11.5 Production Planning for the Manufacturing Sector

The decisions made in the planning stage have long-range implications and are crucial to a firm’s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Many decisions involve trade-offs. For example, low cost doesn’t normally go hand in hand with high quality. All functions of the company must be aligned with its overall strategy to ensure success.

Effective production planning requires a thorough analysis of market demand, capacity capabilities, and available resources. It involves aligning production schedules with sales forecasts and considering factors such as lead times, production capacities, and resource availability. Additionally, it involves coordinating with other departments, such as procurement, logistics, and maintenance, to ensure a smooth and uninterrupted production process.^[1]

Let’s review the specific types of decisions that have to be made in the production planning process.

Decisions about Production Methods

The first step in production planning is deciding which type of production process is best for making the goods that your company intends to manufacture. In reaching this decision, managers should answer such questions as:

• Are we making a one-of-a-kind good based solely on customer specifications, or are we producing high-volume standardized goods to be sold later?
• Do we offer customers the option of “customizing” an otherwise standardized good to meet their specific needs?

One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best serves the needs of the company’s customers.

Make-to-Order (MTO)

At one time, most consumer goods, such as furniture and clothing, were made by individuals practicing various crafts. By their very nature, products were customized to meet the needs of the buyers who ordered them. This process, which is called a make-to-order strategy, is still commonly used by such businesses as print or sign shops that produce low-volume, high-variety goods according to customer specifications. This level of customization often results in a longer production and delivery cycle than other approaches. It is suitable for niche markets or high-value goods (e.g., luxury yachts or custom furniture).

The advantages of make-to-order production include a lower likelihood of unsold inventory, adherence to specific customer requirements, and less chances of unsold products, since manufacturing only begins after receiving firm orders.

The disadvantages of make-to-order production include higher costs due to smaller production runs and customized processes, which can lead to idle production capacity if orders are low, resulting in longer wait times for customers.

Mass Production

By the early twentieth century, a new concept of producing goods had been introduced: mass production (or make-to-stock strategy), the practice of producing high volumes of identical goods at a cost low enough to make them attractive for large numbers of customers. Goods are made in anticipation of future demand (based on forecasts) and kept in inventory for later sale. This approach is particularly appropriate for standardized goods ranging from processed foods to electronic appliances. It generally results in shorter cycle times than a make-to-order process. This type of production also takes advantage of economies of scale, which refers to the reduced costs per unit that are realized from an increased total number of units produced. It is best for high-demand products (e.g., Coca-Cola or generic clothing).

The advantages of mass production include lower per-unit costs due to economies of scale, high production rates that meet large market demand quickly, and uniform quality of products due to standardized processes.

The disadvantages of mass production include limited ability to adapt to changing customer preferences, requiring substantial capital for machinery and setup. Moreover, overproduction may lead to surplus stock and storage costs.

Mass Customization

There is at least one big disadvantage to mass production: customers, as one old advertising slogan put it, can’t “have it their way.” They have to accept standardized products as they come off assembly lines. Increasingly, however, customers are looking for products that are designed to accommodate individual tastes or needs but can still be bought at reasonable prices. To meet the demands of these consumers, many companies have turned to an approach called mass customization, which combines the advantages of customized products with those of mass production.

This approach requires that a company interact with the customer to find out exactly what the customer wants and then manufacture the goods, using efficient production methods to hold down costs. One efficient method is to mass-produce a product up to a certain cut-off point and then to customize it to satisfy different customers. It is ideal for industries offering personalized products (e.g., Dell’s customizable computers).

The advantages of mass customization include offering personalized products that enhance customer loyalty, helping businesses stand out in markets filled with standardized goods, and leveraging automation and modular design for greater adaptability.

The disadvantages of mass customization include generally higher unit costs compared to traditional mass production, the need for advanced technology and logistics to handle customization efficiently, and the potential for slower production speeds due to the customization process.

