Find Your Production Planning Strategy
Would you zip across the country without planning the journey first? Well, we assume you wouldn't. Because some people do, and some people end up hopelessly lost.
But, if you don’t want to get lost on your road-trip, you need to plan!
So, why wouldn’t you do the same with your business? As a small manufacturer, you can’t afford to run off into the business world without a plan of attack. If you do proceed without the caution of careful planning, you risk jeopardizing your entire business, possibly before you’ve even got it off the ground.
If you want to be an effective manager, a successful entrepreneur, maybe you could use... a production planning strategy!
Yes, we have no shame paraphrasing the intro to the A-Team.
We're going to point you in the right direction to becoming the John 'Hannibal' Smith of the makers, crafters, and small manufacturing world.
But, where do you start? let's delve straight in by defining production planning strategies.
What is a Production Planning Strategy?
A production planning strategy is when a business establishes their desired level of output. It is often referred to as an aggregate plan. Unlike a master production schedule (MPS), this plan is a macro analysis that includes forecasted demand, sales, company objectives, productivity, lead times and customer satisfaction.
Planning should be toward a long-term goal, so it isn’t unusual to think ahead up to 13 months whilst strategizing.
This topic can be pretty confusing since production planning suggests a plan for the production process. However, other areas such as marketing, financing, and business performance are also analyzed.
In the last few years, more people have turned to calling it sales and operations planning.
Just in case you’re still confuddled, try using this to distinguish the difference between production planning and production plan:
Production Planning = The Entire Company
Production Plan = The Planned Production of Operations
To simplify this even further, many people refer to this as a road-map. In the sense that it helps you figure out where you’re going and how long it will take to get there.
During the production planning process, you’ll need to examine sales requirements and the production capabilities of your workshop. This is for the purpose of maximizing your resources. Sales requirements and your business's capabilities will also be affected by your budgets and supporting plans for materials along with your own workforce requirements. Then, and finally, the production plan itself needs to be taken into consideration.
The purpose of the above? To establish the best production rates for meeting customer demand.
The primary goal of production planning is to create a ‘major plan’ which is integrated with the business’ goals of meeting sales objectives, resource availability, and financial budgets.
The plan needs to be understood by everyone in the company so everyone can efficiently work together toward achieving these plans.
Why is it Important to Use a Production Planning Strategy?
Running a company is a complicated venture. As a business owner or manager, you’ll need to determine how much to produce, when to produce, and what supplies/materials need to be ordered.
All of this can be tricky! Getting it wrong can damage your business’ reputation or leave you drowning in a sea of your own product.
Products and services (in the case of a small manufacturer, you could think of this as your interaction with customers) are where your revenue comes from. Therefore, it is essential for you to have a unified plan that meets company objectives.
Without strategic planning, you risk overlooking business opportunities and making poor investment decisions.
The purpose of taking the time to use a production planning strategy is to reduce labor costs, reduce carrying costs, maximize resources and meet deadlines.
What are the Production Planning Tools Businesses Can Use?
There are a number of different ways in which a company can set its production goals.
A quick and easy tool people use is to look at key factors such as:
Forecast market expectations;
Standardized steps and time;
Risk factors (identifying risks and taking actions against this to stop or minimize them); and
Looking at your sales history.
By investigating these areas you can determine the next steps you need to take to achieve an ideal production rate and meet your company goals.
What are Your Company Goals?
To make an effective aggregate plan you’ll need to clearly understand your company vision goals. Even if you are leagues ahead and have already completed this, it doesn’t hurt to reexamine your company as goals change due to various factors.
How to figure out your business goals:
Why are you in business?
What do you do better than everyone else?
What is your customer and employee's opinion on the company?
What opportunities exist in the market over the next ‘x’ amount of years?
Are there new market opportunities available?
What are your revenue and expense goals?
Is technology changing the market or the business?
What are your competitors up to?
What are the challenges facing the company in the upcoming years?
Once you have answered the above questions you can create an aggregate plan which adheres to your company’s goals.
This will help you make a top-down method of meeting company goals. You’ll have your company goal, which will be split into smaller objectives to tackle.
So, for an example, let's look at a potential company goal:
Company Goal: Increase Profit Margin
Objective: Reduce the amount of waste being produced by half in the next 8 months
Sub-Objective: Reconfigure workshop and inventory to minimize transportation costs
Sub-Objective: Discontinue unpopular products to cut carrying costs
Sub-Objective: Redirect resources during slack periods to reduce the costs of waiting around
Taking the time to do this will allow you to analyze where you would like to take your business or where it can be improved. Having this planned will also make it easier when later making your production/operation plans since you will have an overview of your company’s goal.
Changing Tactics Due to Demand
Your business is also reliant on consumer demand. However, there are ways in which you can manipulate the customer and increase demand, usually via strategies such as:
Pricing (off-peak, seasonal, weekend rates);
Back-ordering (also known as partitioning demand. Its where items are out of stock, but a customer can pay for them now if they’re willing to wait a little while longer before receiving the product); and
New creation demand (or complimentary services. A tactic used by businesses like cinemas, they’ll have arcades in which you can distract yourself while waiting for the movie to start).
But these are proactive tactics in which a business can increase demand. Although, often a business will have to be reactive to deal with an increase or decrease in demand to be able to overcome the challenge of meeting said demand.
