What Are the Strategies Used in Production Planning & Scheduling?
Different companies plan and schedule manufacturing production using different strategies. Some companies make goods only after receiving a customer’s order while others make goods and distribute them to retailers where customers buy at their discretion. A company strategy has a direct impact on the amount of inventory it carries and that translates into cash available for other needs.
Companies that use the chase strategy, or demand matching strategy, produce only enough goods to meet or exactly match the demand for goods. Think of this strategy in terms of a restaurant, which produces meals only when a customer orders it, therefore matching the actual production with customer demand. The chase strategy has several advantages it keeps inventories low, which frees up cash that otherwise can be used to buy raw materials or components, and reduces inventory carrying costs that are associated with holding inventory in stock. Cost of capital, warehousing, depreciation, insurance, taxes, obsolescence and shrinkage are all inventory carrying costs.
In a manufacturing company that uses a level production strategy, the company continuously produces goods equal to the average demand for the goods. Scheduling consistently arranges the same quantity of goods for production based on the total demand for the goods. So, if for three months a company wants to produce 20,000 units of a certain item and there are a total of 56 working days, it can level production to 358 units per day.
In the make-to-stock environment, goods are produced before customers place orders. The retail environment is an example of make-to-stock as goods are produced and put into inventory at the retailer location. The make-to-stock strategy typically allows manufacturers to produce goods in long production runs, taking advantage of production efficiencies. Because the make-to-stock environment...