Production planning

What is a production plan?

Production planning is the process of determining the most efficient and effective way to utilize resources and organize manufacturing activities to meet production goals. It involves analyzing various factors such as available resources, production capacity, customer demand, and lead times to create a detailed plan for production activities.

Production planning aims to optimize the allocation of resources, minimize costs, and ensure the timely delivery of products while maintaining high-quality standards. By carefully balancing supply and demand, production planning helps businesses streamline their operations, improve productivity, and achieve better overall efficiency in the manufacturing process.

Production scheduling

Production scheduling is a crucial aspect of production management that involves determining the specific timing and sequence of manufacturing activities. It entails assigning resources, machines, and labor to various tasks to meet production targets within given timeframes.

Production scheduling takes into account factors such as production capacity, availability of materials, machine downtime, and workforce availability to create a detailed schedule that optimizes productivity and minimizes idle time. By effectively scheduling production activities, businesses can improve efficiency, reduce lead times, and meet customer demand more effectively. 

Production planning vs production scheduling

Production PlanningProduction Scheduling
Long-term focusShort-term focus
Determines the overall strategy for productionDetermines the specific timing and sequence of production activities
Considers factors such as resources, capacity, demand, and lead timesConsiders factors such as production capacity, materials availability, machine downtime, and workforce availability
Aims to optimize resource allocation, minimize costs, and ensure timely deliveryAims to optimize productivity, minimize idle time, and meet production targets
Creates a detailed plan for production activitiesCreates a detailed schedule for production tasks
Balances supply and demand to streamline operationsCoordinates resources, machines, and labor to maximize efficiency
Helps in long-term capacity planning and forecastingHelps in short-term execution and coordination
Focuses on strategic decision-makingFocuses on operational decision-making
Typically performed at a higher level of the organizationTypically performed at the operational level
Production planning vs production scheduling

Types of production planning

There are several types of production planning that organizations use based on their specific needs and industry requirements. Here are some commonly used types of production planning:

  1. Material Requirement Planning (MRP): MRP is a method that focuses on managing and planning material requirements based on production schedules and inventory levels. It involves calculating the required quantities of raw materials, components, and sub-assemblies needed for production, taking into account lead times, production schedules, and demand forecasts.
  2. Capacity Planning: Capacity planning involves determining the production capacity needed to meet the anticipated demand. It considers factors such as available resources, workforce, equipment, and production constraints to ensure that the required capacity is in place to fulfill customer orders.
  3. Master Production Schedule (MPS): The MPS is a detailed plan that specifies the production quantity and timing for each finished product. It takes into account demand forecasts, customer orders, and inventory levels to establish the production schedule, enabling efficient allocation of resources and timely delivery.
  4. Aggregate Production Planning (APP): APP focuses on determining overall production levels over a specified time frame, usually in the form of quarterly or yearly plans. It aims to balance demand and capacity by adjusting workforce levels, overtime, and subcontracting to meet production goals.
  5. Just-in-Time (JIT) Planning: JIT planning aims to minimize inventory levels and associated costs by synchronizing production with customer demand. It involves precise scheduling, quick setup times, and close coordination with suppliers to ensure that materials arrive just in time for production. It is associated with JIT production and inventory management.
  6. Production Forecasting: Production forecasting utilizes historical data, market trends, and demand patterns to predict future production needs. It helps organizations anticipate demand fluctuations and adjust production plans accordingly to optimize resource allocation and minimize inventory levels.

Why production planning is important

  1. Efficient Resource Utilization: It helps optimize the allocation of resources such as raw materials, equipment, and labor. By analyzing production requirements and capacities, organizations can ensure that resources are utilized effectively, minimizing waste and reducing costs.
  2. Meeting Customer Demand: Effective production planning ensures that products are manufactured promptly to meet customer demand. By forecasting demand, planning production schedules, and managing inventory levels, businesses can avoid stockouts, fulfill customer orders on time, and maintain high levels of customer satisfaction.
  3. Cost Reduction: It enables organizations to identify cost-saving opportunities. By streamlining production processes, minimizing idle time, and eliminating unnecessary inventory, businesses can reduce operational costs and enhance profitability. It enables the implementation of activity-based costing.
  4. Improved Efficiency: It helps identify bottlenecks, production constraints, and process inefficiencies. By optimizing production workflows, coordinating activities, and implementing lean manufacturing principles, organizations can enhance operational efficiency, increase productivity, and reduce cycle times.
  5. Effective Capacity Management: Production planning assists in capacity management by balancing production levels with available resources. It helps organizations determine the right workforce size, equipment utilization, and production schedules to meet demand while avoiding overcapacity or underutilization.
  6. Risk Mitigation: By incorporating contingencies and alternative plans into production planning, organizations can mitigate risks associated with unforeseen events, such as supplier disruptions, machine breakdowns, or changes in customer demand. This proactive approach helps businesses respond swiftly and effectively to unexpected circumstances.
  7. Strategic Decision-making: It provides a strategic framework for decision-making. It enables businesses to align production goals with overall business objectives, evaluate different scenarios, and make informed decisions regarding investments, expansion, or product diversification.

