PRINCIPLE OF PLANNING AND CONTROL

In operation management, planning and control are usually treated together as one subject, as

difficult to differentiate between these two activities. Planning is concern with action taken prior

to an event, typically arranging for resources to be provided in order to achieve a desire outcome.

Control is concern with remedial action taken in response to things not occurring as planned in

order to avoid an undesirable outcome. So control is concern with understanding what is actually

happening in the operation, deciding whether there is a significant deviation from what should

happening, and if necessary making changes to the operation. The control loop and it comprise the

following additional elements:

o Plan: this would include a statement of what the operation what expected to produce over

a given period of the time. An operation plan would also consider what resource are

required to achieve the required level of output. When operating plans are expressed in

financial terms, as they frequently are, they are usually termed budget.

o Measurement: the first step in exercising control over the system is to measure its output

over the relevant time period. Whilst a number of different measure might be taken, they

would certainly include the actual volume or quantity of output achieved, as well as the

mix of different product. It is likely that the quantities of resources used in carrying out the

transformation would also be measured.

o Comparison: the next stage would be to compare what actually took place with what was

planned to the happen. It is important to compare like with like when comparing the actual

to the plan or budget accountants have devised various technique which help to do this. A

thorough analysis of any differences should help provide an understanding of why the plan

was not achieved.

 o Control: the final stage in exercising control is deciding what, if any, action is required

and then taking it. This depends in the analysis of any differences between actual and plan.

If the differences are small, there may be no need for action to be taken. Significant

differences between planned and actual would usually prompt some action to try to remedy

the situation. Operation manager need to realize which factors are in the immediate control

over what timescales. These will set to the limit to their control action.

There are many reason why a plan is not achieved. Customer demand may change. In particular,

the total volume, the mix of goods and services supplied, and their taming may all change with

significant impact cost. Although many of these factors are outside the control of the managers

responsible for the operations involved, it is they who must undertake the planning and control of

the resources required for the transformation process. These resource differ in their nature. They

usually include the following:

 People in the transformation process are either staff or costumer. Planning and

controlling staff is a vast area of study in its own right, usually covered by the term “human

resource management” in practice, most operation manager find that planning and

controlling staff occupies most of their time, and is a central concern of their work. In many

service industry, costumers are themselves part of the transformation process. However,

materials do not complain, nor do they take their custom elsewhere if they are kept waiting

or not treated properly in the operation process.

 Materials in the transformation process can either be those that are being processed

or those that are being consumed in the process. There are few operations that do not

involve material resource inputs of one or other of these categories. Although materials do

not complain about being stored before or during processing, there are costs involved in
 storing materials. Most organizations seek ways to minimize those costs, in ways that do

not have a detrimental impact on other operation performance objective.

 Information is a resource which may be used in the operation or may itself be

transformed as part of the process. Recent advances in information and communication

technology, particularly associated with the internet are having a dramatic impact in many

operations.

 Equipment and the facilities in which it is housed are usually fixed assets, not being

used up immediately but rather over many years. Issues affecting the design and choice

of facilities and equipment are discussed in Chapter 5 and 6. Facilities and equipment

usually the capacity of the operations process and cannot be changed very easily or quickly.

Planning and controlling equipment is thus likely to involve much longer timescales than

most of the other input resources.

The success of any operation depends on how these resources are managed, both in the short-

term and the long-term. Application of the principles of the control loop can deepen operation

managers’ understanding of this task. However, they must also consider the different

timescales involved in planning and control.

THE LEVEL OF PLANNING AND CONTROL ACTIVITIES

Strategic Operation Planning (2-5+ years)

this is concerned with developing long-term plan for an organization’s operation.

These are typically long-term investment decisions affecting the organization’s facilities,

equipment and supply network that will determine its operating capacity. Such decisions
 usually involve large-scale capital expenditure, for example setting up completely new

facilities on new site. It can typically take many months or even years before such

investment available to operate.