Dealing with Increased or Decreased Demand
The steps you can take can be:
Hiring or firing staff
Both have costs. Hiring means new employees will have to be trained and integrated into the company. However, firing has legal ramifications such as paying for unspent holidays. Unfortunately, both also run the risk of creating tension for current employees.
Overtime and slack time
You can give employees' the option for overtime when there’s an increase in demand or you can schedule a steady rate of production to meet forecasted demand.
Part-time and Temporary help
A lot of businesses bring in temporary staff for seasonal periods, or part-time staff for days they know they’ll need extra help.
Another tactic is to hire subcontractors to meet the demand. A quick and easy fix to a problem.
This might sound counter-intuitive, but cooperative arrangements are where you buy products from another manufacturing company to keep up with the increased demand. However, this can be a mutually beneficially agreement as you satisfy your orders and the prospective partner sells their product.
PRO TIP: How about managing your inventory quicker than you can learn the principles behind the ‘hokey pokey’? Try Katana’s 14-day free trial and discover the benefits of utilizing a smart workshop software.
What are the Production Planning Tools Businesses Can Use?
You’ve looked into tactics for addressing demand and you know your company goal. But, you still need to develop a plan to achieve these goals.
How do you do this?
Avoid the simple planning method of trial and error and use the following production planning tools to formulate your aggregate plan.
To tackle your production planning, you should look into:
— The demand for each product;
— Your capacity for each period to meet demand;
— Your company, departmental or union policies; and
— Your cost of goods sold and backorders.
You’ll also need to investigate the costs associated with:
— Changing your capacity to meet your demand;
— Carrying costs;
— Insurance; and
You should make alternative plans to measure the cost for all the above points. Once you have developed several plans, see which one best satisfies company goals at the lowest cost.
What Production Planning Strategy Should Your Business Use?
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” - Abraham Lincoln.
So, you have your plan, now its time to get down to business and execute that carefully thought out plan with a production planning strategy.
The Chase Strategy
Chase strategy gets its name from chasing the demand of the market. A lean production strategy which doesn’t carry any leftover products. The idea of implementing the chase strategy is to save on carrying costs by waiting on a sales order. Businesses which use a just-in-time (JIT) workflow will use a chase strategy.
This is a common occurrence in businesses that use perishables, don’t have a lot of capital at hand or want to reduce the risk of loss, theft or not being stuck with the unsold product.
Level production is when a company commits to a set production rate across several periods to meet customer demand. A business would do this when they have a certain max capacity, but demand will eventually exceed that.
Let’s use an example.
Let’s say that you’re a company that produces calculators. You know demand will increase at a certain point due to students taking exams and people filing tax.
However, demand might reach 30,000 units during these periods and your max capacity is 16,000.
So, to meet the demand, you work at a set rate through slack periods to stock the inventory ready for the demand. Though, this will be lower than your max capacity as the trick is to generate a forecast and work to your predicted demand.
Make to Order
Make to Order is a pull type manufacturing strategy in which manufacturing orders (MO) are created on receiving a customer's order. It’s very similar to the chase strategy and JIT inventories. However, the main difference is that a make to order business won’t keep any stock (ideally) and produces highly customizable goods.
Make to Stock
Make to stock is a push type strategy in which you make products and stock them ready for a customer's order. It is similar to the level production strategy in that you’ll be storing items in inventory. However, unlike level production, make to stock businesses adjust their workflow depending on demand.
So, with level production you have a set production rate to meet forecasted demand, make to order will adjust its production flow when demand increases or decreases.
PRO TIP: Understand the difference between make to order vs make to stock and choose what best suits your business.
Assemble to Order
Assemble to order is when a business stocks several components on standby, waiting on a customer's order before finishing the final product. Typically, businesses which make furniture will have this type of workflow. However, it is also used by manufacturers such as those working in the food industry.
So, there we have it! You now have the production planning tools and techniques for maximizing business’ production flow.
Though we understand that we’ve gone through a few areas of your business you’ll need to look into, so maybe the following checklist will be of use to your business when analyzing your company.
Production Planning Checklist
Whilst carrying out your production planning have you looked into:
— Company Goals;
— Customer Demand;
— Sales History;
— Sales Marketing;
— The Market Gap;
— Your Competition;
— Inventory Management;
— Supply Chain;
— Workshop Layout; and
— Manufacturing operations.
Carefully work through this list to figure out the best tactic to take to optimize your businesses' performance.
How to Execute Your Production Planning Strategy with a Smart Inventory Software
Once you have planned your plans and made plans around those plans, you can start your MPS.
Though, after doing all this research into your business, do you really want to waste more of your valuable time in Excel spreadsheets drafting and editing a schedule?
You have your road-map, which means you now know how to get from point A to B, but how about upgrading your navigation capabilities with a GPS?
Katana offers such a GPS in the form of smart workshop software.
Get a clear and improved overview of your manufacturing operations with a color-coded visual grid.
Have more control over your inventory with our autonomous inventory management feature, which automatically saves changes from inventory movement.
Take advantage of better production planning strategies by being able to use a drag-and-drop feature in Katana for meeting those important sale orders.
Make manufacturing floor-level control easier with a prioritized task list for each employee and production line.
By integrating Katana, the Smart Workshop Software, into your business, you can get more control over your operations, helping you to better serve your company goals and finding the room to grow your business.