Section – Production plan in the business plan. Writing a business plan: production plan
INTRODUCTION
This chapter introduces the reader to the production planning and control system. First we'll talk about the system as a whole, then we'll talk more about some aspects of production planning. The following chapters cover master production scheduling, resource planning, performance management, production control, purchasing, and forecasting.
Manufacturing is a complex task. Some companies produce a limited number of types of products, others offer a wide range. But each enterprise uses different processes, mechanisms, equipment, labor skills and materials. To make a profit, a company must organize all these factors in such a way as to produce the desired goods of the highest quality in right time with minimal costs. This is a complex problem and will require an effective planning and control system to address it.
A good planning system must answer four questions:
1. What are we going to produce?
2. What do we need for this?
3. What do we have?
4. What else do we need?
These are priority and performance issues.
A priority- this is what products are needed, how many of them are required, and when they are needed. Priorities are set by the market. It is the responsibility of the production department to develop plans to meet market demand whenever possible.
Performance is the ability of production to produce goods and services. Ultimately, it depends on the company's resources - equipment, labor and financial resources, as well as the ability to obtain materials from suppliers in a timely manner. Over a short period of time, productivity (production capacity) is the amount of work that can be completed with the help of labor and equipment in a certain time frame.
There should be a relationship between priority and performance, shown graphically in Figure 2. 1.
Figure 2.1 Relationship between priority and performance.
Over the short and long term, the production department must develop plans to balance market demand with available production resources, inventory, and productivity. When making long-term decisions, such as building new plants or purchasing new equipment, plans need to be developed several years in advance. When planning production for the next few weeks, the time period in question is measured in days or weeks. We will look at this hierarchy of planning, from long-term to short-term, in the next section.
PRODUCTION PLANNING AND CONTROL SYSTEM
The production planning and control (MPC) system consists of five main levels:
- Strategic business plan;
- Production plan (sales and operations plan);
- Master production schedule;
- Resource requirement plan;
- Procurement and control over production activities.
Each level has its own objective, duration and level of detail. As we move from strategic planning to operational control, the task changes from setting general direction to specific detailed planning, the duration decreases from years to days, and the level of detail increases from general categories to individual conveyors and pieces of equipment.
Since each level has its own duration and tasks, the following aspects also differ:
- Purpose of the plan;
- Planning horizon - the period of time from the current moment to one or another day in the future for which the plan is designed;
- Level of detail – detail of the products necessary to implement the plan;
- Planning cycle – frequency of plan revision.
At each level you need to answer three questions:
1. What are the priorities - what needs to be produced, in what quantity and when?
2. What production capacity do we have at our disposal - what resources do we have?
3. How can discrepancies between priorities and performance be resolved?
Figure 2.2 illustrates the planning hierarchy. The first four levels are planning levels. . The plans result in the initiation of the purchase or production of what is needed.
The last level is the implementation of plans through control of production activities and procurement.
Figure 2.2 Production planning and control system.
In the following sections, we will look at the goal, horizon, level of detail, and cycle at each level of planning.
Strategic business plan
A strategic business plan is a statement of the main goals and objectives that the company expects to achieve within a period of two to ten years or longer. This is a statement of the general direction of the company, describing the type of business that the company wants to do in the future - subject-production specialization, markets, etc. The plan gives a general idea of how the company intends to achieve these goals. It is based on long-term forecasts, and the marketing, financial, production and technical departments take part in its development. In turn, this plan provides direction and ensures coordination of marketing, production, financial and technical plans.
Marketing specialists analyze the market and make decisions regarding the company’s actions in the current situation: they determine the markets in which work will be carried out, the products that will be supplied, the required level of customer service, pricing policy, promotion strategy, etc.
The finance department decides from what sources to obtain and how to use the company's funds, cash flow, profit, return on invested capital, and budgetary funds.
Production must satisfy market demand. To do this, it uses units, mechanisms, equipment, labor and materials as efficiently as possible.
The technical department is responsible for research, development and design of new products and improvement of existing ones.
Technical specialists work closely with marketing and production departments to develop product designs that will sell well in the market, and which will require minimal production costs.
The development of a strategic business plan is the responsibility of the company's management. Based on information received from the marketing, finance and production departments, the strategic business plan defines a general framework in accordance with which goals and objectives for further planning are set in the marketing, financial, technical and production departments. Each department develops its own plan for achieving the objectives set by the strategic business plan. These plans are consistent with each other, as well as with the strategic business plan. This relationship is illustrated in Fig. 2. 3.
The level of detail in the strategic business plan is low. This plan affects General requirements market and production - for example, the market as a whole for major product groups - rather than sales of individual products. It often contains figures in dollars rather than units.
Strategic business plans are usually reviewed semi-annually or annually.
Based on the objectives set in the strategic business plan, the management of the production department makes decisions on the following issues:
- The number of products in each group that is required to be produced in each time period;
- Desired level of inventories;
- Equipment, labor and materials needed at each time period;
- Availability necessary resources.
The level of detail is low. For example, if a company produces different models of children's two-wheelers, three-wheelers, and scooters, and each model has many options, then the production plan will reflect the main product groups, or families: two-wheelers, tricycles, and scooters.
Specialists must develop a production plan that satisfies market demand without exceeding the company's available resources.
Figure 2.3 Business plan.
This will require determining what resources are needed to meet market demand, comparing them with available resources, and developing a plan that coordinates one with the other.
This process of determining the required resources and comparing them with those available is carried out at each level of planning and represents the task of performance management. Effective planning requires a balance between priorities and productivity.
Along with the marketing and financial plan, the production plan affects the implementation of the strategic business plan.
The planning horizon is usually from six to 18 months, and the plan is reviewed monthly or quarterly.
Master production schedule
A master production schedule (MPS) is a plan for the production of individual finished products. It provides a breakdown of the production plan, reflecting the number of final products of each type that need to be produced in each time period. For example, this plan might specify that 200 Model A23 scooters need to be produced each week. The input to developing an MPS is the production plan, forecasts for individual end products, purchase orders, inventory information, and existing production capacity.
The level of detail of the MPS is higher than that of the production plan. While the production schedule is based on product families (tricycles), the master production schedule is developed for individual end products (for example, each model of tricycle). The planning horizon can be from three to 18 months, but first of all it depends on the duration of the procurement processes or production itself. We'll talk about this in Chapter 3, in the section on master production scheduling. The term master scheduling refers to the process of developing a master production schedule.
The term master production schedule refers to the end result of this process. Plans are typically reviewed and modified weekly or monthly.
Resource requirement plan
A resource requirement plan (MRP)* is a plan for the production and procurement of components that are used in the manufacture of products provided for in the master production schedule.
It indicates the required quantities and the timing of their intended production or use in production. Purchasing and production control departments use MRP to make decisions about whether to initiate purchases or manufacture a specific product line.
The level of detail is high. The resource requirement plan indicates when raw materials, supplies, and components will be needed to produce each final product.
