CHAPMAN, STEPHEN N.

THE FUNDAMENTALS OF
PRODUCTION PLANNING AND
CONTROL
ISBN 0-13-017615-X
Dr Tasweer Hussain Syed CEME

Contents

CHAPTER 1 Overview of Planning and

Control 1
CHAPTER 2 Forecasting Fundamentals 17
CHAPTER 3 Sales and Operations
Planning 45
CHAPTER 4 The Master Schedule 71
CHAPTER 5 Inventory Management 99

Contents

CHAPTER 6 Material Requirements Planning

CHAPTER 7 Capacity Management
CHAPTER 8 Production Activity Control
CHAPTER 9 Lean Production and JIT
CHAPTER 10 Fundamentals of the Theory of
Constraints
CHAPTER 11 "Partnering" Functions:
Purchasing and Distribution
CHAPTER 12 System Integration and
Implementation

CHAPTER 2
Forecasting Fundamentals

2.1 Fundamental Principles of

Forecasting
2.2 Major Categories of Forecasts
Qualitative Forecasting
Quantitative Forecasting-Causal
Quantitative Forecasting- Time Series
2.3 Forecast Errors
2.4 Computer Assistance

2.1
Fundamental Principles of Forecasting

Forecasting is a technique for using past

experiences to project expectations for
the future.
Fundamental characteristics/;

Forecasts are almost always wrong

Forecasts are more accurate for groups or
families of items
Forecasts are more accurate for shorter
time periods
Every forecast should include an estimate
of error

2.2
MAJOR CATEGORIES OF FORECAST

There are two basic types of forecasting:

qualitative and quantitative
Qualitative forecasting:

forecasts that are generated from

information that does not have a welldefined analytic structure
Useful - no past data is available, eg a
product is new and has no sales history.
Key characteristics of qualitative
forecasting data include:

2.2
MAJOR CATEGORIES OF FORECAST

The forecast based on personal judgment or some

external qualitative data.
The forecast tends to be subjective developed on
experience of the people involved, biased based
on the potentially optimistic or pessimistic position
of those people.
An advantage is some fairly rapid results.
Some times only method available
These methods are usually used for individual
products or product families, seldom for entire
markets.

2.2
MAJOR CATEGORIES OF FORECAST

common methods of qualitative

forecasting
market surveys
Delphi or
panel consensus,
life-cycle analogies, and
Informed judgment.

2.2
MAJOR CATEGORIES OF FORECAST

Market surveys
Structured questionnaires submitted to
potential customers in the market
Solicit opinions about products or potential
products,
Attempt to get an understanding customer
demand for products or services.
If structured well, administered to a good
representative sample of the defined
population, and analyzed correctly, they can be
quite effective, especially for the short term. A
major drawback is they are fairly expensive and

DELPHI &/or PANEL CONSENSUS

Panels of defined experts in the market or area compile

individual knowledge of the factors that affect demand into
the analysis, interacting with each other develop a
consensus

The major difference between the two methods is one of

process. While panel forecasting tends to bring the experts
together in a meeting format for the discussion,

Delphi method allows for a series of individual forecasts to

be made by each expert. Each expert develops their own
forecast with their own defined reasons.

This collective set is then shared with all the experts,

allowing each to then modify their forecast based on
information from the other experts. Through a series of these
steps, the idea is to obtain a consensus as to the forecast.

Disadvantage - these methods quite expensive, primarily

due to the time requirements from a group of experts in the
field. Such experts often charge fairly high fees for their time

Life cycle analogy

forecasting

Special Application used when the

Product or service is new.

It is based on the fact most products and services have a
fairly well-defined life cycle. Initiation, maturity and Decline

The major questions relating to life cycle are:

What is the time frame? How long will growth and
maturity last?
How rapid will the growth be? How rapid will the
decline be?
How large will the overall demand be, especially
during the mature phase?

INFORMED JUDGMENT

Common forecasting methods but

unfortunately worst methods
One common approach used is for a sales
manager to ask each salesperson to
develop a projection of sales for their area
for some defined time period in the future.
The sales manager then combines the
individual sales projections into an overall
sales forecast for the company.

