The goal of production planning is simply to maintain flow, whereas the goal of capacity planning is to maintain a flow in resource usage. Much in the way that a person adjusts faucet spigots to achieve a desired temperature, the individual in charge of this type of planning adjusts the workforce and process flow to obtain a regular use of company resources with minimal downtime, minimal bottlenecks and some level of output consistent with all the resources being put in the process.
Definition of Production Planning
Production planning, or production scheduling, is a term assigned to the planning of production in all aspects, from workforce activities to product delivery. Production planning is almost exclusively seen in manufacturing environments; however, many of the techniques employed in production planning can be and are used by many service-oriented businesses. Understanding the behavior of a process, finding bottlenecks, reducing work-in-process inventories, developing optimal scheduling, forming optimal forecasting methods,, and polishing inventory control methods are the main concerns of production planning.
In a nutshell, production planning is primarily concerned with the efficient use of resources. While it is sometimes referred to as operations planning, and truly employs many of the same techniques, the primary distinguishing characteristic is that production planning is focused on the actual production whereas operations planning looks at the operation as a whole.
Aspects of Production Planning
Production is planned with either a long-term, medium-term or short-term view. Long-term views focus on the major decisions a company makes that influence capacity whereas short-term views focus more on using what a company currently has more efficiently. Medium-term views focus more on adjustments, such as hiring, firing, layoffs, increasing inventory or expecting back orders.
Definition of Capacity Planning
Capacity can be a difficult concept to quantify. Maximum output is calculated by identifying the maximum output of a given period when demand had been highest and assuming that that level of performance could be reproduced on a daily basis; however, this is generally not sustainable and can lead to problems fulfilling demand. Instead, capacity planning is focused on maximizing the capacity of a company in a way that allows it to be more efficient and, thusly, more profitable. Capacity planning at its most basic attempts to match the volume the company is able to produce to the demand in order to avoid downtime by preventing bottlenecks.
Too much capacity can result in a low return on asset investment, whereas as too little capacity can drive away customers. A good capacity plan has a level amount of input (raw materials and other resources) for its output (the actual product) with little to no bottlenecks and little to no downtime.
Methods of Capacity Planning
One popular method of capacity planning is aggregate planning. Aggregate planning basically ties facility planning in with scheduling decisions, and it does so in a way that is quantitative, meaning it produces numbers to back up an operations plan. Plans generally either “chase” demand, adjusting its workforce accordingly or are “level" plans, meaning that labor is relatively constant with fluctuations in demand being met by inventories and back orders. Plans may also be “hybrid,” meaning that they combine these two approaches.
Another popular method of capacity planning is the use of the Theory of Constraints (TOC). TOC serves to answer the question of what to change by using cause-and-effect modeling. It operates on the basic premise that a system can never be better than the weakest part thereof and that solving the problem of what holds the system back depends upon the identification of that constraint and the mitigation thereof. This process is frequently likened to that of a physician diagnosing a patient, designing a treatment plan and executing that plan. TOC is a useful tool in project management because of its ability to look at a system specifically and postulate as to how strong it could be. This methodology is quite useful in creating a starting point toward a solution to various business problems from marketing to supplier relationships to project management.
Incremental Capacity Planning
Forward incremental planning (FIP) is a dynamic planning method. FIP is implemented from the initial receipt of an order. The actions required to fulfill that order are prioritized. The essential goal of FIP is to reduce lag time. While it can be quite effective, the primary limitation of FIP is that it assumes that no other action is in progress, as in no machines are tied up and the workforce was essentially idle until the order was received. This may seem like a huge limitation, and it is for some industries, but for companies that produce products with high levels of customization, FIP can be a powerful tool.
Backward incremental planning (BIP) is the other side of the FIP coin. BIP looks at the requirements from the due date backward and organizes the process accordingly. A good example of this is a bakery. The cake must be fresh for its pickup date, so the baker would look at the steps required to produce the cake and the estimated time required to bake and decorate it. BIP works well in cases where a deadline is more of a requested completion date and completing the order sooner produces no benefit.