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Definition Of Strategic Planning For Production Activities

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Definition Of Strategic Planning For Production Activities

Strategic planning for production activities is broad overall planning. This planning is done before production planning is made. The strategic planning for this production is different from the production planning that we know so far. Strategic planning only provides a broad view while production planning provides important details and overall details of the production activities.

Strategic planning for production is done after considering the latest objectives of the organization or company and current environmental conditions. This is a guide to the decision to be taken later. All other production plans are based on this strategic plan.

Strategic planning for the purpose of production (bringing together) a production plant with the overall (main) plan and strategy of the organization or company. It also coordinates production plans with other departments such as financial plans, purchase plans, marketing plans, and so on.

So, strategic planning for production has a wider scope with the production plan alone. This tells us how the organization or company will achieve production goals later.

Strategic planning for production is very useful for the following things:
  • Plan the production design.
  • To know the number of skilled, semi-skilled, and unskilled workers required for production activities.
  • Prepare the Department plan.
Strategic production planning is done to achieve the main objectives of the organization or company. The main goal of most organizations is to increase sales and gain high profits for the company. These two objectives can be achieved if the consumer is satisfied with what they get.

So, planners have to try their very hard and trying to satisfy consumers. They should find out and meet the needs and expectations of consumers. They should be able to design and create products to meet the demands of such consumers. They should also consider the engineering aspect and cost of production. That is, they should try to produce a better product in terms of quality and cheap on the cost side.

If the strategic planning for the production is successful, then all consumers will be satisfied, and it will certainly increase the sales and profitability of the company.

Production Planning System

A good planning system should be able to answer the following four important questions:
  • What will we make?
  • What does it take to make it?
  • What do we have?
  • What do we need?
Priority is a thing that is set by market demand, with regards to what products are needed, how much is required, and when they will be needed.

While capacity is the manufacturing ability to produce goods and services. It depends on the company's resources and the availability of materials from suppliers that support their production activities.

Manufacturing Planning And Controlling System

There are five main levels in manufacturing planning and control systems such as the following:
  • Strategic Business Plan
  • Production plan (sales plan and operations)
  • Production Master Schedule
  • Requirement Plan (MRP) and material purchase
  • Control of production activities
Each level varies in destination, time span (planning), detail, and cycle planning (frequency).

At each level, there are three questions that must be answered, namely:
  • Priority (how much of what will be produced and when realized)?
  • What is the available capacity (what resources do we have)?
  • How can the difference between priorities and capacity be resolved?
Strategic Business Plan

This is a senior management statement from a broad point of view of the company, the main objectives, and objectives of the company expected to be achieved for the next two to ten years.

It is based on a long-term estimate by providing a framework that sets goals and objectives for further planning on marketing, finance, engineering, and production or operations. The level of detail is not very important and not a top priority. This relates to the general market needs and production capacity. It is often expressed in the form of value money rather than units.

Production Plan

Given the objectives defined by the Strategic Business Plan, the production management relates to the amount of each product group or type that must be manufactured at each period, the desired supply level, the equipment resources, manpower, and required materials in each of those periods, as well as the availability of resources required. For effective planning, there should be a balance between priority and production capacity. Forecast planning is usually between six to 18 months ahead and revisited every month or per three months.

Master Production Schedule (MPS)

The MPS is a plan to produce any type that will be in production. The MPS is created day per day, and the quantity of each type will be created. Input into the MPS, forecasts for each type, sales order, inventory, and existing capacity. The level of detail for the MPS is usually higher than the production plan because it is more specific.

Forecast planning usually extends from three to 18 months, but it depends heavily on the purchase and the manufacturing lead time itself. The Master Production Schedule (MPS) scheduling describes the MPS development process and will typically be reviewed and changed weekly or monthly.

Material Requisition Planning (MRP)

The MRP is a plan to support production activities by calculating the material needs and purchase plans of components or services used in the manufacture of the existing product types in the MPS. The MRP specifies every component and service required to create each type of product. MRP has a high level of detail. The Forecast of needs and purchase planning of this material is similar to the MPS, from 3 to 18 months.

Production Activities Control

These production control activities represent the implementation and control of each existing stage (execution phase). This control activity is responsible for planning and controlling workflows through factories. This Forecast planning control is very short with a high level of detail.

Capacity Management

At every level in manufacturing planning and control systems, priority plans should be tested against available resources and production capacity. The basic process to do is to calculate the capacity needed to produce a priority plan and find the right method to make available capacity. If the capacity cannot be provided, the production plan must be changed.

