally, a schedule specifies the timing and sequence of production.

Schedule must be realistic; that is it must be capable of being achieved within the capacity limitations of
the manufacturing facilities. Scheduling should be clearly differentiated from aggregate planning. The
purpose of scheduling is to ensure that available capacity is efficiently and effectively used to achieve the
organization’s objectives. The purpose of aggregate planning is to determine the resources (labor,
equipment, space etc.) that should be acquired for scheduling. Often several jobs might be processed at
one or more work stations. Typically a variety of tasks can be performed at each work station which make
effective scheduling a must rather than an alternative. Sequencing & loading should be considered during
scheduling activity.

Sequencing: sequencing is concerned with developing an exact order (or sequence) of job processing. It is
the determination of the order in which jobs are processed. One of the oldest sequencing methods is the Gant
chart. Gant chart is a bar chart that shows a job’s progress graphically or compares actual against planed
performance.

Loading: is the assignment of work to specific resources/ machines. It is simply the process of assigning
work to individual workers or machine. Loading can be: finite loading, infinite loading, backward
loading and forewarn (caution) loading.
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Scheduling system can be either finite or infinite loading.
Loading refers to the assignment of jobs to processing (work) centers.
 Finite loading: refers to loading activities with regard to capacity. Tasks are never loaded beyond
capacity. Moreover, a finite loading approach actually schedules in detail each resource using the
setup and runtime required for each order. In this case, the system determines exactly what will be
done by each resource at every moment during the working day. If an operation is delayed due to a
part or parts shortage, the order will sit in queue and wait until the part is available from a preceding
operation.
 Infinite loading: loading activity without regard to capacity. Moreover, infinite loading occurs when
work is assigned to a work center simply based on what is needed over time. No consideration given
directly to whether sufficient capacity at the resources required to complete the work, nor is actual
sequence of the work as done by each resource in the work center considered.

Scheduling systems can also be generated forward or backward scheduling in time.

Backward loading begins with the due date for each job and loads the processing time requirements
against each work centre by proceeding back ward in time. The purpose of back ward loading is to
calculate the capacity required in each work centre for each time period.

Forward loading begins with the present date and loads jobs forwards in time. The processing time is
accumulated against each work centre, assuming infinite capacity. The purpose of forewarned loading is
to determine the approximate completion date of each job and the capacity required in each time period.

Objectives of scheduling
 To meet the due date
 To minimize job lateness
 To minimize the lead time or setup time
 To minimize wok-in-process inventory
 To maximize resource utilization
 To provide the best customer service possible
 Making the most efficient use of the people, equipments and facilities available to the
organization.
Scheduling in manufacturing
Scheduling in manufacturing is the process of assigning priorities to manufacturing orders and allocating
workloads to a specific work centers. Scheduling is challenging if the task variety is high. This is a case
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particularly for the job shop scheduling. In the following discussion, we will concentrate on scheduling
issues for job shop production.

Job shop scheduling

For job shop production scheduling decision can be quite complex. What makes scheduling so difficult in
a job shop is the variety of jobs (customer orders) that are processed, each with distinctive routing &
processing requirement. In a pure job shop, there are several jobs to be processed, each of which may
have different routing among department or machines in the shop. In designing a scheduling and control
system for a high variety of activities, sequencing and prioritizing should be emphasized.

Priority rules for allocating jobs to machine - sequencing

As discussed above, sequencing is prioritizing jobs that have been assigned to limited resources.
Sequencing is simple if work centers are lightly loaded and need the same processing time. But if work
centers are heavily loaded there will be longer waiting time and idle time. In this case to minimize the
waiting and idle time, we must prioritize the tasks by using priority rules.
Priority rules are the criteria by which the sequence of jobs is determined. The process of determine which
job is started first on a particular machine or work centre is known as priority sequencing rules. Some of
the most common priority rules for sequencing jobs are:
 First come, first served (FCFS): orders are run in the order that they arrive in the department i.e. the
oldest first rule.
 Shortest processing time (SPT): run the job with the shortest completion time first i.e. shortest
operating time first.
 Earliest due date first (due date): run the job with earliest due date first. Thus, a job that is due
tomorrow has a higher priority than the job that is due next week or next month.
 Critical ratio (CR): this is calculated as the difference between the due date and the current date
divided by the work remaining. Orders with the smallest CR are run first. In the CR rule, jobs are
sequenced from lowest CR to highest CR. Those with a CR less than one are considered behind
schedule and need to be expedited. And CR greater than one implies that the job is ahead schedule and
can be de-expedite.
CR = due date – today’s date = time remaining
Total shop time remaining lead time remaining
Performance measures of job shop scheduling

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From the operations manager’s perspectives, identifying performance measures to be used in selecting a
schedule is important. If the overall goals of the organizations are to be achieved the schedule should
reflect managerially acceptable performance measure. The following describes the most common
performance measure used in operation schedule.
 Job flow time: refers to time a job spends in the shop. It is the sum of the moving time between
operations, waiting time for machines or work orders, process time (including set up), and delays
resulting from machine breakdowns, component unavailability and the like. The objective here is to
minimize the average flow time.
Flow time = waiting time + processing time
Average flow time = (sum of total flow time) (no of job processed)
 Make span time: refers to time to process a set of jobs. It is the total amount of time required to
complete a group of job. It is the length of time between the start of the first job in the group and the
completion of the last job in the group. The general objective is to minimize the make span time .
Generally, make span time =processing time of each job
 Tardiness (past due): refers to the amount by which completion time exceeds the due date of a job. If
a job is completed before its due date, tardiness is zero. The objective is to minimize the number of
tardy jobs.
Tardiness=  past due, & (Average tardiness = times past due total no. of jobs)
 Utilization = total processing time total flow time

SCHEDULING IN SERVICES
Scheduling is also important in service organizations. For example nurses must be scheduled in hospital,
and truck must be scheduled for deliveries for furniture distributors. One important distinction between
manufacturing and services that affects scheduling is that service operations cannot create inventories to
buffer demand uncertainties. A second distinction is that in service operations demand often is less
predictable; customers may decide on the spur of the moment that they need a hamburger, a hair cut or a
plumbing repair. Thus capacity, often in the form of employees is crucial for service providers. In this
section we discuss various ways in which schedule systems can facilitate the capacity management of
service providers.

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