What is Production Planning? Process & Strategies

What is production planning?

Production planning is the process of developing a strategy for the production of a company’s products and services. It describes how goods will be manufactured, the expected demand for those goods, and any production requirements such as materials or labour.

In most cases, the production planning process will outline the company’s production goals and how they’ll track success, as well as include a schedule for ensuring products are made in time to meet the forecasted demand.

A production plan should consider all aspects of operating a manufacturing business.

Common elements found in a production plan include:

• Production targets
• Manufacturing processes
• Workforce and equipment requirements
• Goals and KPIs
• Production schedules
• Market analysis
• Demand forecasting
• Quantities of materials required

Production planning allows manufacturers to optimise processes and reduce lead times before production begins, or before making any major investments. It also lowers the risks of overproduction and stockouts, greatly increasing the likelihood that production jobs will be finished on time and to the standard customers expect.

What is a production plan?

A production plan is the deliverable which comes out the other end of the production planning process. This document describes in detail every step of the production process investigated and outlined during the planning phase.

Think of your production plan as an instruction manual for manufacturing your products – it tells you what to do and what you’ll need to do it.

Production planning vs production scheduling

Production planning and production scheduling deal with different stages of the manufacturing process. Where production planning provides a top-level overview of how you intend to produce the goods and services customers need, production scheduling is where you get into the weeds of how a product will be made – for example, the exact production times and labour allocation required.

At the end of the production planning process, you will have a detailed plan for achieving your production goals. Production scheduling is the act of putting that plan into action.

The production scheduling process notes down specific times, dates, and deadlines, checks for conflicts and interdependencies, and sets production into motion. It can be a more complex process to manage, particularly when it involves multiple products.

Advantages of production planning

Effective production planning helps companies minimise the cost of manufacturing products while improving customer satisfaction and company profitability. When you have a tight production plan based on accurate forecasting and data analysis, your business will be in a better financial position.

The main benefits of production planning include:

• Business-wide visibility: A production plan lays out all the manufacturing processes and required materials, including what you need to procure and what’s already available. This bird’s eye view of your resources paints a complete picture of your company’s financial health and current production capacity.

• More efficient processes: Production planning highlights inefficiencies, bottlenecks, and causes for concern in your existing manufacturing systems – before production begins. This enables you to tighten up or rethink your approach in advance, so you don’t waste money or effort on slow processes.

• Lower production costs: When your production plan is based on accurate forecasting and careful assessment of your production needs, there will be many opportunities to reduce your expenditure through more efficient processes and smarter purchasing decisions.

• Reduced waste: Optimising processes and inventory means gaining a more accurate understanding of your requirements. When you can identify the wasteful activities and excessive resources slowing you down – and how to eliminate them – your business will operate more productively and be more cost-effective.

• Improved customer satisfaction: Proper production planning helps to reduce manufacturing lead times so customers can receive orders sooner. It also helps prevent missed sales caused by stockouts, as you’re more likely to have the resources and inventory available to meet demand.

In summary, production planning equals improved productivity and cost savings; productivity equals happier customers and faster production; and cost savings result in more revenue and higher margins.

While smaller firms with simple production requirements may be able to survive for a while without any formal production planning in place, it’s an essential process for any business producing a variety of products or dealing with complex manufacturing requirements.

Next, let’s look at the different types of production planning that exist.

5 types of production planning

There are five common types of production planning methods manufacturers may find useful. Here’s a quick recap of what they are and who they’re effective for.

1. Batch production planning

Batch production refers to the production of many similar items all at once – as opposed to producing items individually or one by one. Batch production planning is how you prepare for this method of manufacturing. It involves determining how to maximise resources without causing overproduction or excessive downtime.

In batch production, assembly is generally completed in steps. Items go through the first step of the production process and are then queued for the next stage of the process. This method is known as batch and queue. When performing batch production planning, it’s helpful to identify specific bottlenecks that occur between batches – or when items are in the queue stage.

2. Job production planning   

Job-based production planning, also known as shop or project-based production planning, refers to the production of items one item at a time, either by a single craftsperson or a team.

Often used by smaller or medium-sized manufacturers, job shop production planning is beneficial in circumstances where it’s difficult to bulk-produce a line of products, such as custom furniture.

Job production planning should focus on ensuring there is capacity for customer-requested customisations in the production plan. This may mean purchasing or preparing extra resources, which can be dangerous for more complex jobs, so accurate forecasting is especially important.