QUANTITATIVE FORECASTING-CAUSAL

causal. key characteristics of these methods include:

Based on the concept of relationship between variables, or
the assumption that one measurable variable "causes" the other.
There is an important assumption of causality and that the causal variable can be
accurately measured. The measured variable that causes the other to change is
frequently called a "leading indicator. eg new housing starts is often used as a
leading indicator for developing forecasts
If there are good leading indicators developed, excellent forecasting results.
As somewhat of a side benefit, dev models - gain additional significant market
knowledge.

For example, if you are developing a causal model of vacation travel based on the leading
indicator of gasoline prices, there is a good chance you will gain knowledge about both the
mechanisms that control gasoline prices as well as the patterns of typical vacation travel.

These methods are seldom used for product, but more commonly used for entire
markets or industries.
The methods are often time-consuming and very expensive to develop, primarily
because of developing the relationships and obtaining the causal data.

INPUT-OUTPUT MODELS
large and complex models, as they
examine the flow of goods and services
throughout the entire economy.
As such, they require a substantial
quantity of data, making them expensive
and time-consuming to develop.
They are generally used to project needs
for entire markets or segments of the
economy, and not for specific products.

Econometric models. These models involve a statistical analysis of

various
sectors of the economy. Their use is similar to the input-output
models.
Simulation models. Simulating sectors of the economy on computers
are
growing in popularity and use with the development of ever more
powerful
and less expensive computers and computer simulation models.
They can be
used for individual products, but once again gathering the data tends
to be expensive
and time-consuming. The real value of these models is that they are
fast and economical to use once the data has "populated" the model.

SIMULATION MODELS

Simulating sectors of the economy on

computers are growing in popularity and use
with the development of ever more powerful
and less expensive computers and computer
simulation models.
Used for individual products, but once again
gathering the data tends to be expensive and
time-consuming.
The real value of these models is that they are
fast and economical to use once the data has
"populated" the model.

REGRESSION

A statistical method to develop a defined analytic

relationship between two or more variables.
The assumption, as with other causal models, is that
one variable "causes" the other to move. Often the
independent, or causal, variable is called a leading
indicator. A common example is when the news
reports on housing starts, since that is often a leading
indicator of the amount of economic activity in
several related markets (e.g., the lumber industry).
Since they are based on external data, causal
forecasting methods are sometimes called extrinsic
forecasts.

QUANTITATIVE FORECASTINGTIME SERIES

Time-series forecasts are among the most commonly

used for forecasting packages linked to product
demand forecasts. They all essentially have one
common assumption. That assumption is that past
demand follows some pattern, and that if that pattern
can be analyzed it can be used to develop projections
for future demand, assuming the pattern continues in
roughly the same manner. Ultimately that implies the
assumption that the only real independent variable in
the time series forecast is time.
Since they are based on internal data (sales), they are
sometimes called intrinsic forecasts

Time series forecasting

models

Capture underlying patterns of past demand

Random Pattern - assumption that demand
always has a random element - people
inherently know: the customers who demand
goods and services from a company do not
demand those goods and services in a
completely uniform and predictable manner.
Trend Pattern. The trends can either be
increasing or decreasing, and they can be either
linear or nonlinear in nature. Some examples

Simple moving averages are, as the name implies, nothing more than the
mathematical average of the last several periods of actual demand. They take
the form:

Weighted moving averages are basically

the same as simple moving averages,
with one major exception. With weighted
moving averages the weight assigned to
each past demand point used in the
calculation can vary. In this way more
influence can be given to some data
points, typically the most recent demand
point. They take the basic form

Simple exponential smoothing is another method used to smooth the random

fluctuations in the demand pattern. There are two commonly used (mathematically
equivalent) formulas:

CHAPTER 3
Sales and Operations Planning

3.1 Purpose of Sales and Operations Planning

3.2 General Design of Sales and Operations
Planning
3.3 Approaches to Sales and Operations Planning
Make-to-Stock View of an S&OP
Make-to-Order View of an S&OP
3.4 Strategies for Sales and Operations Planning
Some Techniques
Trade-off Approaches