Aggregate Planning (1-2 years)

This level planning starts to consider in detail how the organization’s operation will

meet the demand for its products and services over the medium-term. It typically involves

attempting to match the total operation capacity of the organization to the demand forecast

for the forthcoming 12 or perhaps 24 months. It will usually do this on a month-by-month

basis and on a facility-by-facility basis, but is unlike to go into product mix detail at this

stage. The other possibility is that there may be insufficient demand for existing capacity,

require action to be taken to increase demand or reduce capacity

Master Production Schedule (3-6 Months)

This is widely used term, originating in manufacturing operations, but it is now

used as the generic term to describe the activity of building up a detail a plan to show how

sales orders and/or forecasts will be met on a week-by-week and a product-by-product

basis. This is expressed as a Master Production Schedule (MPS). Whilst aggregate

planning doesn’t usually consider individual product, the MPS does. As such, it works

from the details of individual customer orders and sales forecast by product line. Armed

with the information and knowledge of the operation capacity, the scheduler attempts to

match available supply with demand, using resources as efficiently as possible to meet

customer demand. This is usually a trial and error process via so-called “rough cut”

capacity planning.
Activity schedule (1-4 weeks)

The role of activity scheduling is to develop the MPS into sufficient detail so that

work can be assigned on a daily basis to every work center. The schedule will typically

provide details of when individual jobs are required to be started and finished (sequencing),

their route through different stage of the operation process, and what task will be assigned

to each work center. Sequencing is concerned with decisions about how to prioritized the

exact order of work at each work center. ‘what should be done next?’ some alternative are:

 Shortest processing time ~ always do the next job available which has

shortest processing time at work center concerned. This is aimed at

achieving a high rate of work flow and machine utilization.

 Minimum slack time ~ ‘slack time’ is the time remaining until the due date

less the remaining process time. Minimizing slack time is aimed at always

achieving the due date.

 First come, first served ~ this is based on a ‘fairness’ approach to processing

queues. If customers are being processed rather than materials or

information, this may be the only realistic rule to use.

 Minimum planned start time ~ using planned start times from existing

schedules, always process the job with the minimum planned start time first.

 Minimum due date ~ always process the job with the earliest due date first.

There are other dispatch rules. Which one is usually used in organization depends on what

criteria are considered most important. Some rules are more likely to achieve higher

resource utilization, some lower costs, some greater in-the job completion rates, etc.
 Expediting (real time)

This is the term usually used to refer to intervention in day-to-day operation in order

to reschedule activities in response to short–term requirements. No matter how well

operations planning and activity scheduling are carried out, there will inevitably be reasons

why such interventions may be required. Such as a customer makes change to an order,

there is an unexpected material storage due a problem with supplier, a piece of equipment

break down and so on. Expediting is perhaps best considered to be a control, rather than a

planning, activity as it is undertaken in order to respond to rapidly changing circumstances.

MEETING CUSTOMER DEMAND

One of the main objectives of planning and control is to meet customer demand. In essence,

there are really only two ways in which an operation can respond to costumer’s demand: product-

to-stock or product-to-order. Product-to-stock involves producing in anticipation of receiving an

order from a customer. Product-to-stock approach has the advantage of reducing the risk of not

being able to meet customer demand as the arise. Product-to-order, the necessary resources in place

ready to produce once an order has been received.

PLANNING AND CONTROL PHILOSOPHIES

There are two basic philosophies to exercising control at shop-floor level in any operating

process: Supply-Push or Demand-Pull.

Supply Push

This is the approach that has traditionally dominated attitudes to operation control,

particularly in Western country. This approach is based on the assumption that the
 performance of any system can be optimized by optimizing the performance of the sub-

system that makeup the overall system. It aims to do this by controlling the activities of

each sub-system through a centralized planning and control system.

Demand Pull

An alternative approach to supply-push, originating in Japan, has gained many adherents

in recent years. This is demand-pull, which is the basis, of the ‘kanban’ system of control

and of the just-in-time approach to planning and control. It aims to optimized the

performance of the whole system irrespective of the performance of any one sub-system.

