Developing a Production Plan

Make-to-stock

- Demand is fairly constant and predictable,
- There are few product options,
- Delivery times demanded by marketplace are much shorter than the time needed to make the product,
- Product has a long shelf life.

The information needed to make a PP is as follows:
- Forecast by period for the planning horizon,
- Opening inventory,
- Desired ending inventory,
- Any past-due customers orders.
The objective in developing a PP is to minimize the costs of carrying inventory, changing production levels and stocking out

Level production plan
Following is the general procedure:

o Total the forecast demand for the planning horizon,
o Determine the opening inventory and the desired ending inventory,
o Calculate the total production required as follows:
Total Production = total forecast + back orders + ending inventory - opening inventory,
o Calculate the production required each period by dividing the total
production by the number of periods,
o Calculate the ending inventory for each period.

Chase strategy
Products are perishable and the company cannot built inventory for sale later. They must use a chase strategy and make only enough to satisfy demand in each period.

Assembled-to-order

Where several options exist and where the customer is not willing to wait until the product is made, manufacturers produce and stock
standard component parts. When they receive an order, they assemble the component parts from inventory according to the order. Since the components are stocked, the firm needs only time to assemble before delivering to the customer.
The following information is needed to make a PP for make-to-order products:
- Forecast by period for the planning horizon,
- Opening backlog of customer orders,
- Desired ending backlog.

Backlog (queue). In a make-to-order environment, a company has a backlog of unfilled customer orders. The backlog normally will be for delivery in the future and does not represent orders that are late or past due.

Level production plan Following is a general procedure for developing a level PP:

- Total the forecast demand for the planning horizon,
- Determine the opening backlog and the desired ending backlog,
- Calculate the total production required as follows:
Total Production = total forecast + opening backlog – ending backlog,
- Calculate the production required each period by dividing the total production by the number of periods,
- Spread the existing backlog over the planning horizon according to due date per period.

Make-to-Order

In a make-to-order environment, manufacturers wait until an order is received from a customer before starting to make the goods. Very expensive items are usually made to order. Generally firms make to order when:
- Goods are produced to customer specification,
- The customer is willing to wait while the order is being made,
- The product is expensive to make and to store,
- Several product options are offered