One of the best-known mass customizers is Nike, which has achieved success by allowing customers to configure their own athletic shoes, apparel, and equipment through the “Nike By You” program. The Web has a lot to do with the growth of mass customization. Levi’s, for instance, lets customers find a pair of perfectly fitting jeans, then helps them personalize the jeans through the “Levi’s Tailor Shop“. Oakley offers customized sunglasses, goggles, watches, and backpacks. Mars, Inc. can make M&Ms in any colour the customer wants (say, school colours) and add text and even pictures to the candy.

Naturally, mass customization doesn’t work for all types of goods. Most people don’t care about customized detergents or paper products. And while many of us like the idea of customized clothes, footwear, or sunglasses, we often aren’t willing to pay the higher prices they command.

Refer to Table 11.1 for a comparison of the features of mass production, mass customization, and make-to-order production methods.

Facilities Decisions

After selecting the best production process, operations managers must then decide where the goods will be manufactured, how large the manufacturing facilities will be, and how those facilities will be laid out.

Site Selection

Site selection involves measuring the needs of a new project against the merits of potential locations. In site selection, managers must consider several factors:

• To minimize shipping costs, managers often want to locate plants close to suppliers, customers, or both.
• They generally want to locate in areas with ample numbers of skilled workers.
• They naturally prefer locations where they and their families will enjoy living.
• They want locations where costs for resources and other expenses—land, labour, construction, utilities, and taxes—are low.
• They look for locations with a favourable business climate—one in which, for example, local governments might offer financial incentives (such as tax breaks) to entice them to do business in their locales. For example, an enterprise zone is an area in which incentives are used to attract investments from private companies.

Managers rarely find locations that meet all these criteria. As a rule, they identify the more important criteria and aim to satisfy them. For example, Toyota Motor Manufacturing Canada (TMMC) established one of its assembly plants in Cambridge, Ontario, after an extensive site selection process. Factors that influenced the site selection decision included skilled workforce, proximity to automotive supply chains, access to major markets (close to the U.S. border), transportation infrastructure (major highways and railways), government incentives (Canadian and Ontario governments provided financial incentives and tax breaks), cost of operations (affordable), and cultural fit (high-quality manufacturing and workforce reliability aligned with Toyota’s brand image and production standards).

Facility Layout

The facility layout is the physical arrangement of resources. The facility layout should be planned to handle materials orderly and efficiently and ensure a smooth flow of production. For instance, the distance that a work-in-progress must travel within a facility should be considered. Different manufacturing processes require different facility layouts, but these are the four common types:

• • Process layout
  • Product layout
  • Fixed-position layout
  • Cellular layout

A company may also choose to combine any of these layouts into a hybrid layout. To learn more about each type, refer to the end-of-chapter exercises and complete the Manufacturing Facility Layout exercise.

Capacity Planning

Now that the company has determined a location, the next decision it must make is about the quantity of products that it will produce. Managers begin by forecasting demand for the company’s product, which isn’t easy. To estimate the number of units that are likely to sell over a given period, they have to understand the industry that they are in and estimate their likely share of the market by reviewing industry data and conducting other forms of research.

Once demand for the product has been forecasted, managers can calculate the capacity requirements of the production facility—the maximum number of goods that it can produce over a given time under normal working conditions. Having calculated the capacity requirements, managers are ready to determine how much investment in the plant and equipment they will have to make, as well as the number of labour hours required for the plant to produce at capacity and meet demand.

Like forecasting, capacity planning is difficult. Unfortunately, failing to balance capacity and projected demand can be seriously detrimental to the firm’s bottom line. If capacity is set too low (and so the company produces less than it should), it won’t be able to meet demand and will lose sales and customers. If capacity is set too high (and results in more units than needed), the company will waste resources and inflate operating costs. Therefore, continuous review, the process of routinely reviewing the organization’s processes to determine where improvements can be made to increase organizational efficiency, is very important in the capacity planning process to avoid producing too much or too little.

Media Attributions

“Ai Generated, Woman, Factory royalty-free stock illustration” by hbfarhan1000, used under the Pixabay license.

“Personalized M&Ms” by Nasha Taraporewalla is published under a Creative Commons Attribution-NonCommercial-ShareAlike license.