In summary, production planning is crucial for optimizing resources, meeting customer demand, reducing costs, improving efficiency, managing capacity, mitigating risks, and supporting strategic decision-making. It plays a vital role in ensuring smooth and profitable operations for businesses in the manufacturing sector.

Step by step – production planning

Demand Forecasting

The first step is to forecast the demand for the product. This involves analyzing historical data, market trends, customer orders, and other relevant factors to estimate future demand accurately. Demand forecasting provides a basis for planning production volumes and schedules.

Sales and Operations Planning (S&OP):

Once the demand is forecasted, the next step is to align the production plan with the sales plan. This involves coordinating with sales and marketing teams to review the forecasted demand, assess inventory levels, and determine the production strategy that best meets customer requirements.

Resource Assessment:

Assess the availability of resources required for production, including raw materials, equipment, machinery, and labor. Evaluate the capacity of each resource and identify any constraints or limitations that may impact production.

Production Schedule Development:

Develop a detailed production schedule that specifies the timing and sequence of production activities. Consider factors such as production capacity, lead times, availability of resources, and any constraints identified during resource assessment. This schedule should aim to optimize resource utilization, minimize downtime, and meet customer demand.

Material Requirement Planning (MRP):

Perform a material requirement planning analysis to determine the quantities of raw materials, components, and sub-assemblies needed for production. Take into account lead times, safety stock levels, and any variations in demand to ensure an adequate supply of materials throughout the production process.

Capacity Planning:

Based on the production schedule and resource assessment, conduct capacity planning to ensure that production capacity aligns with demand. Determine the workforce requirements, evaluate the availability of machinery and equipment, and make adjustments as necessary to meet production targets.

Production Execution and Monitoring:

Implement the production plan by executing the scheduled activities. Monitor the progress of production, track actual performance against planned targets, and address any deviations or issues that may arise.

Continuous Improvement:

Regularly review and analyze production performance to identify areas for improvement. Collect data on production efficiency, quality, lead times, and costs to identify bottlenecks, inefficiencies, or opportunities for optimization. Implement process improvements and adjustments to enhance overall production effectiveness.

Collaboration and Communication:

Throughout the production planning process, ensure effective collaboration and communication between various departments involved, such as sales, operations, procurement, and production. Share relevant information, updates, and feedback to ensure everyone is aligned and working towards common goals.

Adaptation and Flexibility:

Remain flexible and adaptable in the production planning process. Adjust plans as needed in response to changes in customer demand, market conditions, resource availability, or other unforeseen circumstances. Regularly review and update the production plan to maintain alignment with business objectives.

KPI in production planning

Key Performance Indicators (KPIs) are measurable metrics used to assess the performance and effectiveness of production planning processes. Here are some commonly used KPIs in production planning:

On-time Delivery:

This KPI measures the percentage of products or orders delivered to customers within the agreed-upon or promised delivery date. It indicates the ability of the production planning process to meet customer expectations and deliver products promptly.

Production Schedule Attainment:

This KPI measures the extent to which the actual production output aligns with the planned production schedule. It indicates the effectiveness of the production planning process in achieving the targeted production volumes within the specified timeframes.

Production Efficiency:

This KPI measures the ratio of actual production output to the planned production output, indicating the efficiency of the production planning process in utilizing resources. It helps assess the effectiveness of resource allocation, minimize waste, and identify areas for improvement.

Inventory Turnover:

This KPI measures the number of times inventory is replenished or sold within a given period. It indicates the effectiveness of production planning in managing inventory levels and ensuring optimal stock levels to meet customer demand while minimizing carrying costs.

Capacity Utilization:

This KPI measures the percentage of available production capacity that is utilized. It helps assess the efficiency of production planning in maximizing the use of resources, machinery, and labor to meet production targets without overburdening the capacity.

Lead Time:

This KPI measures the time taken from receiving an order to delivering the finished product to the customer. It assesses the efficiency of production planning in minimizing lead times and ensuring timely order fulfillment.

Production Cost Variance:

This KPI measures the variance between the actual production costs and the planned production costs. It helps identify any cost overruns or cost savings achieved through effective production planning and resource management. Read more – Variance analysis

Forecast Accuracy:

This KPI measures the accuracy of demand forecasting compared to actual customer demand. It helps assess the precision of the production planning process in anticipating and aligning production with demand.

Scrap and Rework Rate:

This KPI measures the percentage of products that are rejected or require rework due to quality issues. It indicates the effectiveness of production planning in ensuring product quality and minimizing waste.

Employee Productivity:

This KPI measures the output per labor hour or employee, indicating the efficiency of the workforce in executing the production plan. It helps assess the effectiveness of labor management and resource allocation in production planning.

These KPIs provide valuable insights into the performance of production planning processes, allowing organizations to monitor progress, identify areas for improvement, and make data-driven decisions to enhance efficiency, productivity, and customer satisfaction.

