Explain aggregate production planning Give an example from two wheeler?
Preparing Your Production PlanWhat is a production plan?A production plan is that portion of your intermediate-range business plan that your manufacturing / operations department is responsible for developing. The plan states in general terms the total amount of output that the manufacturing department is responsible to produce for each period in the planning horizon.The output is usually expressed in terms of pesos or other units of measurement (e.g. tons, liters, kgs.) or units of the aggregate product (this refers to the weighted average of all the products in your company). The production plan is the authorization of your manufacturing department to produce the items at a rate consistent with your company's overall corporate plan.This production plan needs to be translated into a master production schedule so as to schedule the items for completion promptly, according to promised delivery dates; to avoid the overloading or under loading of the production facility; and so that production capacity is efficiently utilized and low production costs result.Why is it important to have a carefully developed production plan?Production planning is one of the planning functions that a firm needs to perform to meet the needs of its customers. It is a medium-range planning activity that follows long-range planning in P/OM such as process planning and strategic capacity planning. Firms need to have an aggregate planning or production planning strategy to ensure that there is sufficient capacity to meet the demand forecast and to determine the best plan to meet this demand.A carefully developed production plan will allow your company to meet the following objectives:• Minimize costs / maximize profits• Maximize customer service• Minimize inventory investment• Minimize changes in production rates• Minimize changes in work-force levels• Maximize the utilization of plant and equipmentHow is a production plan prepared?Activity 1 Determination of RequirementsThe 1 st activity in Production Planning is the determination of the requirements for the planning horizon. Demand forecasting plays an important role in the conduct of these three tasks. Managers thus need to be aware of the various factors that would affect the accuracy of the demand and sales forecast.Activity 1 involves the conduct of the following tasks:ACTIVITY 1TasksDescription1 Draw up the sales forecast for each product or service over the appropriate planning period2 Combine the individual product / service demands into one aggregate demand3 Transform the aggregate demand for each time period into staff, process, and other elements of productive capacityThere are company factors that could influence the level of demand for the firm's products. These internal factors include the company's marketing effort; the product design itself; the strategies to improve customer service; and the quality and price of the product.There are also external factors or marketplace factors that significantly affect demand such as the level of competition or possible reaction by competitors to a firm's business strategy; the perception of consumers about the products and the consumer behavior as affected by their socio-demographic profile. Lastly, there are random factors that could affect the accuracy of demand forecasts such as the overall condition of the economy and the occurrence of business cycle.Activity 2 How to Meet the RequirementsThe next major activity involves the identification of the alternatives that the firm may employ to meet production forecasts as well as the constraints and costs involved. Specifically, this activity involves the following tasks:ACTIVITY 2TasksDescription1 Develop alternative resource schemes to meet the cumulative capacity requirements2 Identify the most appropriate plan that meets aggregate demand at the lowest operating costOnce the most appropriate plan has been selected, then the firm evaluates the plan and later on finalizes it for implementation. For more efficient and effective planning process, the formation of a production planning team composed of managers from manufacturing, marketing, purchasing and finance, is recommended.What are the inputs to the production planning process?To be able to perform the aggregate planning process, the following information should be available to this production planning team. These data include the following:• Materials / purchasing Information• Operations / manufacturing Information• Engineering / process Designs• Sales, marketing and distribution Information• Financial and accounting information• Human resources informationHow do you address the demand fluctuations?There are three basic production planning strategies that the company can choose from to address demand fluctuations. These are the (1) Chase Demand strategy, (2) Level Production strategy, and the (3) Mixed Strategy.Strategy DescriptionDemand Chase Strategy Matches the production rate to the order or demand rate through the hiring and firing of employees as the order rate variesLevel Production Strategy Maintains a stable workforce working at a constant production rate with the shortages and surpluses being absorbed by any of the following: • Changing the inventory levels • Allow order backlogs (commit to the customer that you will deliver the product (s) at a much later date) • Employ marketing strategies (e.g. promotional activities)Mixed Strategy The