3. Flow production planning

Flow production refers to the continuous production of similar and consistently in-demand goods. Flow production planning generally focuses on the assembly line, where the standardisation of goods and equipment can allow for a highly efficient (and constant) flow of production to take place.

The flow production method aims to minimise the amount of finished goods and work-in-process inventory. Correct planning and preparation improve efficiencies and reduce costs right along the supply chain, making it a beneficial practice for you as well as your suppliers and B2B customers.

4. Mass production planning

Mass production planning is the process of prepping to manufacture a large number of identical items in a short time. Because items subject to mass production typically follow the same production process, factory automation and assembly line optimisation are key areas to focus on.

When you’re creating a plan for mass production, it’s helpful to look for ways to reduce changeover time and increase total production output. The benefits of doing so will have a compounding effect wherein a single optimisation, applied to a large quantity of items, results in a massive time or cost saving.

5. Process manufacturing planning

Process manufacturing, or process production, refers to the manufacturing of items that require predetermined formulas or recipes to produce. Unlike discrete manufacturing, process manufacturing deals with goods that are not typically measured in discrete units such as liquids or gases.

Planning for process manufacturing is crucial because of long changeover periods and a high risk of botched production due to errors. This method can also result in a lot of waste, so it’s especially important to try to minimise the number of resources consumed in production.

• Related: The Ultimate Manufacturing Guide for Production Firms

Production planning process explained

The elements of a perfect production plan are exclusive to each business. In other words, what works for another business may not work for you.

Keeping that in mind, there are some distinct steps in the production planning process that almost every manufacturer ought to follow. Here’s a breakdown of what a typical production planning process might look like.

1. Forecast demand

The first step in the production planning process is to determine your upcoming production requirements based on predicted demand for products.

Demand forecasting involves leveraging historical sales data and analytics to estimate future sales.

This information can be used to set your production goals and can be extrapolated to break inventory and labour requirements for an entire period. Additionally, market research can help you predict whether demand is going to change based on external factors such as product popularity and seasonality.

To ensure accurate demand forecasting, many firms rely on inventory optimisation software to automate the number-crunching and data collection processes.

2. Determine inventory needs and production capacity

Once you have an idea of what products you’ll need to manufacture and their quantities, the next step is to figure out how that translates into materials, resources, and labour.

First, you’ll want to determine the quantities of raw materials and components needed to match the requirements of your forecasted demand levels for each product. It’s also important to note down the machinery and staffing needed to turn those materials into finished goods.

How you manage inventory impacts the efficiency with which you can operate on any given day. Effective inventory management results in less waste and wider profit margins. It also ensures you’re making the best use of your storage facilities.

Your organisation’s current production capacity will tell you if you’re ready to tackle the upcoming period’s schedule – or let you know whether you need to consider hiring more staff, renting or buying more equipment, or outsourcing work to third parties.

3. Map out production steps

After confirming how much resources and production time will be needed, it’s time to map out the processes and steps required to produce your goods. This includes identifying any equipment, tools, and service providers you may need.

Once you’ve mapped out your production steps, you’ll be able to work out which processes can be done simultaneously, which are dependent on each other, and which ones need to be outsourced. It’s also a chance to prepare contingencies in case of equipment failure or other issues.

All this feeds into the foundation of the next step in the process: creating your production schedule.

4. Production scheduling

The production scheduling phase is where you assign tasks to your various workstations, communicate the plan to relevant stakeholders, and plot timelines for each stage of production.

This can be a complex effort, which is why accurate data is vital for the earlier planning stages.

Your production schedule should include how, when, and where items will pass through the various stages of manufacturing – and who is responsible for ensuring they do so successfully.

5. Production control and continuous improvement

Once production has begun, monitor your progress and look for further opportunities to improve or optimise specific processes.

Tracking your performance against your goals and deadlines offers two distinct benefits: It allows you to act quickly to resolve unforeseen challenges, and it tells you how accurate or effective your production planning method was this time around.

As you collect production data, use it to make continuous improvements to the way things are run. Rather than look at your production plan as a one-and-done project, think of it as the beginning of a cycle of constant optimisation.

How to schedule a production plan

Production scheduling is a process involving turning your production plan into an actionable timeline with all the necessary details laid out for the involved parties to access.