A practical example of production planning

Let’s consider a practical example of a company that manufactures electronic devices.

  1. Demand Forecasting: The demand forecast indicates that the company expects to receive orders for 10,000 units of a particular electronic device over the next quarter.
  2. Sales and Operations Planning (S&OP): The sales team collaborates with the operations team to align the production plan with the sales forecast. After reviewing the forecasted demand and considering inventory levels, they decide to produce 12,000 units to account for potential variations in demand and maintain buffer stock.
  3. Resource Assessment: The company assesses its resources and determines that it can produce 15,000 units within the quarter. The production line has a daily capacity of 200 units, and the company operates 5 days a week.
  4. Production Schedule Development: Based on the assessed capacity and demand forecast, the production plan is developed. The schedule indicates that 240 units will be produced each day to achieve the target of 12,000 units by the end of the quarter.
  5. Material Requirement Planning (MRP): The MRP analysis reveals that each unit requires specific components and raw materials. Based on lead times and safety stock requirements, the company calculates that it needs 30,000 components and 40,000 units of raw materials to complete the production.
  6. Capacity Planning: With the production schedule and resource assessment, the company determines that it requires a workforce of 10 employees working on the production line to achieve the daily production target. The existing workforce is capable of meeting this requirement.
  7. Production Execution and Monitoring: The company initiates production based on the developed schedule. Regular monitoring is carried out to ensure that the production is progressing as planned. Daily production reports indicate that 240 units are consistently being produced each day.
  8. Continuous Improvement: Throughout the production process, the company collects data on efficiency, quality, and costs. It identifies that the setup time for the production line can be reduced by implementing a new tool. By implementing this improvement, the company reduces the setup time from 1 hour to 30 minutes, increasing overall productivity.
  9. Collaboration and Communication: Regular communication between departments ensures that everyone is aware of the production plan, any changes, and potential challenges. This collaboration helps address any issues promptly and maintains alignment throughout the production process.
  10. Adaptation and Flexibility: In the middle of the quarter, the company receives a rush order for an additional 2,000 units of the electronic device. The production plan is adjusted, and the schedule is modified to prioritize the rush order while maintaining the overall production target.

Challenges in production planning

  1. Demand Variability: Fluctuations in customer demand can pose challenges in production planning. Sudden spikes or drops in demand can lead to inventory imbalances, production bottlenecks, or overproduction, impacting overall efficiency and customer satisfaction.
  2. Lack of Accurate Forecasting: Inaccurate demand forecasting can result in production plans that do not align with actual customer demand. This can lead to excess inventory, stockouts, or inefficient resource utilization.
  3. Supply Chain Disruptions: Unforeseen disruptions in the supply chain, such as delays in material delivery or shortages, can impact production planning. These disruptions can lead to production delays, increased lead times, and difficulties in meeting customer orders.
  4. Resource Constraints: Limited availability of resources, including raw materials, machinery, and skilled labor, can pose challenges in production planning. Insufficient resources can result in production bottlenecks, decreased output, and an inability to meet customer demand.
  5. Production Complexity: Complex production processes involving multiple components, sub-assemblies, or intricate operations can make production planning more challenging. Coordinating various production stages, ensuring synchronized workflows, and managing dependencies require careful planning and coordination.
  6. Changing Customer Requirements: Evolving customer preferences and changing market trends can present challenges in production planning. Adapting production processes to meet new product specifications, customization demands, or shifting market demands can require flexibility and agility in planning.
  7. Seasonality and Demand Fluctuations: Seasonal demand patterns or cyclicality in certain industries can pose challenges in production planning. Managing production levels to meet peak demand during specific periods while avoiding excessive capacity during off-peak seasons requires careful planning and inventory management.
  8. Production Scheduling Complexity: Creating an optimized production schedule considering multiple factors like machine setups, changeovers, employee availability, and production sequences can be complex. Balancing these factors while meeting production targets and minimizing downtime requires efficient scheduling techniques and tools.
  9. Communication and Collaboration: Effective communication and collaboration across different departments involved in production planning, such as sales, operations, and procurement, can be a challenge. Ensuring clear information exchange, timely updates, and addressing conflicting priorities is crucial for efficient production planning.
  10. Continuous Improvement: Identifying areas for improvement, implementing process enhancements, and adopting new technologies require ongoing effort and continuous improvement initiatives. Overcoming resistance to change and fostering a culture of continuous improvement can be a challenge in production planning.

Also Read: Production planning template


  1. […] JIT involves close coordination with suppliers and customers. Suppliers deliver materials and components exactly when they are needed for production, and finished products are shipped directly to customers or retailers without being stored for long periods. The production planning and management plays a key role in JIT system. […]

  2. […] Production planning is the process of determining the most efficient way to produce goods or services. It involves analyzing various factors such as demand, available resources, and production capabilities to create a plan that optimizes productivity and minimizes costs. […]

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