The planning horizon must be no less than the total duration of the procurement and production processes. As with the master production schedule, it ranges from three to 18 months.
Procurement and control over production activities
Figure 2.4 Relationship between level of detail and planning horizon.
Purchasing and production control (PAC) represents the implementation and control phase of a production planning and control system. The procurement process is responsible for organizing and controlling the receipt of raw materials, supplies and components to the enterprise. Control over production activities is planning the sequence of technological operations in an enterprise and control over it.
The planning horizon is very short, approximately from a day to a month. The level of detail is high as it deals with specific assembly lines, equipment and orders. Plans are reviewed and changed daily.
In Fig. 2. 4 shows the relationship between by various means planning horizons and levels of detail.
In subsequent chapters we will look in more detail at the levels discussed in previous sections. This chapter is about production planning. Next we will talk about master scheduling, planning resource requirements and controlling production activities.
Performance Management
At each level of the production planning and control system, it is necessary to check the compliance of the priority plan with the available resources and the productivity of production facilities. Chapter 5 describes performance management in more detail. For now, it is enough to understand that the basic process of managing production and enterprise resources involves calculating the productivity required to produce according to a priority plan and finding methods to achieve such productivity. Without this, there can be no effective, workable production plan. If the required performance cannot be achieved at the right time, the plan needs to be changed.
Determining the required productivity, comparing it with existing productivity and making adjustments (or changing plans) must be carried out at all levels of the production planning and control system.
Every few years, mechanisms, equipment and units may be put into operation or stopped working. However, during the periods considered at the stages from production planning to control over production activities, changes of this kind cannot be made. During these periods of time, you can change the number of shifts, overtime procedures, subcontracting of work, and so on.
SALES AND OPERATIONS PLANNING (SOP)
A strategic business plan combines the plans of all departments of the organization and is updated, as a rule, annually. However, these plans should be adjusted from time to time to take into account recent forecasts and recent changes in market and economic conditions. Sales and Operations Planning (SOP) is a process designed to continually review the strategic business plan and coordinate the plans of various departments. An SOP is a cross-functional business plan covering sales and marketing, product development, operations, and business management. Operations represents supply and marketing represents demand. . SOP is the forum in which the production plan is developed.
The strategic business plan is updated annually, and sales and operations planning is a dynamic process during which the company's plans are adjusted regularly, usually at least once a month. The process begins with the sales and marketing departments, which compare actual demand with sales plans, assess market potential, and forecast future demand. The adjusted marketing plan is then passed on to the production, technical and finance departments, who amend their plans in accordance with the revised marketing plan. If these departments decide that they cannot implement the new marketing plan, it will need to be changed.
In this way, the strategic business plan is continually reviewed throughout the year and consistency across departments is ensured. In Fig. Figure 2.5 shows the relationship between the strategic business plan and the sales and operations plan.
Sales and operations planning is designed to average duration and includes a marketing, production, technical and financial plan. Sales and operations planning has a number of advantages:
- It serves as a means of adjusting the strategic business plan to take into account changing conditions.
- It serves as a change management tool. Instead of reacting to changes in the market or economy after they happen, managers using SOPs study the economic situation at least once a month and are in a better position to plan for change.
- Planning ensures that the plans of the various departments are realistic, consistent and consistent with the business plan.
- It allows you to develop a realistic plan to achieve your company's goals.
- It allows you to more effectively manage production, inventories and financing.
MANUFACTURING RESOURCE PLANNING (MRP II)
Because a large amount of data and many calculations will be required, the production planning and control system will probably need to be computerized. If you do not use a computer, you will have to spend too much time and effort on manual calculations, and the company's efficiency will be compromised. Instead of scheduling needs throughout the planning system, a company may be forced to extend lead times and build inventory to compensate for the inability to quickly schedule what will be needed when.
Figure 2.5 Sales and Operations Planning.
It is intended to be a fully integrated top-down planning and control system with bottom-up feedback. Strategic business planning integrates the plans and activities of marketing, finance, and operations to develop plans to achieve overall company goals.
In turn, master production scheduling, resource planning, production control and purchasing are aimed at achieving the goals of the production plan and strategic business plan and, ultimately, the company. If performance issues make it necessary to adjust the priority plan at any planning level, the changes made should be reflected at the above levels. Thus, feedback must occur everywhere in the system.
The strategic business plan combines the plans of the marketing, financial and production departments. The marketing department must recognize its plans as realistic and feasible.
Finance must agree that the plans are financially attractive, and production must demonstrate the ability to meet the corresponding demand. As we have already said, the production planning and control system determines the general strategy for all divisions of the company. This fully integrated planning and control system is called production resource planning system, or MRP II. The concept of “MRP II” is used to distinguish the “production resource plan” ((MRP II) from the “resource requirements plan” ((MRP). MRP II ensures the coordination of marketing and production.
The marketing, finance, and production departments agree on a common, workable plan, expressed in a production plan. Marketing and production departments must collaborate weekly and daily to adjust the plan to reflect changes. It may be necessary to change the order size, cancel the order or confirm a suitable delivery date. Changes of this kind are carried out within the framework of the master production schedule. Marketing and production managers can make changes to master production schedules based on changes in forecast demand. Enterprise management can change the production plan in accordance with general changes in demand or resource situation. However, all employees work within the MRP II system. It serves as a mechanism for coordinating the work of the company’s marketing, financial, production and other departments. MRP II is a method for efficient planning of all resources manufacturing enterprise.
The MRP II system is shown schematically in Fig. 2. 6. Pay attention to existing feedback loops.
Figure 2.6 Manufacturing resource planning (MRP II).
ENTERPRISE RESOURCE PLANNING (ERP)
An ERP system is similar to an MRP II system, but it is not limited to manufacturing. The entire enterprise as a whole is taken into account. The ninth edition of the APICS Dictionary of the American Association for Production and Inventory Control (APICS) defines ERP as follows: designed for reporting Information system Enterprise identification and planning—global resources needed to produce, transport, and report customer orders. For full operation, applications must be provided for planning, scheduling, costing, and so on at all levels of the organization, in work centers, departments, divisions, and all of them together.
It is important to note that ERP covers the entire company, while MRP II relates to production.
DEVELOPING A PRODUCTION PLAN
We briefly reviewed the goal, planning horizon, and level of detail of the production plan. In this section, we’ll talk more about developing production plans.
Based on marketing plan and information about available resources, a production plan sets limits or levels of production activity at some point in the future. It integrates enterprise capabilities and performance with marketing and financial plans to achieve the company's overall business goals.
The production plan establishes the general levels of production and inventories for the period corresponding to the planning horizon. The primary goal is to determine production standards that will allow the objectives set in the strategic business plan to be achieved. These include inventory levels, order backlog (customer order backlog), market demand, customer service, cost-effective equipment operation, labor relations, and so on. The plan must cover a period long enough to provide for what labor, equipment, facilities, and materials will be needed to complete it. Typically this period ranges from 6 to 18 months and is divided into months and sometimes weeks.