Operation And Sales Planning (SNOP)

It is a process to continuously revise strategic business plans and coordination plans from the various departments involved. The planning of operations and Sales is a cross-functional plan of business involving sales and marketing, product development, operations, and management. The operation represents supply, whereas marketing represents demand. SNOP is a forum where production plans are developed and a dynamic process where company plans are updated regularly, at least monthly.

Manufacturing Resource Planning

The manufacturing planning and integrated control system is called manufacturing resource planning and this is a different matter with the material needs planning (MRP) that I have described above.

Enterprise Resource Planning (ERP)

ERP is an accounting-oriented information system to identify and plan the vast corporate resources needed to create, send, and account for customer orders. ERP encompasses the company's total and manufacturing resource planning.

Creating a Production Plan

Line Production
image via freepik

Things that concern in making a production plan include:

1. Based on the market plan and the available resources, then the production plan sets the limit or the level of manufacturing activity for some time in the future decisively. Production plans set a general level of production and supply of forecast planning.

Its main objective is to establish the production level that will achieve the objectives of the strategic Business plan, including the level of inventory, backlogs, market demands, customer service, operating costs, labor relations, and so on. The plan should cover the entire future in order to plan the work, equipment, facilities, and materials needed to achieve it.

2. For planning purposes, the general unit or a small number of product groups based on the similarity of the manufacturing process is what is needed. Manufacturing is usually more concerned with the demand for the specific type of capacity needed to create a product in comparison to the demand for a particular product, and here is the real challenge.

3. Capacity is the ability of production to produce goods and services. This means companies must have the resources available to meet customers ' demands. Capacity can be expressed as an available time or as the number of units or money generated in a given period.

Demand for goods must be translated into capacity requests. It requires us to identify a group of products, products based on the similarity manufacturing process.

The following are some of the actions that are usually done to adjust the production capacity, among others:
  • Workers or employees can be employed and terminated, overtime, shifts in working hours, and so on.
  • Inventory can be constructed in a period when the sales demand is not so high and then sold or consumed when the demand suddenly soared high.
  • Work can be subcontracted or additional equipment can be rented.
Manufacturing management is responsible for determining alternative options that are the least inexpensive but consistent with the objectives and objectives of the company's business.

4. There are four basic strategies that can be used in developing production plans, namely:

Pursuing strategies (matching requests)

The essence of this strategy is how to produce the number of product types requested at any given time. The inventory level remains stable while the type of products in production can vary to meet the demand.

Leveling the number of goods in production

The essence of this is that production continues to produce an equal amount of the average demand (fixed). The company calculates its total demand over a specified span of time and ensures production is able to meet the fixed demand. 

Production leveling means the company will use resources at the interest rate and generate the same amount every day. The advantage is that it will produce a smooth operating level and avoid the emergence of changes in the production process. The disadvantage is that the stock level of the finished goods inventory will increase.


Subcontracting means producing goods at the minimum demand level and fulfilling additional requests through subcontracting. The costs associated with excess capacity are avoided, and because the production is spread out, there are no costs associated with the production change. 

The disadvantage is that the cost of purchasing goods from a supplier may be greater in value when compared to the items made in the factory.

Hybrid strategy

A hybrid strategy is a combination of three types of strategies. Production management is responsible for finding a combination of strategies that minimize the amount of all costs involved in the production process, delivering the necessary level of service, and fulfilling the objectives of the financial and marketing plan.

The goal of developing a production plan is to minimize inventory costs, change production levels, and sticking out. The information needed to create a production plan is:

a. Estimates according to the period for the forecast planning, inventory opening, desired end supplies, and the history of the number of customer orders in the past.

b. Make-to-Stock production plan, meaning that the product is manufactured and incorporated into the inventory before the order is received. Sales and deliveries are made from the inventory. 

Making supplies when demand is quite stable and predictable, there are multiple product options, the delivery time demanded by the market is much shorter than the time it takes to make a product, and the product has a long shelf life.

c. Production plan level, common procedure to develop a plan for a total production rate of expected demand for forecast planning, determine inventory opening and end desired inventory, calculating the total production required. 

The way is (Total production = Total Forecast + Repeat Order + end of inventory – Open inventory), calculating production is required for each period by dividing the total production by the number of periods and then calculating the final inventory for each of those periods.

d. Make-to-order production plan, meaning to wait until the order is received from the customer before starting to produce the order goods.

The company establishes a policy for producing goods when:
  • The manufactured goods conform to customer specifications
  • Customers are willing to wait while their order is being made
  • The product has an expensive selling value to make and store it.
So that is an article about the definition of strategic planning for production activities. Hopefully, this article will be useful to you.

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