strategies here could include combination of any of the following: • Having a stable workforce but employ variable work hours (e.g., increase no. of shifts, flexible work schedules or overtime) • Subcontracting / outsourcing• Changing inventory levelsSource: Dilworth, James B. Production and Operations Management: Manufacturing and Services . Fifth Edition. McGraw-Hill, Inc. 1993What are the important considerations in selecting the production planning strategy?Demand Chase StrategySpecific Methods Costs RemarksHire additional workers as demand increases Employment costs for advertising, travel, interviewing, training, and othersShift premium costs if additional shift is added Skilled workers may not be available when neededLayoff workers as demand decreases Cost of severance pay & increases in unemployment insurance costs The company must have adequate capital investment in equipment for the peak work force levelLevel Production StrategySpecific Methods Costs RemarksProduce in earlier period and hold until product is needed Cost of holding inventory Service operations cannot hold service inventoryOffer to deliver the product or service later, when capacity is available Delay in receipt of revenue, at minimum; company may lose customers Manufacturing companies with perishable products often use this methodExert special marketing efforts to shift the demand to slack period Advertising costs, discounts, other promotional programs Exemplifies the inter-relationshipamong functions within an organizationMixed StrategySpecific Methods Costs RemarksWork additional work hours without changing the workforce size Overtime premium pay The time available for maintenance work without interrupting production is reducedStaff for high production levels so that overtime is not necessary Excess personnel wages during period of slack demand Work force may be used for deferred maintenance during periods of low demandSubcontract work to outside firms Continuing company overhead; subcontractor's overhead and profits The capacity of other firms can be utilized, but there is less control of schedules and quality levelsRevise make-or-buy decisions to purchase items when capacity is fully loaded Waste of company skills, tooling and equipment unutilized in slack periods These methods require capital investments sufficient for the peak production rate, that will be underutilized in slack periodsHow can you monitor effectiveness of your production plans?The important considerations in monitoring the effectiveness of your production plan are shown below:Systems and ProceduresConsideration Present? Remarks(if any)Yes No• Is there a current documentation of production planning and control systems and procedures? Has this been communicated to all concerned?• Does production planning and control have a formal monitoring system to maintain and update master scheduling records?• Is there a system of coordination between sales forecasts to be prepared in sufficient detail so that these maybe readily translated to specific production plans?Production PlanningConsideration Present? Remarks(if any)Yes No• Does production planning and control prepare a master production schedule with all the production assignments and time allocation?• Do the production schedules permit adequate planning of purchases and inventory levels?• Are there signs of significant lost time or low rate of worker productivity? Are the numbers of such orders appear to be significant?Production ControlConsideration Present? Remarks(if any)Yes No• Can the status of any order or work in progress be readily determined?• Do actual production levels deviate significantly in comparison with planned schedules?• Do actual shipments of orders almost always occur according to schedule?• Are essential production control records and reports maintained to cover current and future production loads?Two - Wheelers Annual Review January 2009Published by: CRISIL Ltd.Published: Jan. 30, 2009 - 84 PagesTable of ContentsSectionsTwo-wheeler growth prospects affected by weak finance scenario and nearing urban saturationExecutive summary1.0 Demand review and outlook2.0 Profitability - Review and outlookBox1.0 Demand review and outlook01 Methodology for forecasting long-term demand for two-wheelersChart1.0 Demand review and outlook01 CRISIL Research's two-wheeler penetration methodologyFigures1.0 Demand review and outlook01 Two-wheeler domestic sales trend02 Two-wheeler- Segmental growth trend03 Two-wheeler - Segmental share04 Scooter segment growth trend - Geared and ungeared05 Motorcycle demand - monthly trend06 Scooter demand - monthly trend07 Motorcycle demand growth08 Scooter demand growth09 Urban and rural penetration10 Share of rural and urban to total two-wheeler population11 Two-wheeler demand trend12 Motorcycle demand trend13 Share of urban and rural to total motorcycle demand14 Scooter demand trend15 Mopeds demand trend16 Country-wise estimated two wheeler penetration in 200717 China - Motorcycle sales and growth trend18 Urbanisation to two-wheeler to car sales ratio19 Two-wheeler export growth20 Segment-wise export sales21 Country-wise share of Indian exports - 2007-0822 Share of India in major export marketsFigures2.0 Profitability - Review and outlook01 Operating profit trend02 Product-mix trend03 Motorcycles - Product-mix trend04 Comparison of raw material / unit with operating margins05 Steel price trend06 Aluminium price trend07 Change in basic raw material cost vis-୶is change in