The planning process at this level does not take into account details such as individual products, colors, styles or options. Since a long period of time is being considered and demand cannot be forecast with certainty over such a period, such detail would be inaccurate and unhelpful, and the development of a plan would be too expensive. Planning requires only a total unit of production or several groups of products.
Definition of product groups
Firms that produce one type of product or a range of similar products can measure output directly as the number of units they produce. For example, a brewery might use kegs of beer as its common denominator.
However, many companies produce several different types products, and it may be difficult or impossible for them to find a common denominator to measure the total volume of production. In this case, you need to enter product groups. While marketing specialists naturally view products from the customer's perspective, based on their functionality and application, the manufacturing department categorizes products based on processes. Thus, the firm must define product groups based on similarities in manufacturing processes.
The production department must ensure sufficient capacity for production necessary products. It is more concerned with the demand for specific types of productivity resources required for the production of products than with the demand for the products themselves.
Productivity is the ability to produce goods and services. This term refers to the availability of resources necessary to meet demand. Over the period of time to which a production plan relates, productivity may be expressed as the time available, or sometimes as the number of units that can be produced in that time, or the dollars that can be generated. Demand for goods needs to be converted into demand for productivity. At the production planning level, where fine detail is required, this requires groups, or families of products, based on similarities in production processes. For example, the production of several models of calculators may require the same processes and the same productivity, regardless of differences between models. These calculators will belong to the same product family.
During the time period covered by the production plan, it is usually not possible to make major changes in productivity. During this period, it is impossible or very difficult to make additions or decommission components of workshops and equipment. However, some changes can be made, and it is the responsibility of production management to identify and evaluate such opportunities. Typically the following changes are acceptable:
- You can hire and fire employees, introduce overtime and shortened working hours, increase or decrease the number of shifts.
- During a downturn in business activity, you can create inventories, and when demand increases, you can sell or use them.
- You can subcontract the work or rent additional equipment. Each option has its own benefits and costs. Production managers must find the cheapest option that meets the goals and objectives of the business. Basic Strategies So, the production planning problem usually has the following characteristics:
- A planning horizon of 12 months is used, with periodic updates such as monthly or quarterly.
- Manufacturing demand consists of one or more product families or common units.
- There are fluctuations or seasonal changes demand
- During the period provided for by the planning horizon, workshops and equipment do not change.
- They stand before the management various tasks, for example, maintaining a small volume of inventories, efficient operation of production facilities, high level customer service and good working relationships.
Let's say the forecasted demand for a certain group of products is shown in Fig. 2. 7. Please note that demand is seasonal.
Three basic strategies can be used when developing a production plan:
1. Pursuit strategy;
2. Uniform production;
3. Subcontracting. Pursuit strategy (demand satisfaction). The pursuit strategy refers to the production of the volume required in this moment. The level of inventories remains the same, and the volume of production changes in accordance with the level of demand. This strategy is shown in Fig. 2.8.
Figure 2.7 Hypothetical demand curve.
Figure 2.8 Demand satisfaction strategy.
The company produces a volume of products that is just enough to satisfy demand at a given time. In some industries it is possible to use only this strategy. For example, farmers must produce during the period when it can be grown. Post offices must process letters during the busy period before Christmas and during the slow periods. Restaurants are required to serve food when customers order it. Such enterprises cannot stock up and accumulate products; they must be able to meet demand when it arises.
In these cases, companies must have sufficient capacity to be able to meet peak demand. Farmers need to have enough machinery and equipment to harvest their crops in the summer, although this equipment will be idle in the winter. Companies are forced to hire and train employees to work during peak periods, and fire them after this period. Sometimes it is necessary to introduce additional shifts and overtime work. All these changes increase costs.
The advantage of the pursuit strategy is that the amount of inventory can be kept to a minimum. A product is produced when there is a demand for it and is not stockpiled. Thus, it is possible to avoid the costs associated with storing inventories. These costs can be quite high, as discussed in Chapter 9 on the basics of inventories.
Figure 2.9 Level production strategy.
Uniform production. With uniform production, a volume of output equal to average demand is constantly produced. This relationship is shown in Fig. 2. 9. Enterprises calculate the total demand for the period covered by the plan and, on average, produce sufficient volume to satisfy this demand. Sometimes demand is less than the volume produced, in which case inventories accumulate. In other periods, demand exceeds production volume, then inventories are used.
The advantage of a level production strategy is that operation is carried out at a constant level and this avoids the cost of changing production levels.
The enterprise does not have to maintain excess productivity resources to meet peak demand. There is no need to hire and train workers and then fire them during slow periods. It is possible to form a sustainable labor collective. The disadvantage is the accumulation of inventories during periods of decreased demand.
Storing these inventories requires cash costs.
Uniform production means that a company uses production capacity at the same pace and produces the same amount of output on each working day. The amount produced per month (and sometimes per week) will vary because different months different number of working days.
EXAMPLE
A company wants to produce 10,000 units of a product over the next three months at a uniform rate. The first month has 20 working days, the second - 21 working days, and the third - 12 working days due to the annual closure of the enterprise. What quantity should the company produce on average per day to ensure uniform production?
Answer
Total production volume – 10,000 units
Total number of working days =20 +21 +12 =53 days
Average daily production =10,000 /53 =188.7 units
Figure 2.10 Subcontracting.
Some types of products for which demand varies greatly between seasons, such as Christmas tree decorations, will require some form of uniform production. The costs of maintaining idle production resources, of hiring, training, and firing employees using a pursuit strategy will be excessive.
Subcontract. As a pure strategy, subcontracting means constantly producing at minimum demand and subcontracting to meet higher demand. Subcontracting can mean purchasing shortfalls or rejecting additional demand. In the latter case, you can raise prices when demand increases or increase lead times This strategy is shown in Figure 2.10.
The main advantage of this strategy is the cost.
There are no costs associated with maintaining additional production resources and, since production is carried out uniformly, there are no costs for changes in production volume. The main disadvantage is that the purchase price (cost of the product, procurement, transportation and inspection) may be higher than the cost of the product when manufactured at enterprise.
Businesses rarely make everything they need themselves, or, on the contrary, buy everything they need. The decision about which products to buy and which to make themselves depends mainly on cost, but there are several other factors that can be taken into account .
A company may decide in favor of production in order to maintain the confidentiality of processes within the enterprise, guarantee the level of quality, and ensure employment of employees.
It is possible to purchase from a supplier who specializes in the design and manufacture of certain components, to enable the enterprise to focus on its area of specialization, or to be able to offer accepted and competitive prices.
For many items, such as nuts and bolts or components that the company does not normally produce, the decision is obvious. For other items within the company's area of expertise, a decision will need to be made whether to subcontract.
