What is 'Production Planning'

Manufacturing is a complex process. Some companies make a few products, while most make a variety of products. Each uses a variety of processes, machinery, equipment, labor skills and material. All these must be organized efficiently for better profitability. Goods must be manufactured at right quality and quantity at right time and must be delivered at right place.

A good Production Planning System must answer four questions:

	What are we going to make?
	What does it take to make it?
	What do we have?
	What do we need?

Priority and Capacity of a firm must be balanced. Production Planning System must perform this task.

Normally Production Planning System has five major levels.

	Strategic Business Plan.
	Production Plan (Sales and Operation Plan: SOP).
	Master Production Schedule.
	Materials Requirement Plan (MRP).
	Purchasing and Production Activity Control.

Each level varies in purpose, time span and level of detail.

	The Strategic Business Plan is a statement of major goals and objectives the company expects to achieve over next two to ten years.
	The Production Plan gives quantities of each product group that must be produced each period.
	Master Production Schedule is the plan for individual end items. Production Plan limits the Master Production Schedule.
	Materials Requirement Plan is the plan of components required to make the end items planned in Master Production Schedule. Master Production Schedule drives Materials Requirement Plan.
	Purchasing and Production Activity Control is the implementation of the Production Plan.

It is necessary that the whole Production Planning System is integrated and changes at any level must affect immediately the other levels.

Normally the total number of components required in any firm run in thousands. Also demand changes daily in this ever-changing world. New sales orders come in, some get cancelled, there may be break downs at production floor, there may be late or early delivery from suppliers. It is difficult to keep track of all these changes manually. There is tendency to keep safety stock to take care of this.

An effective computerized Production Planning System can keep track of all the changes. There is no need to keep high safety stock. The money blocked in the excessive safety stock can be released. At the same time, opportunity costs due to stock-outs can be minimized.

SAP R/3 Production Planning (PP) module is one of the effective computerized production planning systems available.