Large manufacturing companies run several production facilities and work with budgets and incomes in the order of many millions of dollars. Imagine a large conglomerate of companies that manufacturing dozens or hundreds of products in various locations around the world: their processes are unique and involve high fixed costs, and they must maintain an equally high level of occupancy.
In order to manage the production, it is necessary to take into account not only production capacities of each facility but its costs (fixed, variable, labor, overtime) as well as information about future demand. So now is the time to check demand management and forecasting.
Production management is concerned from the long-term (many years) to the very short-term (hours). Today we will see the aggregate planning (long-term) and the master production plan (medium-term). Production sequencing and scheduling problems (short-term) are topics for another post.
Aggregate production plan
The aggregate production plan is responsible for the company’s long-term plan. It sets goals in terms of growth, development and profitability for several years to come.
At this stage, one does not think about products, but rather in terms of families or product lines that the company wants to commercialize. Plans are made based on months, and many decisions are aggregated together. Thus, there are few details and many guidelines. However, without a good aggregate production plan, the company may not be able to satisfy the demand.
One of the functions of the aggregate production plan is to decide the production rate, indicating the number of employees needed, whether the company should use overtime, whether to outsource part of production, buy or rent more machines, etc.
Master production plan
The master production plan, however, has a much shorter horizon, of a few months. Here, we want to plan the production for the coming weeks or months of each type of product, therefore, with a greater level of detail than in aggregate production plan.
However, the level of aggregation is still high, as we are not yet concerned about which products will be manufactured on which day, and where will components and raw materials come from (do you remember the difference between component and raw material? See the post about inventory control!). In addition, the master production plan is based on demand forecasting – one extra reason for the forecasting to be accurate! See our post on demand forecasting.
The next steps are the determination of the material requirements plan, and the sequencing of production orders on assembly lines. But these, of course, are subjects for other posts!