MPS, MRP AND ERP

MPS and MRP in manufacturing and service

Company’s aggregate plan specifies the resources approved for use by the company’s
operations group. These resources include the size of the workforce, level of inventory
held, number of planned shortages, authorized level of overtime and under time, aggregate
number of units or services to be produced in-house, and number of units or services to be
subcontracted. The Master Production Schedule (MPS) is often stated in product or
service specifications rather than Rupees. It shows how many products or services are
planned for each time period, based on the resources authorized in the aggregate plan. In
manufacturing, the production planner develops the schedule based on the available
capacity.
The MPS is the predicted build schedule for manufacturing specific end products or
providing specific services. The key distinction here is that the MPS is a statement of
production or services and is not a statement of demand—a plan to satisfy customer
demand while considering operational effectiveness and cost. Because of this, individual
products can be finished ahead of time and held in inventory rather than finished as
needed. The planner or office manager balances customer service and capacity usage.
The aggregate plan shows how many products or services are planned for each time
period. The MPS identifies the specific products or services planned for a given time
period. Company uses an effective MPS in making customer delivery promises, using
company capacity wisely, achieving the company’s objectives, and making trade-off
decisions between marketing and operations.
Master production Schedule (MPS) is the time-phased plan specifying how many and
when the firm plans to build each end item. The master schedule interfaces with
marketing, capacity planning, production planning, and distribution planning: It enables
marketing to make valid delivery commitments to warehouses and final customers; it
enables production to evaluate capacity requirements; it provides the necessary
information for production and marketing to negotiate when customer requests cannot be
met by normal capacity; and it provides senior management with the opportunity to
determine whether the business plan and its strategic objectives will be achieved. The
master schedule also drives the material requirements planning (MRP) system.
 PRODUCTION AND OPERATIONS MANAGEMENT

Fig 1; Planning sequence

Materials requirements planning (MRP)

It is a information system that translates the finished product requirements of the
master schedule into time-phased requirements for subassemblies, component parts,
and raw materials, working backward from the due date using lead times and other
information to determine when and how much to order. Hence, requirements for end
items generate requirements for lower-level components, which are broken down by
planning periods (e.g., weeks) so that ordering, fabrication, and assembly can be
scheduled for timely completion of end items while inventory levels are kept
reasonably low.

MRP begins with a schedule for finished goods that is converted into a schedule of
requirements for the subassemblies, component parts, and raw materials needed to
produce the finished items in the specified time frame. Thus, MRP is designed to
answer three questions: What is needed? How much is needed? and When is it needed?
The primary inputs of MRP are a bill of materials, which tells the composition of a
finished product; a master schedule, which tells how much finished product is desired
and when; and an inventory records file, which tells how much inventory is on hand
or on order. The planner processes this information to determine the net requirements
for each period of the planning horizon. Outputs from the process include planned-
order schedules, order releases, changes, performance-control reports, planning
reports, and exception reports.
 PRODUCTION PLANNING & SCHEDULING CHAPTER - 5

Purposes of MRP are as follows:

o Control inventory levels
o Assign operating priorities for items
o Plan capacity to load the production system
The theme of MRP is “getting the right materials to the right place at the right time.
Objectives of MPR system:
The primary objectives of MRP system are: to improve customer services, minimize
inventory investment and maximize production operating efficiencies. These are
achieved through-
o Determine the quantity and timing of material requirements. Company uses MRP
to determine what to order (it checks the BOM), how much to order (it uses the lot
size rule for the specific item), when to place the order (it looks at when the
material is needed and backward-schedules to account for lead time), and when to
schedule delivery (it schedules the material to arrive just as it is needed).
o Maintain priorities. Company also uses MRP to keep priorities updated and
valid. Requirements change, customers change order quantities and/or timing.
Suppliers deliver late and/or the wrong quantities, unexpected scrap generated,
equipment breaks down and production delay can be the possible reasons. In an
ever-changing environment, MRP system is to respond to changes and reorganize
priorities, and to keep plans current and viable.
Inputs of MRP
An MRP system has three major sources of information: a master schedule, a bill-of-
materials file. The master production schedule, states which end items are to be
produced, when they are needed, and in what quantities. The quantities in a master
schedule come from a number of different sources, including customer orders,
forecasts, and orders from warehouses to build up seasonal inventories.