raw material cost per unit08 Selling expenses (advertisement and distribution)09 Selling expenses (player-wise Rs per unit sold)10 Two-wheeler industry RoCE trendTables1.0 Demand review and outlook01 Two-wheeler demand growth2.0 Profitability - Review and outlook01 Trends in per unit raw material costSections1.0 Player profileBajaj Auto LtdHero Honda Motors LtdTVS Motor Co LtdHonda Motorcycles and Scooters India LtdYamaha Motor India Pvt LtdKinetic Motor Co LtdSuzuki Motorcycle India Pvt Ltd2.0 Demand and market position3.0 CostsRaw material costsFactors affecting raw material costs4.0 Supply5.0 Global coverageGlobal motorcycle productionGlobal motorcycle salesGlobal two-wheeler markets6.0 Government policyIntroductionInvestment policyImport policyFiscal regulationsExcise dutyOther leviesEmission normsEmission control lawsSafety lawsFigures1.0 Player profile01 Bajaj Auto - Estimated market share in the motorcycle sub-segment02 Hero Honda - Estimated market share in the motorcycle sub-segment03 TVS Motors - Estimated market share in motorcycle sub-segment04 HMSI - Segment-wise market share05 Yamaha - Estimated market share in the motorcycle sub-segment06 Kinetic - Trends in segment-wise market share2.0 Demand and market position01 Competitive position of players02 Two-wheelers - Player-wise share in domestic sales03 Two-wheelers - Player-wise growth rates04 Motorcycle - Player-wise share in domestic sales05 Economy segment - Player-wise share in domestic sales06 Economy segment - Major models07 Executive segment - Player-wise share in domestic sales08 Executive segment - Major models09 Premium segment - Player-wise share in domestic sales10 Premium segment - Major models11 Scooters - Player-wise share in domestic sales12 Mopeds - Player-wise share in domestic sales3.0 Costs01 Two-wheeler industry - Cost structure02 Trend in steel and aluminum prices03 Two-wheeler industry - Raw material indigenisation04 Selling and distribution expenses - Industry aggregates05 Player-wise selling and distribution expenses4.0 Supply01 Two-wheeler industry - Trend in capacity utilisation02 Gross fixed asset turnover of two-wheeler OEM vis-୶is car industry5.0 Global coverage01 Global motorcycle production02 Global motorcycle sales03 China - Motorcycle sales04 Indonesia - Motorcycles sales05 Indonesia - Share of 4-stroke vs 2-stroke06 Thailand - Motorcycle sales07 Taiwan - Domestic motorcycle sales08 Taiwan - Player market share09 Vietnam - Motorcycle sales10 Japan - Motorcycle sales11 Europe - Motorcycle and moped production12 Italy - Two-wheeler sales13 Italy - Market share of different types of motorcycles14 Germany - Two-wheeler sales15 US - Company-wise market share (2007)16 Canada - Segment-wise sales (2007)Tables1.0 Player profile01 Bajaj Auto Ltd02 Hero Honda Motors Ltd03 TVS Motor Co Ltd04 Honda Motorycle and Scooters India Ltd05 Yamaha Motors Ltd06 Kinetic Motor Co Ltd07 Suzuki Motorcycle India Pvt Ltd2.0 Demand and market position01 Two-wheelers: Player comparison (2007-08)02 Two-wheeler player-wise distribution network (March 2008)03 Two wheelers: Major models launched (April 2006 onwards)3.0 Costs01 Two-wheelers - Trends in raw material cost02 Raw material: Company-wise raw material cost break-up (2007-08)4.0 Supply01 Two-wheelers - Capacity and capacity utilisation of players (2007-08)02 Two-wheelers - Capacity addition plans5.0 Global coverage01 Category of motorcycles02 China - Market share by engine displacement03 Indonesia - Segment-wise motorcycle sales04 Thailand - Player-wise capacity share05 Thailand - Segment-wise market share in 200706 Brazil - Motorcycle demand07 Italy - Segment-wise market share 20076.0 Government policy01 Two wheelers - Basic customs duty structure (2008-09)02 Key raw materials: Import tariffs03 Two-wheelers and key raw materials - Excise duty04 Two wheelers: Emission normsSections1.0 Industry structureTables1.0 Industry structure01 Two-wheelers - Player-wise sales volumes02 Two-wheelers - Segment-wise sales volumes03 Two-wheelers - Segment and player-wise sales volumes04 Two-wheelers - Segment and player-wise market share (in per cent)05 Two-wheelers - Segment and player-wise exports share (in per cent)06 Two-wheelers - Player and segment-wise production07 Two-wheelers - Player-wise operating margin trends (standalone)08 Two-wheelers - Player-wise RoCE trends (standalone)09 Two-wheelers - Financials of key players (2007-08)10 Bajaj Auto Ltd - Unaudited results (standalone)11 Hero Honda - Unaudited results12 TVS Motors - Unaudited results (standalone)13 Two-wheelers - Profit and loss account (standalone)14 Two-wheelers - Aggregate industry balance sheetIndustry statisticsAbstractThis report is divided into three sections - The first section covers estimates, forecasts and elaborates on the factors, which have impacted the two-wheeler industry. It also takes a look at the key drivers of growth in the future. The second section evaluates the structural characteristics affecting the two-wheeler industry by covering player profile and reviews in order to understand their market share and hence their competitive position, future strategies, expansion plans and financial profile. Further, the second section provides a crisp coverage of cost structure in the industry, supply scenario, government policies and global market profile. The third section provides factual data on the player and segment-wise volumes, production and market share for players spread across two-wheeler segments.