Hybrid strategy. The three strategies discussed above are variants of pure strategies. Each has its own costs: equipment, hiring/firing, overtime, inventory, and subcontracting. In fact, a company can use a variety of hybrid hybrid hybrid hybrid hybrid, or combined strategies. Each of them has its own set of cost characteristics. It is the responsibility of the production department management to find a combination of strategies that will minimize the total cost, while ensuring the required level of service and meeting the objectives of the financial and marketing plans.
Figure 2.11 Hybrid strategy.
One of the possible hybrid plans is shown in Fig. 2.11.
Demand is met to some extent, production is somewhat uniform, and some subcontracting is done during the peak period. This plan is just one of many options that can be developed.
Developing an inventory production plan
In a situation where products are produced for the purpose of replenishing warehouse stocks, the products are manufactured and inventories are created from them before receiving an order from the customer. Those goods that constitute inventories are sold and delivered. Examples of such products are ready-made clothing, frozen foods and bicycles.
Firms typically produce inventory when:
- Demand is fairly constant and predictable;
- Products vary slightly;
- The market requires delivery in much more short time than the production time of the product;
- The products have a long shelf life. To develop a production plan, the following information is required:
- Demand forecast for the period covered by the planning period;
- Data on the volume of inventories at the beginning of the planning period;
- Data on the required volumes of inventories at the end of the planning period;
- Information about current customer refusals of orders and about orders with overdue payment, customer orders. That is, about orders for which the decision on shipment is delayed;
The purpose of developing a production plan is to minimize the costs of storing inventories, changing production levels, as well as the likelihood of the required products not being in stock (the inability to deliver the required product to the client on time).
In this section, we will develop a uniform production plan and a pursuit strategy plan.
Let's consider the general procedure for developing a plan for uniform production.
1.Calculate the total forecast demand for the planning horizon period.
2. Set the initial volume of inventories and the required final volume.
3.Calculate the total volume of products that need to be produced using the formula:
Total production volume = total forecast + backlog orders + final volume of inventories – initial volume of inventories
4. Calculate the volume of products that need to be produced in each period; to do this, divide the total volume of products by the number of periods.
5.Calculate the final volume of inventories in each period.
EXAMPLE
Amalgamated Fish Sinkers manufactures fishing rod sinkers and wants to develop a production plan for this type of product.
The expected initial quantity of inventory is 100 sets, and by the end of the planning period the company wants to reduce this volume to 80 sets. The number of working days in each period is the same. There are no refusals or unpaid orders.
The projected demand for sinkers is shown in the table:
| Period | 1 | 2 | 3 | 4 | 5 | Total |
| Forecast (sets) | 110 | 120 | 130 | 120 | 120 | 600 |
a.What volume of output should be produced in each period?
b.What is the ending inventory in each period?
c.If inventory holding costs are $5 per set in each period based on ending inventory, what will be the total inventory holding costs?
d.What will be the total cost of the plan?
Answer
a. Required total volume of products produced = 600 +80 – 100 ==580 sets
Volume of products produced in each period = 580/5 = 116 sets
b.Final volume of inventories = initial volume of inventories + volume of manufactured products - demand
The final volume of inventories after the first period = 100 + 116 – 110 == 106 sets
The final volume of inventories in each period is calculated in the same way, as shown in Fig. 2.12.
The final volume of inventories in period 1 is the initial volume of inventories for period 2:
Final volume of inventories (period 2) = 106 +116 – 120 == 102 sets
c. The total cost of storing inventories will be: (106 +102 +88 +84 +80)x $5 = $2300
d. Since there were no situations where goods were out of stock and the level of production did not change, this will be the total amount of costs according to the plan.
Figure 2.12 Level production plan: inventory production.
Pursuit Strategy: Amalgamated Fish Sinkers produces another line of products called “fish feeders.” Unfortunately, this is a perishable product and the company does not have the ability to build up inventories to sell them later. It is necessary to use a pursuit strategy and produce the minimum volume of products that will satisfy demand in each period. The costs of storing inventories are minimal, and there are no costs associated with the lack of goods in the warehouse. However, costs arise due to changes in the level of production.
Consider the example above, assuming that changing the production level by one set costs $20. For example, moving from producing 50 sets to producing 60 sets would cost (60 – 50))x $20 = $200
The initial inventory quantity is 100 sets, and the company wants to reduce it to 80 sets in the first period. In this case, the required production volume in the first period is: 110 – ((100 – 80)) = 90 sets
Let's assume that the volume of production in the period preceding period 1 was 100 sets. Figure 2.13 shows changes in the level of production and the final volume of inventories.
The planned costs will be:
Cost of changing production level =60 x $20 =$1200
Inventory holding costs = 80 sets x 5 periods x $5 = $2000
Total plan expenses =$1200 +$2000 =$3200
Development of a custom production plan
In made-to-order manufacturing, the manufacturer waits for the customer to receive an order and only then begins manufacturing the product.
Examples of such products are made-to-order clothing, equipment and any other goods that are made according to the customer's specifications. Very expensive products are usually made to order. Typically, businesses work to order when:
- The product is manufactured according to the customer's specifications.
- The client is ready to wait for the order to be completed.
- Manufacturing and storing the product is expensive.
- Several product options are offered.
Figure 2.13 Demand Compliance Plan: Inventory Production.
Assemble to order: When there are several variations of a product, as is the case in automobiles, and when the customer does not agree to wait for the order to be completed, manufacturers make and hold standard components in stock. Once a customer order is received, manufacturers assemble the product from the components they have in stock. according to the order. Because the components are already ready, the business only needs time to assemble before the product is shipped to the customer. Examples of assembled-to-order products include cars and computers. Build-to-order is a variant of the make-to-order system. order.
To draw up a production plan for products that are assembled to order, the following information is required:
- Forecast by periods for the duration of the planning horizon.
- Information about the initial order portfolio.
- Required final order portfolio.
Plan for uniform production. Let's consider the general procedure for developing a uniform production plan:
1. Calculate the total forecast demand for the planning horizon.
2. Determine the initial order book and the required final order book.
3. Calculate the required total production volume using the formula:
Total production volume = total forecast + initial order book – final order book
4.Calculate the required production volume in each period by dividing the total production volume by the number of periods.
5. Distribute the existing order book over the planning horizon period according to the completion dates of orders in each period.
EXAMPLE
A small printing company carries out custom orders. Since different jobs need to be completed each time, demand is forecast as hours per week. The company expects demand to be 100 hours per week in the next five weeks. The order backlog is currently 100 hours, and after those five weeks the company wants to reduce it to 80 hours.
How many hours of work per week will it take to reduce the order book? What will the order book be at the end of each week?
Answer
Total production volume =500 +100 - 80 = 520hours
Weekly production =520/5 = 104 hours
The order portfolio for each week can be calculated using the formula:
Forecasted order book = old order book + forecast - production volume
For the 1st week: Forecasted order portfolio = 100 + 100 – 104 = 96 hours
For the 2nd week: Forecasted order book = 96 + 100 – 104 = 92 hours
The resulting production plan is shown in Figure 2.14.
Figure 2.14 Level production plan: production to order.