Master Production
Schedule

Bills of materials Materials requirement Inventory record

file planning file

Fig; Inputs of MRP

 PRODUCTION AND OPERATIONS MANAGEMENT

A bill of materials file contains a listing of all of the assemblies, subassemblies, parts,
and raw materials that are needed to produce one unit of a finished product. Thus,
each finished product has its own bill of materials. The listing in the bill of materials is
hierarchical; it shows the quantity of each item needed to complete one unit of its
parent item. The nature of this aspect of a bill of materials is clear when you consider
a product structure tree which provides a visual depiction of the subassemblies and
components needed to assemble a product.

Fig; product structure tree (BOM) of final product X

Inventory record file refer to stored information on the status of each item by time
period. This includes gross requirements, scheduled receipts, and expected amount
on hand. It also includes other details for each item, such as supplier, lead time,
and lot size policy. Changes due to stock receipts and withdrawals, canceled
orders, and similar events also are recorded in this file.
For proper and errorless MRP, all the inputs and records must be accurate.

MRP in services
MRP has applications in services as well as in manufacturing. These applications may
involve material goods that form a part of the product–service package, or they may
involve mainly service components.
An example of a product–service package is a food catering service, particularly in
instances that require preparing and serving meals for large numbers of people. To
estimate quantities and costs of an order, the food manager would have to determine
the quantities of the ingredients for each recipe on the menu (i.e., a bill of materials),
which would then be combined with the number of each meal to be prepared to obtain
a material requirements plan for the event. Similar examples occur for large-scale
renovations, such as a sports stadium or a major hotel, where there are multiple
repetitions of activities and related materials and their components for purposes of cost
estimation and scheduling
 PRODUCTION PLANNING & SCHEDULING CHAPTER - 5

Benefit and requirement of MRP

Benefits of MRP:
MRP enables managers to easily determine the quantities of every component for a given
order size, to know when to release orders for each component, and to be alerted when
items need attention. Still other benefits include the following:

1. Low levels of in-process inventories due to an exact matching of supply to

demand.
2. The ability to keep track of material requirements.
3. The ability to evaluate capacity requirements generated by a given master
schedule.
4. A means of allocating production time.
5. The ability to easily determine inventory usage (by backflushing).

Requirements of MRP
In order to implement and operate an effective MRP system, it is necessary to have
1. A computer and the necessary software programs to handle computations
and maintain records.
2. Accurate and up-to-date
a. Master production schedule
b. Bills of materials
c. Inventory records
3. Integrity of file data

Accuracy is absolutely essential for a successful MRP system. Inaccuracies in inventory

record files or bill-of-material files can lead to unpleasant surprises, ranging from missing
parts to ordering too many of some items and too few of others, and failure to stay on
schedule, all of which contribute to inefficient use of resources, missed delivery dates, and
poor customer service. Companies also need to exert scheduling discipline and have in
place standard procedures for maintaining and updating bills of material.

MRP II
Manufacturing resources planning (MRP II)
MRP was developed as a way for manufacturing companies to calculate more precisely
what materials were needed to produce a product, and when and how much of those
materials were needed. MRP II evolved from MRP in the 1980s because manufacturers
recognized additional needs. MRP II did not replace or improve MRP. It expanded the
scope of materials planning to include capacity requirements planning, and to involve
 PRODUCTION AND OPERATIONS MANAGEMENT

other functional areas of the organization such as marketing and finance in the planning
process.
In addition to the obvious manufacturing resources needed to support the plan, financing
resources will be needed and must be planned for, both in amount and timing. Similarly,
marketing resources also will be needed in varying degrees throughout the process. In
order for the plan to work, the firm must have all of the necessary resources available as
needed. Often, an initial plan must be revised based on an assessment of the availability of
various resources. Once these have been decided, the master production schedule can be
firmed up.

