Production Planning and Inventory Management Strategies

Production Planning and Scheduling Relationships

1. How are the Production Plan, the Master Production Plan, and Production Scheduling related?

In the Production Plan, long-term strategies of the company are defined according to sales estimates and the availability of financial and productive resources. These plans are generally less detailed and are divided into product families. In the Master Production Plan (MPP), medium-term commitments are defined for the manufacturing and assembling of goods and services. These are established based on production and sales forecasts for the medium term or confirmed orders in the book. Instead of involving broad families of products, the MPP focuses on specific items within those families.

In the Production Program, short-term schedules are set up to determine when to purchase, manufacture, or assemble each item necessary for the composition of final products. This is where Purchase Orders, Manufacturing Orders, and Assembly Orders are sized and issued for products defined in the Master Production Plan. Depending on the availability of productive resources, Production Scheduling manages the sequencing of issued orders to optimize resource utilization.

Pull vs. Push Production Systems

2. What is meant by pulling and pushing a production program? What effect does this have on Production Scheduling activities?

Pull production means not producing until the client (internal or external) of your process requests a particular item. In this case, the production schedule uses the MPP information only to issue orders for the last stage of the productive process and to gauge the amount of in-process inventory for other sectors. As the client process needs an item, it turns to the supplier's stocks, directly triggering the process so that consumed items are manufactured and restocked. This follows the Just-In-Time (JIT) philosophy, usually employing Kanban.

Conversely, push production means periodically preparing to meet the MPP through a complete production program—from the purchase of raw materials to final product assembly. This program is transmitted to the responsible sectors by issuing purchase, manufacturing, and assembly orders. In the next programming period, depending on remaining stocks, the schedule is further adjusted to serve a new MPP, following a conventional production programming perspective.

The Role of Inventory in Manufacturing

3. Why do companies need stock? Why is it said they do not add value to products?

Companies need inventory to:

• Guarantee independence between production stages;
• Allow for continuous production;
• Enable the economic use of production lots;
• Reduce production lead times;
• Act as a safety factor;
• Obtain price advantages.

It is said that stocks do not add value to products because they represent capital that is stopped and not actively undergoing transformation.