Resource Planning
Having completed the development of a preliminary production plan, it is necessary to compare it with the resources available to the company. This stage is called resource requirements planning, or resource planning. Two questions must be answered:
1.Does the enterprise have the resources to fulfill the production plan?
2.If not, how can you fill the missing resources?
If productivity cannot be achieved to meet the production plan, then the plan must be changed.
One of the frequently used tools is a resource inventory. It indicates the number of critical resources (materials, labor and a list of equipment units indicating productivity) required to produce one average unit of products of a given group. Figure 2.15 shows an example of an inventory of the resources of a company that produces three types of products that make up one family - tables, chairs and stools.
If a firm plans to produce 500 tables, 300 chairs, and 1,500 stools in a given period, it can calculate how much wood and labor it will need to produce.
For example, the required volume of wood:
Tables: 500 x 20 = 10,000 board, linear feet
Chairs: 300 x 10 = 3000 board, linear feet
Stools: 1500 x 5 = 7500 board, linear feet
Total required volume of wood = 20500 boards, linear feet
Figure 2.15 Inventory of resources.
Required amount of labor resources:
Tables: 500 x 1.31 = 655 standard hours
Chairs: 300 x 0.85 = 255 standard hours
Stools: 1500 x 0.55 = 825 standard hours
Total required amount of labor resources = 1735 standard hours
The company must now compare the wood and labor requirements with the resources available. For example, let's say that the labor resources normally available during this period are 1600 hours. The priority plan requires 1735 hours, a difference of 135 hours, or about 8.4%. either find additional production resources or change the priority plan. In our example, it may be possible to organize overtime work to provide the missing volume of productivity. If this is not possible, it is necessary to change the plan to reduce the need for labor resources. It is possible to partially reschedule production to an earlier date deadline or postpone shipment.
SUMMARY
Production planning is the first stage of the production planning and control system. The planning horizon is usually one year. The minimum planning horizon depends on the time of procurement of materials and production of products. The level of detail is low. Typically, a plan is developed for product families based on similarities in manufacturing processes or a common unit of measurement.
Three basic strategies can be used to develop a production plan: pursuit, smooth production, and subcontracting. Each has its own advantages and disadvantages in terms of operations and costs. Manufacturing managers must select the optimal combination of these baselines that will keep total costs to a minimum while maintaining high levels of customer service.
The inventory production plan determines how much output should be produced each period to:
- Forecast implementation;
- Maintaining the required level of inventories.
While it is necessary to meet demand, it is also necessary to balance the costs of holding inventories with the costs of changing production levels.
The production-to-order plan determines the volume of products that must be produced each period to:
- Forecast implementation;
- Maintaining the planned order portfolio.
When the order backlog is too large, the costs associated with it are equal to the costs of rejecting the order. If customers have to wait too long for delivery, they may decide to order from another firm. As with an inventory production plan, demand must be met, and the costs of changing levels production must be balanced in plan with the costs that arise when the size of the order book turns out to be larger than required.
KEY TERMS
A priority
Performance
Manufacturing Resource Planning (MRP II)
Pursuit strategy (to meet demand)
Level production strategy
Subcontracting strategy
Hybrid strategy
Level production plan
Order portfolio
Inventory of resources
QUESTIONS
1.What four questions should an effective planning system answer?
2. Define capacity and priority. Why are they important for production planning?
3. Describe each of the following plans, including the purpose, planning horizon, level of detail, and planning cycle for each:
- Strategic business plan
- Production plan
- Master production schedule
- Resource requirement plan
- Control of production activities.
4.Describe the responsibilities and contributions of the marketing, production, finance, and technical departments in developing the strategic business plan.
5.Describe the relationship between the production plan, the master production schedule, and the resource requirements plan.
6.What is the difference between strategic business planning and sales and operations planning (SOP)? What are the main benefits of SOP?
7.What is closed loop MRP?
8.What is MRP II?
9.How can you change performance over a short period of time?
10.Why is it necessary to choose a common unit of measurement or define product groups when developing a production plan?
11.On what basis should product groups (families) be determined?
12.Name five typical characteristics of a production planning problem.
13.Describe each of the three basic strategies that are used to develop a production plan. State the advantages and disadvantages of each.
14.What is a hybrid strategy? Why is it used?
15.Name four conditions, depending on which a company produces inventories or produces to order.
16.What information is needed to develop an inventory production plan?
17.Name the stages of developing an inventory production plan.
18.Name the difference between production to order and assembly to order. Give examples of both options.
19.What information is needed to develop a custom production plan? How is it different from the information needed to develop an inventory production plan?
20.Describe the general procedure for developing a uniform production plan when using a make-to-order system.
21.What is a resource inventory? At what level of the planning hierarchy is it used?
TASKS
2.1.If the initial volume of inventories is 500 units, demand is 800 units, and production volume is 600 units, what will be the final volume of inventories?
Answer: 300 units
2.2.A company wants to produce 500 units of output at a steady pace over the next four months. These months have 19, 22, 20 and 21 working days, respectively. What volume of output should the company produce on average per day if production is uniform?
Answer: Average production per day = 6.1 units
2.3.The company plans to produce 20,000 units of product in a three-month period. These months have 22, 24 and 19 working days, respectively. What volume of products should the company produce on average per day?
2.4.According to the conditions of problem 2.2, what volume of products will the company produce in each of the four months?
1st month: 115, 9 3rd month: 122
2nd month: 134, 2 4th month: 128, 1
2.5.According to the conditions of problem 2.3, what volume of products will the company produce in each of the three months?
2.6.The production line must produce 1000 units per month. The sales forecast is shown in the table. Calculate the forecasted volume of inventories at the end of the period. The initial volume of inventories is 500 units. All periods have an equal number of working days.
Answer: in the 1st period, the final volume of inventories will be 700 units.
2.7. A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 100 units; by the end of the planning period, this volume is expected to increase to 130 units. Demand in each period is shown in the table. How much output should the company produce in each period? What will be the final volume of inventories in each period? All periods have an equal number of working days.
Answer: Total production = 750 units
Production volume in each period = 125 units
The final volume of inventories in the 1st period is 125, in the 5th period - 115.
2.8. A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 500 units, by the end of the planning period this volume is expected to be reduced to 300 units. Demand in each period is shown in the table. All periods have an equal number of working days. How much output should the company produce in each period? What will be the ending inventory volume in each period? In your opinion, are there any problems in executing this plan?
2.9.The company wants to develop a plan for uniform production.
The initial volume of inventories is zero. Demand in the next four periods is shown in the table.
a.At what rate of production in each period will the volume of inventories at the end of the 4th period remain zero?
b.When will debts on orders arise and in what volume?
c.What uniform rate of production in each period will avoid the occurrence of backlogs on orders? What will be the final volume of inventories in the 4th period?
Answer: a. 9 units
b. 1st period, minus 1
c. 10 units, 4 units
2.10.If inventory holding costs are $50 per unit in each period, and out-of-stock inventory costs $500 per unit, what will be the cost of the plan developed in Problem 2.9a? What would be the cost of the plan developed in Problem 2.9c?