To schedule a production plan, you’ll need to go through these four phases:

1. Routing: Figure out each step in the journey your raw materials take from the supply chain to the final product. Is it the most economical process or can it be improved?
2. Scheduling & Communication: Take your plan and the steps written out in the prior phase and attach dates and timelines to them. Then communicate those expectations to key stakeholders.
3. Dispatch & Execution: Dispatching is the giving of orders to personnel and assigning people to their tasks. Execution is the delivery of those actionable tasks.
4. Maintenance: This refers to any on-the-fly adjustments of a production schedule necessary to eliminate bottlenecks once production has begun. It involves monitoring and optimising each aspect of your production plan.

Remember the importance of clear communication when it comes to scheduling a production plan. The more time you spend on getting everybody up to speed in the beginning, the less time you’ll have to spend repeating instructions or fixing mistakes later.

Production planning strategies

Let’s take a quick look at some of the strategies you can use to optimise your production planning process. Keep in mind your specific business needs and only use the information that’s relevant to you.

1. Make-to-stock strategy

Make-to-stock refers to producing items to stock them on your shelves until customers buy them.

It’s a particularly useful method in any industry where customers may wish to view an item before purchasing it, such as a car or a musical instrument.

This production planning strategy can increase inventory holding costs and therefore requires accurate demand forecasting. Consider using specialised software to ensure better predictions.

2. Make-to-order strategy

Make-to-order refers to the production of goods only when a customer has placed their order.

Businesses that manufacture unique items or offer a high degree of customisation can benefit from this strategy because it ensures that production always matches demand.

This method typically has slower lead times, but also lower holding costs.

3. Assemble-to-order strategy

Assemble-to-order (or make-to-assemble) is a common production planning strategy among companies which produce perishable goods, as it involves holding all the raw materials you might need but only assembling the product when a customer order comes in. Cake manufacturers, for example, would use an assemble-to-order production plan.

This method results in similar holding costs to make-to-stock strategies, but it can help reduce the chance of wastage and obsolescence; you’re not at risk of producing products customers won’t buy.

4. Chase strategy

A chase strategy refers to the idea of chasing demand with production. In this way, it is also known as a demand-driven production planning strategy.

Following the chase strategy, goods are only made when there is demand for them and production increases or diminishes as demand changes. Companies producing seasonal goods can benefit from applying a chase strategy.

Generally, production planning with this method assumes there will be no leftover stock after the demand wave has died down.

5. Level production

The opposite of a chase strategy is level production, whereby production is constant throughout the year and units are produced equally regardless of the time of year or customer demand.

This production planning strategy is common among manufacturers with cyclical product demand. Snowboard manufacturers, for example, know that demand falls in summer and picks up again before winter.

Inventory holding costs can be quite high in level production. Materials are still stocked to full capacity even when demand is low, but it levels out again during the busy season.

Production factory layout plan: Tips for optimising

Good factory layout planning is key to optimal production and is something you should be considering during the production planning process as it’s your best opportunity to make changes before production begins.

Here are some quick tips for optimising your production factory layout plan:

• Leave room for growth: It’s expensive and disruptive to redesign your factory layout while production is underway. If possible, leave room for flexibility in case of unforeseen changes in production volume or equipment.
• Keep similar manufacturing processes near each other: Keep similar or compatible workstations in close proximity to one another to allow goods to move more efficiently from one stage of production to the next. For example, if drilling follows cutting then see if your drilling machine will slot in beside your drop saw.
• Plan for waste: Where is your waste output going to go? You might require floor space for different types of waste, such as waste which must be thrown out and waste which can be recycled.
• Collaborate with staff: Factory floor planning is best achieved in collaboration with the people who walk that floor every day. Ask your staff where they think the layout could be optimised and what equipment or access might facilitate smoother production.

Finally, don’t forget to consider the cost of making changes to your factory layout.

You may need to close the entire assembly line for a day (or more) to install new equipment, install a mezzanine, or reorganise aisles. In addition to the cost of new equipment, consider how much you’ll lose if manufacturing must be paused.

Production planning KPIs and metrics

When you move from the planning phase into the execution of your manufacturing processes, you’ll need a way to objectively monitor progress.

That’s where these common production planning KPIs can help:

• Production rate: the number of units you’re producing per hour or day.
• Capacity rate: how close your equipment and workforce get to full capacity.
• Downtime: how much of your manufacturing time is unproductive.
• On-time delivery rate: the number of orders delivered on schedule, at the quality expected.
• Rejection rate: the number of products which fail quality control checks.
• Cost per unit: what it costs your business to produce one single unit.

For a longer list of production planning and management metrics, including formulas and definitions, check out our complete guide to manufacturing KPIs.