Production Plan (PP) 31

The production plan is the formal plan of where the company is going, created by senior management. The main inputs are the forecast or marketing plan, long term or strategic plan and the budget or financial plan. The production plan is defined in family groups and in course time periods (months or quarters). It is the executive’s plan stating the agreed volume, per family, per period. It is the management’s plan for the master scheduler to turn into a manufacturing plan. The purpose of the production plan is to provide the means of comparing the resources available against those required, out into the future. If the resources do not match the requirements, adjust the plan or increase the resources.39

For the lubricants supply chain the families of products will be categorised (codified) based upon similar product characteristics and input raw materials e.g. diesel lubricants which is a family of products for usage on diesel driven cars and power oil which is the family of products which includes both inhibited power oil (with an additive to be added) and uninhibited power oil (no additive).

An example of a production plan in the lubricants supply chain is depicted in Table 3.1 (weeks run from Sunday to Saturday i.e. week 1 runs from Sunday 1 July to Saturday 7 July): Month: July 2012

Manufacturing Line No.

Week 1 Week 2 Week 3 Week 4 Week 5

1. Automotive Lubricants Automotive Lubricants Automotive Lubricants Automotive Lubricants Automotive Lubricants 2. Diesel Lubricants Diesel Lubricants Diesel Lubricants Diesel Lubricants Power Oil 3. Industrial Lubricants Industrial Lubricants Industrial Lubricants Industrial Lubricants Railroad Oils 4. Open Gear Lubricants Open Gear Lubricants Open Gear Lubricants Open Gear Lubricants Chainsaw Lubricants

Table 3.1 – Production Plan Source: compiled by researcher

The production plan is the result of gathering of product orders and forecasts (codification) and grouping them into families of products filled on a common manufacturing line (abstraction). The information is used to compile the production schedules of the various manufacturing lines for subsequent tracking (diffusion).

39

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If resources are not available to fulfil the plan, the plan will be adjusted as specialised resources are not easily added to the lubricants supply chain. An increase in human resources can be achieved via overtime in the short term, but this is not preferable as safety compromises may result in the long run due to fatigue of employees who are operating hazardous products and equipment.

It is more costly to change the production quantity of items produced than the kind of items produced because to adjust the production rate one needs to hire extra labour, pay overtime or fire labour as needed.40

Strategies to develop the Production Plan include:

§ Chase Strategy – Producing the amounts required at any given time (resulting in peaks and troughs). Inventory can be kept to a minimum.

§ Production Levelling – Continually producing an amount equal to the average demand (resulting in a smooth level of operations). No excess capacity is required to meet peak demand, although an inventory build-up will occur in low-demand periods.

§ Subcontracting – Producing at the level of minimum demand and meeting additional demand via subcontracting.41

Each strategy has its own costs pertaining to equipment, hiring/layoff, overtime, inventory and subcontracting. Production management has to find a combination of the strategies to minimise the costs, provide required service levels and to meet the objectives of the financial (including capital and operating expenditure) and marketing plans (product availability at the right place and the right price).41

The production planning is usually done at aggregate level, both for products and resources. Distinct but similar products are combined into aggregate product families that can be planned together to reduce planning complexity. Similarly, production resources such as distinct machines or labour pools are aggregated into aggregate machine/labour resources. 42

40

Daganzo CF. p152

41 _{Arnold JRT, Chapman SN, Clive LM, 1998. p32-35} 42

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The aggregate plan becomes the framework within which short term decisions are made about production, inventory and distribution. Production decisions involve setting parameters such as the rate of production and the amount of production capacity to use, the size of the workforce, and how much overtime and subcontracting to use. Inventory decisions include how much demand will be met immediately by inventory on hand and how much demand can be satisfied later and turned into backlogged orders.43

The aggregation of Machines and Labour for the lubricants supply chain relates to the

product capacity to be blended in blending kettles irrespective of pack type; prior to their

filling, capping and sealing into the distinct product containers per manufacturing line.

The measure for Production Planning is Production44 _{per Period and the metric is Ending}

Inventory in each period:

ð Production per Period=(Production+Ending Inventory–Opening Inventory)/No. of Periods

ð Ending Inventory= Opening Inventory+Production–Demand

An example of production planning for Diesel Lubricants in the lubricants supply chain is depicted in Table 3.2:

Manufacturing Line: #2 (210 litre drums with capacity of 3200 drums per week) Opening Inventory: 500 drums (buffer/safety stock 1000 drums)

Monthly Forecast: 10000 drums

Forecast Accuracy: 60% prior month, 80% month last year (target 90%, avg. variance 20%) Month: July 2012

Period Week 1 Week 2 Week 3 Week 4 Week 5

Forecast 2500 2500 2500 2500 0 Forecast + 20% Variance 3000 3000 3000 3000 0 Production 3200 3200 3200 3200 3200 Ending Inventory 500 700 900 1100 1300 1300

Table 3.2 – Production Planning Source: compiled by researcher

43 _{Hugos M, 2003. p54} 44

For the Production Plan, production is categorised as the annual forecast product whereas for the MPS, production is categorised as the Annual Product per Pack Size seen as separate Finished Products categorised as separate SKU in terms of Inventory Management

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In the lubricants supply chain, various lubricants products are blended in kettles i.e. heated tanks, where various raw materials from tanks and drums are injected into the blending kettle based upon an aggregated product formulation, known as a Bill of Material (BoM). From the blend kettles they are fed into a particular manufacturing line.

Production levelling per manufacturing line is used as the strategy to produce the production

plan segmented into a product family via categorisation. The assumption is that product

group running on a particular manufacturing line will fill a particular container (viz. 500ml Cans, 210 litre drums, 20 litre pails and 5 litre bottles) where each manufacturing line has a particular capacity.

Each package size and capacity has a distinct continuous manufacturing line to fill, cap and seal product containers prior to their storage in a high-rise warehouse; from where they will be distributed to depots (primary distribution) and thereafter to customers (secondary distribution).