Answer: Total plan costs in Problem 2.9 a = $650
Total costs according to the plan in problem 2.9 c = $600
2.11.A company wants to develop a uniform production plan for a family of products. The initial volume of inventories is 100 units; by the end of the planning period, this volume is expected to increase to 130 units. Demand in each period is shown in the table. Calculate total production, daily production, and production and inventory for each month.
Answer: Monthly production in May = 156 units
Final volume of inventories in May = 151 units
2.12. A company wants to develop a plan for uniform production for a family of products. The initial volume of inventories is 500 units, by the end of the planning period this volume is expected to be reduced to 300 units. Demand in each month is shown in the table. How much product should the company produce in each month? month? What will be the final inventory volume in each month? In your opinion, are there any problems in executing this plan?
2.13.In accordance with employment contract the company must hire enough employees to produce 100 units per week when working on one shift or 200 units per week when working in two shifts. You cannot hire additional workers, fire anyone, or organize overtime work. Fourth week, it will be possible to assign part or all of an additional shift to workers from another department (up to 100 units of production). In the second week, there will be a planned shutdown of the plant for maintenance, and therefore production volume will be halved. Develop a production plan. The initial volume of inventories is 200 units, the required final volume is 300 units.
2.14.If the initial order book volume is 400 units, the forecast demand is 600 units, and the production volume is 800 units, what will be the final order book volume?
Answer: 200 units
2.15.The initial volume of the order book is 800 units. The forecasted demand is indicated in the table. Calculate the weekly production volume for uniform production if the volume of the order book is expected to be reduced to 400 units.
Answer: Total production = 4200 units
Weekly production = 700 units
Volume of the order book at the end of the 1st week = 700 units
2.16.The initial volume of the order portfolio is 1000 units.
The forecasted demand is shown in the table. Calculate the weekly production volume under uniform production if the order book is expected to increase to 1200 units. 
2.17. Based on the data given in the table, calculate the number of workers required for uniform production and the final volume of inventories at the end of the month. Each worker can produce 15 units per day, and the required final volume of inventories is 9,000 units.
Answer: Required number of employees = 98 people
Volume of inventories at the end of the first month = 12900 units
2.18. Based on the data given in the table, calculate the number of workers required for uniform production and the final volume of inventories at the end of the month. Each worker can produce 9 units per day, and the required ending inventory is 800 units.
Why is it impossible to achieve the planned final volume of inventories?
An enterprise literally pays a high price for planning errors. Product production planning is the process of collecting data on the expected release of finished products into a single program, in cost and physical terms. Planning of production and sales of products relates to the management activities of the enterprise.
The planned volume of production is determined based on contracts with customers and own needs, as well as taking into account the strategic development of the development enterprise.
Work planning system as part of a business plan
If the organization is at the initial stage, the business plan necessarily develops a product forecast article based on marketing research. It indicates data on the quantity and range of the proposed product release, as well as the means to achieve the goal: equipment, the need for materials and human resources. To invest in a project, production must be carefully planned.
Production planning procedure
At an operating industrial enterprise, a production program is drawn up on the basis of concluded agreements with product customers, in accordance with the government procurement plan or according to average annual production output. Data from an analysis of market needs and demand for goods are also taken into account. The following departments participate in the development of production volume planning:
- The production service and sales department determine the nomenclature, quantity and timing of sales. Perform production planning and product sales.
- The task of the budget department is to determine the cost of the required materials, labor costs, energy resources, fuel, as well as the costs of overhead and general administrative expenses. Set a price for a new product.
- The HR department should calculate the number of machine hours to perform all operations and analyze the compliance of labor resources with the calculated volume of output.
- The technical department analyzes the compliance of fixed assets, systems and devices of the enterprise with the intended implementation of all operations for the manufacture of products, works, services, and sets cost standards.
- The logistics service confirms the provision and purchase of goods and materials, spare parts and announces the price for them.
When calculating operations, order-based, cost-based and regulatory methods are used.
Basic rules and types of planning
The main goal of a manufacturing enterprise is to obtain high profits at the lowest costs. In order to maintain profitability, the following principles must be adhered to in forecast calculations:
- Systematic principle. To ensure smooth operation, all services in the enterprise must be united by a single goal and interconnected with each other.
- The principle of recoupment. All production costs and expenses must be covered by income, at a certain rate of profit. For this purpose, the balance sheet method is used.
- The principle of flexibility. When production factors change, the enterprise must have the ability to adapt in accordance with the requirements.
- The principle of constancy. Planning work is carried out continuously throughout life cycle enterprises.
Types of planning are classified depending on the timing and goals of the program.
But plans are also being developed for each workshop or department. Scheduling is developed in the form of a release schedule for various product categories. In this case, data on the supply of materials provided by the logistics department, data on the utilization of production capacity, and information on the priority of production of certain models must be taken into account. Finished products must be produced without equipment downtime, with full staff workload and without excess inventory.
Documents developed during planning
A production plan is, as a rule, a software table developed in Excel and includes the following data:
- List finished products, including item number, name and short specifications.
- Number of products.
- Lead times and shipment of products.
- Product cost per unit and for the entire volume.
- Customer code.
Often, plans are expressed in monetary terms in rubles and conventional units - for enterprises with a sales market abroad. In addition to the plan, the budget department develops cost estimates for production according to the following indicators:
- Basic expenses- costs directly related to the production of products - raw materials, energy resources, wages, etc.
- Overheads– costs not directly related to the production process: operating materials, repair costs, labor costs for engineers, etc.
- General administrative expenses and costs of selling products.
And also in the estimate, costs are planned per unit of production cost and the entire volume, and the forecast amount of revenue, profit from sales. Typically, an approved annual release plan is developed and routine or operational planning is carried out monthly.
Calculation of enterprise production capacity
Before planning production, you need to calculate production capacity or the ability to produce the largest annual volume of products with full coverage of all fixed assets and labor resources. This calculation takes into account an expanded range of products.
The formula for calculating production capacity is as follows: Mpr = Pob + Ff, where Pob is productivity in the number of products per unit of time, Ff is the actual amount of work time. When calculating, it is necessary to take into account the service life of the equipment, the arrival of new units of equipment, forced downtime and repairs.
Production capacity can be measured in the following units: pieces, kilograms, hours, if we are talking about services, other units of measurement. It is classified into the following types:
- Theoretical– subject to ideal conditions, full load of all equipment and personnel of the enterprise.
- Practical– which ensures maximum production of products with the necessary equipment downtime.
- Normal– developed taking into account repairs and deviations in operation, or average annual. Usually used in planning.
The following factors must be taken into account when planning:
- Products shipped to the customer, but not paid for by him.
- Availability of documented and ready-to-ship products in the warehouse.
- Finished products in assembly shops.
- Products different degrees readiness in workshops or work in progress.