CHAPTER 3
Sales and Operations Planning

3.5 Balancing Resources in Sales and

Operations Planning
3.6 Discussion: A Simple Example

Chase
Level
Combination

3.7 Qualitative Issues

3.8 Some Business Environment Issues

CHAPTER 4
The Master Schedule

4.1 Background and Links to the S&OP

4.2 Master Schedule Horizon
4.3 Time Fences
4.4 Sources of Demand
4.5 Basic Methodology
4.6 Impact of Product Environment
4.7 General Approach to Master
Schedule Development

CHAPTER 4
The Master Schedule

4.8 Available-to-Promise Logic

4.9 Planning Options in an ATO
Environment
4.10 The Two-Level Master Schedule
4.11 Some Notes on the Master
Scheduling Responsibility
4.12 Demand Management Overview
4.13 Elements of Demand Management

CHAPTER 5
Inventory Management

5.1 Basic Concepts of Inventory

5.2 Categories of Inventory
5.3 The Basic Inventory Lot Sizing Model-Economic
Order
Quantity (EOQ)
5.4 Basic Independent Demand Inventory Reorder
Models
5.5 Inventory Control
Location Approaches for Stockrooms and Warehouses
Maintaining Inventory Data Accuracy
Obtaining Accurate Inventory Records

CHAPTER 6
Material Requirements Planning (MRP)

6.1 Background and Fundamental Concepts - The Problem with

Reorder Points
6.2 Bills of Material
6.3 The MRP "Explosion
Common Lot Sizing Rules
6.4 Other MRP Issues
Generation of Data
Updating Information
Exception Messages
Other Sources of Demand
6.5 Potential MRP Challenges
6.6 Enterprise Resource Planning (ERP)
6.7 Business Environment Issues

CHAPTER 7
Capacity Management

7.1 Capacity Definitions

7.2 Rough-Cut Capacity Planning
7.3 Capacity Requirements Planning
(CRP)
7.4 Input/Output Control (I/O)
7.5 Capacity Measures
7.6 General Approach to Capacity
Management

CHAPTER 8
Production Activity Control

8.1 General PAC Information and Data

8.2 Prioritizing Work - Scheduling in MRP
and "Pull" Production Environments
8.3 Scheduling
8.4 Loading
8.5 Infinite Loading , Finite Loading
8.6 Corrective Actions

CHAPTER 9
Lean Production and JIT

9.1 Fundamental Concepts

9.2 Some Impacts on Capacity
9.3 The Pull System

9.4 Kanban - How It Works , Kanban Rules

The Bicycle Example Revisited

The "Down Side" of the Change
Number of Kanban Cards
Kanban Card Alternatives
Setting Priorities with Kanban

9.5 Using the Kanban System for Process Improvement

9.6 Master Scheduling and Lean Production
9.7 Are MRP and Kanban Compatible?

CHAPTER 10
Fundamentals of the Theory of Constraints

10.1 Fundamental Principles of the Theory of Constraints

10.2 Understanding and Managing the Constraint
10.3 Improving the Process Using TOC Principles
10.4 Impact on Operations Strategy
10.5 General Types of Constraints Causes
10.6 Logistics and the Theory of Constraints
10.7 Scheduling and the Theory of Constraints
10.8 Multiple Time Buffers
10.9 Control Points and Batches
10.10 Major Steps in Using the Drum-Buffer-Rope Method

CHAPTER 11
"Partnering" Functions: Purchasing and Distribution

11.1 Purchasing Information Issues

11.2 Purchasing Responsibilities for
Material Procurement
11.3 Distribution Requirements Planning

Basic DRP Structure

Key Data Requirements
The Bill of Distribution
Using the BOD for DRP
DRP in a Lean Production "Pull" Environment

CHAPTER 12
System Integration and Implementation

12.1 General System Design and Selection

12.2 "Push," "Pull," or Somewhere in Between?

Hybrid System #1-MRP with Lean Principles

Hybrid System #2-Kanban with MRP Planning
Hybrid System #3 - Using MRP for Capacity and
Long Lead Time Items
Hybrid System #4-Pull Systems with "Spike"
Control
Focus on the Point of Customization

12.3 General Implementation Approaches

Major Process Steps in implementation