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Aggregate Planning

Production Planning & JIT



Production Planning

Long-range planning: Decisions involving top management (e.g. CEO and VP of Manufacturing etc.) for one or more years into the future. Examples:

  • Corporate strategic planning
  • Business forecasting
  • Product and market planning
  • Financial and resource planning

Medium-range planning: Decisions involving middle level management (e.g. plant managers) for 3 to 18 months into the future. Examples:

  • Aggregate production planning (AP)
  • Item forecasting
  • Master production schedule (MPS)
  • Rough-cut capacity planning

Short-range planning: Decisions involving lower level management (e.g. shop superintendents) for days or weeks into the future. Examples:

  • Material requirement planning (MRP)
  • Capacity requirement planning (CRP)
  • Final assembly schedule (FAS)
  • Input/Output planning and control
  • Production activity control
  • Purchase planning and control

Aggregate Production Planning (AP)

Objective: To specify the optimal combination of production rate, work-force level, and inventory on hand to minimize the total production-related cost over the planning horizon.

  • AP requires a standard unit to measure output: e.g. tons, labor hours, or sales dollars etc.
  • AP is demand driven and the accuracy of demand forecast is very important.
  • The complexity of the real world would often makes AP more of an art than a science.

Basic AP strategies:

  • Chase: Matching the capacity with the demand forecast.
  • Level: Maintain a stable production capacity and use inventory to buffer the fluctuation of demand.
  • Counter-seasonal product mixing.
  • Mixed: A combination of strategies.

Some AP solution techniques:

  • Intuitive approach (including graphical method or computer spreadsheet).
  • Mathematical models: LP or transportation method (if the cost structure is simple).
  • Computer simulation.
  • Heuristic solutions: linear decision rules and management coefficients models, etc.

Different Approaches to Production Planning and Control

(1) Pond draining:

  • Buffer stocks are kept between each stage of production process.
  • Minimum amount of communication is required to coordinate work stations's schedules.
  • Requirement: Sound inventory policy.

(2) Push system:

  • Emphasis is on using information about customers, production and suppliers to control material flows.
  • The flow of material (timing, quantity etc) are planned and controlled by a series of schedules.
  • Requirement: Accuracy of information and schedules.

(3) Pull system:

  • Emphasis is on reducing inventory level at every stage of production.
  • The last (down-stream) production stage activates the production.
  • Implemented with the principle of JIT.
  • Requirement: Stable and level production schedule and small batch production.

(4) Systems focusing on bottleneck operations:

  • Optimized Production Technology (OPT).
  • Others such as Q Control.

Just-In-Time Manufacturing

JIT as a philosophy of operations management: It encompasses all aspects of a firm's productive activities -- human resources, vendor relations, technology and material management, etc.

JIT as a production-control method: It includes JIT purchasing, delivery, and inventory management, etc.

The benefits of JIT (e.g., as evidenced in Japanese automobile industry) include:

  • Better quality products.
  • Higher inventory turnover.
  • Higher productivity.
  • Lower production costs.

Three fundamental concepts to JIT production system:

  • Elimination of waste: Production of only the minimum necessary units in the smallest possible quantities (lot sizes) at the latest possible time.
  • Employee Participation.
  • Integrated systems.

JIT Concept of Elimination of Waste

(Note: Due to the differences in cultural, economic, and logistic factors, not all JIT practices are applicable to U.S. manufacturers.)

(1) Focused factory [plant size]: Small, specialized plants that make parts for a single major manufacturer. Keiretsu (large holding companies): maintain close linkage but independent operations.

(2) Group technology [facility layout]: Process all parts with similar operations in the same manufacturing cell that eliminate waiting and moving times.

(3) Quality at the source [quality control]: "Quality is built-in, not inspected-in."

  • Workers are responsible for their own works.
  • An operator can stop an assembly line if something goes wrong (Jidoka).
  • Automated inspection devices are installed wherever appropriate.

(4) Just-in-time production [inventory management]: Maintain minimum inventory level and small lot sizes and make no allowance for contingency. Inventory is the "root of all evils."

(5) Uniform plant loading [level production schedule]:

  • Set up a firm production plan with the output rate is frozen for the nearest future.
  • Produce the same mix everyday even if the quantities of some items are small.

(6) Kanban system [production control tool]:

  • A manual, pull system (vs. computerized, push MRP system).
  • The initial pull is exerted by the final assembly schedule (FAS).
  • The concept can be extended to vendor: JIT purchasing.

(7) Minimized setup times [work method improvement]:

  • Separate setup into internal and external setup procedures.
  • Apply the time and motion studies and practice.
  Lean Flexible System (Just-in-Time System) Buffered/Rigid System (Just-in-Case System)
Production System Customers' orders pull the products through the factory The system pushes the products through the factory
Production Lot Size Small batches are made with reduced setup time Large batches are made due to high setup time
Process Design Concurrent engineering design is applied Process is designed after product has been designed
Inventory Turnover High turnover with minimum inventory level Low turnover due to high inventory level
Suppliers Fewer number and they are helped, informed, and kept close Supplier's are kept at arms length
Employees Multi-skilled, flexible and work well in teams Specialized and with strict work rules
Decision-making Empowerment of workers enables quick response Centralized at management level
Quality Everyone's responsibility Q.C. Inspector's Job
System Improvement Emphasis is on small but continuous improvements "If it ain't broke, don't fix it" attitude


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