Summarizing all of the above, we can draw the following conclusions:
- The wider and more accurate marketing research market, the better.
- It is almost impossible to accurately predict the production planning process at the beginning of the year with a wide range of products.
- Maximum compliance with plans is only possible if coordinated work the entire team, an individual approach to the responsibilities of each employee.
- The plans developed must be adjusted to changing external factors - inflation, changes in demand, and internal conditions– change of personnel, customers and suppliers, increase or decrease in product volumes.
- The enterprise must have long-term plans for development in order to maximize profits.
The production plan describes exactly the production process. Of course, if you are opening not a plant or factory, but a clothing store, this description will be less detailed and will exclude clauses on production, but this does not mean that this section in the business plan can be dispensed with.
Structure of the production section of the business plan
In essence, the purpose of this chapter is to familiarize the investor with the production process, list necessary equipment and the number of staff. In other words, the production plan must show that you are able to organize the production of the required volume of goods High Quality, as well as establish the implementation process and prepare the necessary areas within the planned time frame.
If we are talking about an enterprise that is focused on the production of a certain product, the first thing you need to clarify is whether you are the owner of an existing production facility, or are just planning to open it.
Often the key guideline for writing this section is the product sales plan. Therefore, you need to describe in detail exactly how you plan to produce products and consider in detail all the stages of creating your product or service. Each item described must include approximate dates, as well as the costs that will be required to organize it.
1. Description of the production process
If you are planning to open a production facility, you definitely need to describe all the stages and features of the technological process, starting with the purchase of consumables and necessary raw materials, and ending with the sale of finished goods (even if you are planning to open a store, then a shortened version of the process from the delivery of goods to their placement in store and sale is simply necessary).
Think about how exactly you can modify this process. Describe your considerations and all the necessary activities and expenses for this. Particular attention should be paid to the structure and composition of production facilities. If you are planning to open a factory or, for example, a factory, this information should be stated in a special annex attached to the plan.
2. Description of raw materials and their suppliers
Supply issues should be a separate item. Describe what raw materials and supplies are required for production, and how exactly you plan to transport and store them. Moreover, you should also indicate how exactly you are going to carry out quality control and monitor timely deliveries, and whether there are alternative suppliers of raw materials in case of problems with existing ones.
3. Production premises and land plots
Next, you need to describe whether you own land, suitable buildings, raw materials or equipment. Where will the production be located, where is the warehouse for raw materials, where is the warehouse for finished products. If not, describe what kind of premises, equipment, etc. you plan to purchase or rent, what time frames will be required for paperwork and installation of equipment, and how much it will cost the company (information about the purchase of premises, equipment, and land plots will need to be indicated in the investment section of the business plan).
4. Energy supply
Again, if your project involves the opening of a serious production facility, you also need to describe the main issues of energy supply, namely the capacity of energy sources, their cost, availability on the market, and the possibility of temporarily replacing existing sources in the event of accidents and malfunctions.
5. Production costing and cost
In this section it will be necessary to show what costs of raw materials, materials or energy resources will be spent on the production of one unit of the project’s product. After which its cost must be calculated and the marginal profit of the product planned for production must be shown.
6. Fixed production costs
Remember, if you are planning to open a store, salon or other enterprise that does not involve the production of products, but only the sale of certain goods or services, this section of the production plan will be less detailed and highly specialized, but this does not mean that it can be completely ignored. In this case, you need to describe the area of your establishment, point of sale etc., dividing them into special zones, indicate all the amounts necessary for equipping the premises, purchasing raw materials and starting the sales process, as well as maintaining and developing the enterprise.
Example of a production plan for a business plan for opening a clothing store
The clothing store is located in the Sovetsky district of Yekaterinburg with a population of 250 thousand people. (the most crowded area of the city). In close proximity to the store there is a residential complex on a high-traffic street. Also nearby the retail outlet are bus stops (70 meters), office buildings and banks (190 and 230 meters), shopping centers, restaurants, cafes and grocery stores (from 80 meters).
The store is located on a rented area of 185 sq. m. The premises are divided into the following areas: entrance area (30 sq. m), sales area (100 sq. m), fitting room area (30 sq. m), cash desks (15 sq. m), bathroom (12 sq. m) . The rental cost is 100 thousand rubles per month. The lease agreement is valid for 5 years.
The costs of opening a clothing store, including the costs of developing a design project, repairs and remodeling (400 thousand rubles), purchasing equipment (400 thousand rubles), advertising campaigns and opening events (100 thousand rubles) and other expenses will amount to 1,500,000 rubles.
Fixed operating costs include the cost of purchasing batches of seasonal clothing. Also, fixed expenses include rent (100 thousand rubles), advertising costs (about 40 thousand rubles), utility bills, garbage removal, electricity payments (about 15 thousand rubles). Demand will be influenced by increased recognition of the store among the population. During the year, it is planned to increase store traffic to 80-85%.
It will not be possible to create efficient production without quality planning. Forming a plan is not an easy task, and its task is to comprehensively cover, as far as possible, the activities for organizing the production process, so that there are enough materials, equipment, and workers.
Understanding the production plan
Within a business, the production plan can safely be considered an administrative process. With its help, questions about the number of personnel and resources required to produce goods are resolved. It covers the following areas of activity:
- Requirements for inventories, raw materials.
- Suppliers.
- Production process.
- Power.
- Quality control.
- Premises.
- Staff.
When planning work, each department should be focused on achieving the tasks assigned to it. To this end, the plan also reflects:
- Marketing.
- Design.
- Supply.
- Finance.
- Accounting.
- Legislation.
The procedure for including certain items in the plan is determined by the enterprise independently, and its structure depends on the categories of goods produced, the period for which the plan is drawn up, facilities and capacities. By the way, if necessary, a daily work plan for the enterprise or its divisions can be drawn up.
Classification and directions of production plans
They are usually classified by:
- Coverage.
- Time boundaries.
- Character and direction.
- Method of application.
The production plan should ultimately include three main documents:
- General (main) - a plan for areas of activity, which describes the general concept and strategic goal, and not small details. There should also be product categories, but not specific types (example: the plan of a company producing façade paints indicates the total volume of production, without distribution by color and density).
- The main work schedule - indicating the number of units for each of the manufactured types of products intended for release for a specific time.
- A plan with the enterprise's needs for material resources.
If in the future the enterprise plans to expand production capacity, the necessary structures and buildings must be reflected in the production plan to ensure an uninterrupted work process, and with it the indicators:
- Payroll Fund.
- Demand for qualified specialists.
- Electricity tariffs.
- Location of suppliers and consumers.
It is necessary to develop a production plan as responsibly as possible, because miscalculations in it can not only make it irrelevant, but even cause damage to the production process.
The most common mistakes:
- Excess inventory. As a rule, enterprises purchase raw materials and materials in advance. We revised the plans - and some of the materials turned out to be unclaimed, finances were immobilized, and the costs of maintaining warehouse space were unreasonably growing.
