Economic potential through detailed production planning

Experts know that detailed planning systems are becoming increasingly important in production. However, companies that have no previous experience with such systems first ask about the economic benefits of investing in a detailed planning system. We try to approach a business case:

Detailed production planning, also known as “Production Planning and Detailed Scheduling” or “PP/DS” for short, is a specialized area of production planning. It deals with the detailed and short-term planning of production processes. The aim of detailed planning is to optimize production processes at a very “fine” level. This includes the precise definition of when and on which machines or production lines certain products or components are to be manufactured. This involves (theoretically) minute-by-minute planning, taking into account all available resources (such as machines, labor and materials) and restrictions (such as capacities, delivery deadlines and technical requirements). In the operational practice of detailed production planning, accuracies in the hourly range are usually used.

Conventional production planning”, on the other hand, typically schedules orders on a daily basis and works “against unlimited capacity”. This means that the real capacity limits of the means of production (such as machines, labor and materials) are not initially taken into account during planning. Instead, the focus is on determining the optimal production program under the assumption that sufficient resources are available to satisfy demand. If the ERP system knows work schedules, the daily capacity stored in the company calendar is taken into account for each individual production step when scheduling a production order. For example, a production order that takes 24 hours to complete is scheduled over three days and various systems with eight hours of production capacity per day. However, a second production order, which is to start on the same day and run on the same systems, is “mercilessly” planned in parallel to the first production order, although this would not be feasible in terms of capacity.

Advantages of classic production planning

However, there are good reasons for planning against unlimited capacity:

Simplification of planning: By disregarding capacity limits, planning is simplified because the focus is initially on other aspects such as meeting customer demand, optimizing product mixes or minimizing inventory costs.

Determining the ideal state: This type of planning makes it possible to determine a theoretical ideal state in which demand is met in full and in the optimum mix. This ideal state then serves as a guideline for further planning.

Identification of bottlenecks: After planning against unlimited capacity, the results can be compared with actual capacity to identify bottlenecks and critical resources. These findings are important for strategic decisions such as capacity expansions.

Flexibility in planning: The assumption of unlimited capacities allows a certain flexibility to react to changes in demand or in the production environment before the actual capacity limits are taken into account.

Classic production planning makes sense in the long-term planning horizon. Beyond rough seasonal capacity leveling, it makes no sense to plan in detail so far in advance. In the short-term horizon of a few days to a few weeks, classic production planning is sufficient if no significant resource bottlenecks need to be overcome. If you can manage with the given production capacities on average by bringing forward or postponing production orders by one or two days if necessary, you do not need detailed production planning. The same applies if sufficient personnel or production material is generally highly available.

Detailed planning is becoming increasingly important

However, most manufacturing companies are now cautious about expanding their production capacities, which means that capacity utilization is becoming increasingly high. Frictional losses begin to occur from an average of around 80% of production capacity utilization and increase exponentially with further capacity utilization. In addition, market demand is highly volatile and supply chains are less reliable. For these reasons, detailed production planning is becoming increasingly important in order to reduce the costs of the value chain and make the best possible use of available resources.

What are the advantages of detailed production planning for production companies?

Even if the initial situation of different companies is heterogeneous, a number of qualitative and quantitative advantages can be recognized.

In total, the potential for improvement can be divided into seven classes:

  1. Operational efficiency: This includes elements that directly improve the efficiency of production processes, such as avoiding bottlenecks, shortening throughput times, minimizing idle and set-up times, and reducing downtime.
  2. Cost reduction: This includes aspects that contribute directly to reducing operating and manufacturing costs, such as lowering inventory costs, reducing energy consumption, reducing costs by avoiding reserve personnel, and reducing the number of personnel required for planning and control tasks.
  3. Market adaptation and customer orientation: This category deals with the ability to react flexibly to market changes and customer demand, which leads to more customer-oriented production and increased customer satisfaction.
  4. Productivity and performance improvement: This includes items that affect overall productivity and performance, such as improving machine utilization, increasing overall productivity, and improving productivity.
  5. Transparency and predictability: Aspects that enable a better overview and predictability in the production process, such as increased transparency about the production situation, improved adherence to deadlines and more precise delivery dates.
  6. Agility and speed of response: This includes items that improve the ability to adapt quickly to unexpected events, such as the ability to respond to equipment breakdowns and staff shortages, as well as improving agility.
  7. Optimization of the value chain: This includes elements that contribute to increasing efficiency throughout the entire value chain, such as the coordination of production stages and the reduction of waiting and buffer stocks.

Our checklist, which you can download below, provides a detailed overview of the various improvement potentials that can be exploited through detailed production planning, depending on the company and production situation.

Many of these variables can be quantified in principle, but companies rarely have detailed empirical values. As part of the development and ongoing optimization of the detailed planning module of the DISKOVER APS system (DISKOVER PP/DS), we have quantified a number of potentials in 200 simulations of a wide variety of initial planning constellations.

The second part of this article will deal with this and the question of whether these quantitative values can also be used to estimate the monetary benefits resulting from the use of detailed planning systems in production.

Picture of Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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