The basis of this approach is that each work center should only produce what is required

by the next process in the next time period. Its instructions come directly from the work

center that it supplies.

INVENTORY MANAGEMENT

The planning and control of material is not just matter for organization engaged in

manufacturing. Many service organizations also use materials even if their operation are

principally concerned with processing customers or information. Indeed, it is rare for an

organization not use materials in any its operations. One of the main decisions for all user of

material is what level of stock to hold. The objective of materials management is to balance the

advantages of maintaining a high enough stock level to ensure the smooth running of the operation

against the disadvantage of the high costs associated with high stock levels. There are 3 types of

stock; raw material, work in process, and finish goods. Most operation, whether service or

manufacturing, are also likely to require item which are used in the operation process but do not

themselves form part of the output process. These include spares and other maintenance item for
equipment, work clothing, consumable, tools, etc. these are often referred to as MRO

(maintenance, repair, and operating) item. The reason for holding stock are likely to vary according

to the type of stock. For raw materials:

 As a buffer against any uncertainty of supply which may disrupt operation.

 To secure bulk purchase discounts or avoid small order surcharges.

 To buy when prices are low or before a known or anticipated price rise

 As insurance against anticipated shortages

 As a buffer against unpredictable demand operations.

For the work-in-process:

To disengage the different stage in the operation in order to facilitate flexibility in

scheduling different operations and improved utilization rates of individual stages

by facilitating longer production runs and fewer change-over.

For the finish goods:

 To make goods available to customers off the shelf.

 As a buffer against variability or uncertainty in supply or operation

 As a buffer against fluctuation in demand.

 To build up stock to meet anticipated increased sales due to seasonality or

marketing activity.

For maintenance, repair and operating (MRO) items:

 As a buffer against uncertainty demand for item whose non-availability carries a

high risk of disruption to operation.

  As a buffer against uncertainty supply

 In anticipation of extra demand due to planned maintenance.

There is generally some degree uncertainty about the demand for materials within most operation,

due to uncertainty in demand for the final product or service in the marketplace that the

organization serves. However, it is possible to distinguish between 2 type of the demand.

Independent demand and dependent demand. Independent demand is where demand for an item

occurs separately from that for any other item. Finish goods typically exhibit independent demand

which is normally determined by market forces. Similarly, with many MRO item, demand for

which often appears to exhibit a random pattern due to vagaries their use by the people and

equipment in operation. Approaches to stock control for independent demand item centers on

forecasting likely demand and maintaining a suitable level of stock to ensure customer can be

supplied on demand. Dependent demand, on other hand, is the demand that is linked to demand

another item. So, for the example, motor car manufacture will know how many door, wheels, seats

etc. understanding whether demand is independent and dependent can help determine what

approach to take in managing the inventory of an item.

MANAGING INDIPENDENT DEMAND NVENTORY

The main aim in managing independent demand item is to ensure that stock do not run out. The

main requirement of a stock control system in such circumstances is to determine when and how

much order form supplier. There are basically two kinds of these so-called order point system.

Reorder Level System in this system, stock levels are continuously monitored, which requires

that records ae constantly update in real-time. Cyclical Review System in this system, stock level

is checked at regular interval.

 Economic Order Quantity (EOQ)

The optimum quantity of any item that should be ordered from a supplier is known

as the economic order quantity (EOQ). This is commonly used to calculate the re-order

quantity when using the reorder level system.

EOQ= √(2AS/RV)

A= the cost of placing an order

S= annual demand

R= stockholding cost

V= the cost (purchased price)

ABC Analysis in Inventory Management

An analysis of the annual usage value of stock items allow inventory to be classified into

3 board categories:

Class A: the small proportion (typically 10%) of the item which account for the

majority of costs (70%)

Class B: the middle proportion (say the next 20%) of the item which account for

the approximately the next 20% of costs

Class A: the large proportion (say 70%) of the item with little value (say 10% of

cost)