Production Planning in Manufacturing Companies

Production planning in Manufacturing is extremely crucial. However before we deep dive into production planning, we would first like to differentiate between production planning and production scheduling. In manufacturing, production planning and scheduling are two distinct but interconnected processes:

Production Planning:

Production planning involves determining what needs to be produced, how much should be produced, and when it should be produced to meet customer demand while optimizing resources such as labor, materials, and equipment. It includes (but not limited to) activities  like forecasting demand, creating production schedules, setting inventory levels, and allocating resources.


Scheduling, on the other hand, is the process of assigning specific tasks or jobs to resources (e.g., machines, workers) over a specific period to ensure that production occurs efficiently and on time. Scheduling breaks down the production plan into detailed timelines and sequences for individual tasks (sometimes referred as jobs) or operations. It involves determining the start and end times for each job, considering factors such as processing times (also referred as cycle time in many manufacturing units), setup times, resource availability, and dependencies between jobs.

Details of Production Planning

In this article, we will try to understand the process of creating a sound production plan. Once we understand the planning process then this plan becomes the basis of scheduling of jobs on different machines.

Demand Planning

    • First step of production planning starts with defining how much needs to be produced. This could be based on actual customer orders (in made to order or design manufacturing), forecast of customer orders (in made to stock manufacturing) or internal targets (in made to stock manufacturing). Production plan is set based on the sales orders (or forecast) that the company receives.
    • It needs to answer questions like: how much is the total demand and of which how much needs to be fulfilled in a month?

Demand that can be fulfilled by current inventory

    • Based on the total units that need to be dispatched, it needs to be checked how much of it can be fulfilled by inventory in hand:
      ○ What is the inventory of finished goods?
      ○ What is the inventory of semi finished goods or (work in progress). Semi finished goods will be converted into finished goods first before starting production from the raw materials.

Demand that needs to be produced

    •  After deducting the Sales Order demand with the Inventory in hand, we will get the total production that needs to be planned.
    • In most companies this production plan is then broken down into weekly production plans based on the dispatches that are promised to the customers. Suppose there is a need to produce and deliver 10,000 units of a new smartphone model within the next one month. A production plan would consider and create a production plan for 2500 models each/week.
    • A production plan would also take into consideration the production capacity e.g.
      ○ Any finished good goes through multiple stages of production and there would be some stages that would be the bottleneck process.
      ○ It is important to determine the throughput (sometime referred as cycle time) of the bottleneck line.
      ○ Based on the general hours available it is then calculated as to what is the machine available time. Companies need to take into consideration planned shutdowns like if there is a preventive maintenance that is scheduled then it means that the machines would not be available for that much time.
      ○ If there is a need then some extra shifts need to be planned.

Material Requirement Planning & Other constraints

A production plan would also take into consideration the RM inventory that is available or can be purchased before the production starts. In some cases, the raw material that is required to produce is not available and it takes a long time to procure and ship to the factory. This exercise is usually called Material Requirement Planning and will be covered in detail in another section.

    • The purpose of Material Requirement Planning would be to: ensure there are enough raw materials for the production process and if there are not enough materials, then a purchase order needs to be generated
    • Fine tuning Production plan by considering other constraints like labour/power etc.

Importance of Paroduction Plan

A production plan is important from the following perspectives:

    • To meet the customer demands on time
    • To ensure all departments like production, inventory, and purchase are aware and aligned with the plan
    • Set benchmarks that will be used to measure the performance of the entire factory and department


In the next section, we will deep dive into production scheduling