Integrated Production Planning – Managing Uncertainty to Keep the Customer Sweet
For years it has been the lot of production planning departments to bear the brunt of orders that will have everyone running on a tight schedule. Once their counterparts in Sales have OKed customer demands that may push the firm to bursting point, it is down to the planners to see how all operations can be set in motion whilst respecting deadlines. However, by gelling these two parts of the overall supply chain together, firms might just be able to keep the whole production process ticking over nicely and deliver the goods on time.
The classic production planning model is ultimately built upon a premise that is as idealistic as it is ideal – based upon a pre-specified customer request, how best can one schedule operations at the lowest possible cost for the highest attainable profit? This sounds all well and good until you realise that such a model rests upon a series of assumptions that simply do not occur in real business life. For starters, the production rate and lead time of any major operation will inevitably be impacted at some point by the way in which a firm utilises its resources. Congestion can happen mid-project and sometimes planning schedules are only known close to the actual start. Order sizes and due dates can differ, as well as lead times, all of which adds up to a major headache for the planning team who find themselves with a fait accompli if their counterparts in Sales have said yes to everything before checking if all is feasible.
Improved understanding for better service
To help streamline the supply chain between sales and production planning staff, a series of realisations need first to be made. Only then can orders be picked and chosen according to criteria that make sound business sense but are also realistic in terms of the firm’s logistic capacities. The extent to which resource utilisation and lead times are co-dependent varies from one order to another, so low and high utilisation modes need to be anticipated. Grouping orders into one overall demand can also make sense on occasions, for planning or managerial reasons. The nature of the customers involved should also be accounted for – some may require different raw materials or quality control processes for ultimately the same end product.
Once the above have been factored in, as well as the possibility that in some cases only partial demand satisfaction is required due to shortages or the application of economies of scale, then the firm can begin the order selection process. Taking on every request is only desirable if a firm has the unlimited resources to do so. In business reality, this is rarely the case. However, this more integrated approach to planning, where Sales work in closer collaboration with the planners who must ultimately orchestrate operations, requires testing.
Testing the optimal planning model
Recent research activity, backed by a series of mathematical programmes, calculations and simulations, has sought to verify the validity of a more integrated approach to project production planning via the establishment of a robust optimisation model. Accounting for both high and low resource utilisation scenarios, the study incorporated the key elements of project congestion, operating costs, revenue and backorders. Even more important was the inclusion in the analysis and testing process of profit and fill rate. In business reality these latter two represent the key indicators of project success i.e. the amount of money actually generated at the end of the process by the handling firm and the percentage of projects that are successfully delivered within the pre-agreed timeframe. Constantly respecting schedules can only boost prospects of greater profits in the future.
The flexibility to decide
By accounting for uncertainty and workload-dependent lead times within an integrated planning and project acceptance set-up, the model provides ringing endorsement of a more sensitive approach to the decision-making process. Running close to nominal capacity may sound attractive to a firm wishing to generate the maximum amount of profit but by skating too close to the edge, the slightest hiccup or degree of project congestion can capsize operations if the handling firm wants to deliver on time. Via an integrated approach to operations, the planner enjoys the flexibility to select a reasonable number of orders that a firm can commit to satisfying and therefore release quantities and utilise resources correctly. Running the risk of completing operations beyond the due date is too risky in so competitive an environment where not only making money is a priority but also retaining customers over the long term.
This article draws inspiration from the paper Integrated production planning and order acceptance under uncertainty: A robust optimization approach, written by Tarik Aouam and Nadjib Brahimi and published in the European Journal of Operational Research 228 (2013).
Tarik Aouam is a professor of Business Informatics and Operations Management at Ghent University, Belgium. His research interests include Production Management, Service Management, Logistics and Supply Chain Management, and Operations Research.
Nadjib Brahimi is an associate professor of Supply Chain Management and Information Systems at Rennes School of Business, France. His research interests include Production Planning and Scheduling, Decision Integration in the Supply Chain, and Healthcare Logistics.