- Inappropriate use of reserves. By various reasons from the warehouse, raw materials and materials are sent for purposes not planned in advance, for the production of “left” goods. Due to late subsequent deliveries, fulfillment of earlier orders and commitments to customers are at risk.
- Growing work in progress. It happens that the production of a certain type of product is suspended due to an unscheduled order. This problem can be avoided if some orders are refused, and the production plan is drawn up taking into account the criteria for the labor intensity of production of specific types of products and the maximum possible profit.
If you're having trouble creating a production plan, turn to the World Wide Web. Here you will always find more than one example of filling out this most important document for any enterprise.
In which the main production indicators and product sales volumes, variables and fixed costs, personnel plan, depreciation costs of fixed production assets, requirements for organizing the production process and the main technical and economic characteristics of production, specialized equipment and technologies used.
This section describes in detail the path by which it is planned to establish production and sales of products, indicating problem and bottlenecks that need to be addressed Special attention and means (methods) of overcoming them. The production plan reflects the following characteristics organization of the technological process of production:
General technical and organizational requirements for production.
Here we consider general design requirements for the organization of a production site, a list of basic and auxiliary production equipment necessary for the acquisition, and requirements for the technologies used.
1. Total area, zoning and technical characteristics of the production site, reflection of design and estimate documentation for new industrial and engineering construction (if necessary).
2. A list of the main and auxiliary technological equipment required for purchase, indicating its name, series and brand, quantity, price per unit of equipment, supplier and his contact information, total costs for the acquisition of technological equipment.
3. The production technologies used (their availability, patent protection, reliability, productivity and other characteristics).
Description of the production process and costs.
This part of the production plan includes a calculation of the needs for raw materials and components, a plan for production and sales of products, a calculation of fixed and variable production costs and depreciation charges.
1. The need and conditions for the supply of raw materials, materials and components. The main characteristics of supplying the production process with raw materials are also reflected in tabular form, indicating the type of raw materials (components, semi-finished products), the price per unit of raw materials, the main suppliers and their contact details. In order to ensure uninterrupted production activities of the company, the volumes of purchased raw materials and components must exceed those volumes that are necessary directly for the production of a certain amount of products. This is done in order to ensure a carryover supply of raw materials. The size of the production inventory is justified by its norm, which represents the average stock of materials during the year in days of its average daily consumption, and is calculated at the end of the year as a carryover stock. The size of the carry-over stock depends on the amount of demand for various types materials and the seasonality of their supplies in accordance with the Order of the Federal Administration on Insolvency (Bankruptcy) dated December 5, 1994 No. 98-r “On the standard form of a financial recovery plan for an enterprise (business plan)” is determined by the formula:
where: T – size of carryover stock;
Q – the need for appropriate material, natural. units;
M – carryover stock norm, days;
D – number of days of the planning period.
The carrying stock rate is determined by the sum of average, current and safety stocks.
2. Reflection in tabular form of the volume of production and sales of products, indicating the sales price of products and proceeds from sales. A number of business planning methods also include Value Added Tax as part of total sales revenues in this tabular form of the Production Plan. This is the main table within this section of the business plan.
For a potential investor (strategic partner), the table reflecting the schedule of production and sales of products, as well as sales revenue, will be of particular interest in the production plan, therefore this tabular form must be detailed in sufficient detail.
The time horizon for reflecting the production plan and product sales plan is usually equal to the full payback period of the investment project. However, at the request of the investor, it can be slightly increased if the goal is to model the distribution and reinvestment of profits after the project has paid off.
3. Calculation of fixed and variable production costs. In the production plan, it is necessary to provide an estimate of costs for manufactured products, which is a cost estimate for certain species manufactured and sold products. Cost calculation for the production and sale of products can be carried out according to an enlarged scheme based on existing standards for the costs of raw materials, components and semi-finished products for the manufacture of a unit of product. The consolidated cost estimate for the production and sale of products includes cost items related to the cost of production, without breaking them down into fixed and direct costs, as well as the balance of non-sales operations.
The consolidated cost estimate is based on the production and sales plan and describes the total cost of all manufactured products, as well as the cost of each individual type of product. Thus, cost estimates can be detailed for individual types of products.
The composition of costs and their classification must comply with the Decree of the Government of the Russian Federation dated 05.08.1992 No. 552 “On approval of the regulations on the composition of costs for the production and sale of products (works, services) included in the cost price, and on the procedure for the formation of financial results taken into account for tax purposes. - the wife's profit." They are as follows:
SALES VOLUME, TOTAL
COST, TOTAL, including:
2. materials and components
3. fuel
4. electricity and thermal energy
5. payroll
6. accruals for personal wages
7. depreciation of OPF
9. other expenses
10. loan servicing (interest)
TOTAL NON-OPERATING OPERATIONS BALANCE, INCLUDING:
11. income according to the Central Bank
12. rental income
13. property tax
14. land tax
15. other income and expenses
BALANCE PROFIT
16. Income tax
17. Other taxes and payments from profit
NET PROFIT
When using business plan development software, the cost estimate is divided into two tabular forms - calculation of fixed (total) costs and calculation of variable (direct) costs for production and sales of products.
4. Calculation of depreciation charges for the restoration of fixed production assets is considered as part of the total (fixed) costs of production and sales of products. Project calculations may include various shapes depreciation of fixed production assets:
Linear depreciation – the initial cost of fixed assets is paid evenly over the entire service life of the equipment;
Accelerated depreciation - the initial cost of fixed production assets is returned in a shorter period of time, and therefore depreciation rates are set higher (most often used in the leasing mechanism for lending and project financing).
Personnel plan.
The personnel plan is a mandatory and extremely important component of such a section as the “Production Plan”. The personnel plan displays quantitatively and qualitatively the structure of the company’s personnel involved in the implementation of a specific investment project, the level of personnel qualifications, personnel costs (payroll and deductions from it).
It is advisable to divide the personnel plan into 3 parts:
Administrative and management personnel;
Production personnel;
Marketing and support staff.
Within the framework of an investment project, two forms of wages can be used: in the form of a fixed salary and piecework wages. In the case of piecework wages, it is considered as one of the variable cost items for the production and sale of products and is taken into account in the consolidated cost estimate (Table 8). A fixed salary should be considered as one of the items of fixed (total) costs for production and sales of products.
Thus, the production plan within the business plan is considered as one of the key sections, the main task of which is to show the potential investor the reality of the company’s production (sales) program and the adequacy of the resources available for this (both material and labor). In addition, the production plan reflects all the requirements for the organization of production and sales of products, reflects the author of the business plan’s knowledge of the production technological scheme, the availability of appropriate personnel with the required level of competence, licenses, certificates and permits.
Another important task of the production plan is the modeling and analysis of existing and future material flows within the enterprise, indicating specific sources of raw materials and specific consumers.
Source - Business planning and development of investment projects / Educational and methodological manual, under the general editorship of Savelyev Yu.V., Zhirnel E.V., Petrozavodsk, 2007.