Production planning as an integral part of corporate planning

Planning and control are the two important components of the management process. Planning involves the consideration of all input variables to achieve defined output goals. Control involves the corrective actions taken when the actual output varies from the desired one by bringing the actual output in line with the planned output.

Production planning, in particular would therefore consist mainly of the evaluation and determination of production-inputs such as labor (manpower), machinery and equipment materials and utilities to achieve the desired goals. The definition of the goals is also, of course, a part of the production planning process;

We may break down the planning process into various stages as follows:

(1) Defining objectives and setting priorities to attain these.
(2) Studying the environment external the system being planned. Studying the internal environment of the system being planned.
(3) Determining reliable targets (quantified as far as possible).
(4) Gearing the inputs to achieve these targets.

Importance of Time Horizon:

Plans have a time dimension and to the extent the time span is limited, the scope of functioning plans for also remains limited with less interaction from other functional plans. The longer the time span of the plan, the more integrative organizations wide the plan has to be. The wider time horizon plants cover a wider organizational perspective.

That is why very often the corporate planning process is synonymous with Long Range planning. As the time horizon of the production plan widens, from a short range plan (annual or five yearly), the flexibility available to change the variables and allow modifications when found necessary also increase. The five year range plan allows a company the flexibility of increasing the production capacity by purchasing new equipment locating new plants, acquiring new technology, or recruiting adequate technical manpower.

This is not applicable for a one year plan. Here, much of the flexibility in procuring new plants and machinery or acquiring the technology and know how is lost. Coming to the weekly or daily plans, hardly any flexibility is left except to assign different jobs to the available machines and manpower. As the flexibility decreases the strategic or tactical options also decrease and the nature of planning itself assumes a different character. The planning problems for different time horizons are therefore different and the solutions are also different.

Dovetailing of Plans:

One important fact is that the short, medium and long range plans to dovetail into one another. Shorter range plans are always made within the framework of the longer range plans. Production planning as it is generally understood is really the intermediate range and short range plan. The long range production plan has lost its identity with the overall corporate planning process. That is why production planning is said to follow from marketing plan. Or, as is usually said, the production plan is the translation of the market demands into production orders. The market demands have to be matched with the production capacities.

Market demand — Match the two optimally – Production capacities

The keyword is ‘optimally’. Market demands are either known or are forecasted but we do know them, and the production capacities are also known. But how these two are matched will generate different cost structures and utility (e.g. time) structures. Optimization o the cost or other utilities is the concern of production planning.

The Market demands (actual and forecasted) will not usually be level and steady over time. At different points of time the market will demand differently. It is, not always possible for the production department to follow the market fluctuations as and when they arise (or even if they are known in advance) and very often it is not ‘optimal’ (economical cost wise) to do so. Therefore, the production plan will many a time, look very different from the marketing or sales plan, although the total production figures will be more or less in agreement with the market requirements.

Bad on purely cost comparisons Plan III seems attractive. But if we place a high value on the delay to the customer, Plan I would probably be the best plan. The various alternative production plans are the intermediate range production strategies available which could be used to suit the corporation’s needs in a competitive environment.