Fig; An overview of MRP II

 PRODUCTION PLANNING & SCHEDULING CHAPTER - 5

Capacity Requirement Planning

It is the process of determining short-range capacity requirements. The necessary inputs
include planned-order releases for MRP, the current shop load, routing information, and job
times. Key outputs include load reports for each work center. When variances (under-loads or
overloads) are projected, managers might consider remedies such as alternative routings,
changing or eliminating of lot sizing or safety stock requirements, and lot splitting.

A capacity plan translates the output plan into input terms approximating how much of the
available capacity will be consumed. Though basic capacity is fixed, management can
manipulate the short term capacities by various ways like workforce management (addition or
depletion), by subcontracting or by using multiple work shifts to adjust the timing of overall
outputs. As a result aggregate capacity plan balances output levels, capacity constraints and
temporary capacity adjustment to meet demand.

To find the optimal capacity of

the facility so that the sum of
costs of the over capacity &
under capacity is minimized

Capacity investments are long To keep the initial investment

Need for Capacity
term and can not be reversed as low as possible to achieve
planning
easily lower break-even volume

To satisfy the future demand

of the products without any
shortages

Fig; Need for capacity planning

The capacity planning process begins with a proposed or tentative master production schedule that
must be tested for feasibility and possibly adjusted before it is kicked off. The proposed schedule is
processed using MRP to ascertain the material requirements the schedule would generate. These are
then translated into resource (i.e., capacity) requirements, often in the form of a series of load reports
for each department or work center, which compares known and expected future capacity
requirements with projected capacity availability. It shows expected resource requirements (i.e.,
usage) for jobs currently being worked on, planned orders, and expected orders for the planning
 PRODUCTION AND OPERATIONS MANAGEMENT

horizon. Given this sort of information, the manager can more easily determine whether capacity is
sufficient to satisfy these requirements. If there is enough capacity, he or she can freeze the portion of
the master production schedule that generates these requirements. Sometimes, it appears possible to
accommodate demand by slightly shifting some orders to adjacent periods. An overload appears can
be handled by shifting some jobs to adjacent time periods. In cases where capacity is insufficient, a
manager may be able to increase capacity (by scheduling overtime, transferring personnel from other
areas, or subcontracting some of the work) if this is possible and economical, or else revise the master
production schedule and repeat the process until an acceptable production schedule is obtained.

Fig; Capacity planning process

 PRODUCTION PLANNING & SCHEDULING CHAPTER - 5

ERP
Business organizations are complex systems in which various functions such as
purchasing, production, distribution, sales, human resources, finance, and accounting must
work together to achieve the goals of the organization. However, in the functional
structure used by many business organizations, information flows freely within each
function, but not so between functions. That makes information sharing among functional
areas burdensome. Enterprise resource planning is a computer system that integrates the
financial, manufacturing and human resources on a single system. ERP represents an
expanded effort to integrate standardized record keeping that will permit information
sharing among different areas of an organization in order to manage the system more
effectively.

ERP software provides a system to capture and make data available in real time to
decision makers and other users throughout an organization. It also provides a set of tools
for planning and monitoring various business processes to achieve the goals of the
organization. ERP systems are composed of a collection of integrated modules. There are
many modules to choose from, and different software vendors offer different but similar
lists of modules. Some are industry specific, and others are general purpose. The modules
relate to the functional areas of business organizations. For example, there are modules
for accounting and finance, HR, product planning, purchasing, inventory management,
distribution, order tracking, finance, accounting, and marketing. Organizations can select
the modules that best serve their needs and budgets.

There are three major reasons why companies undertake ERP:

To integrate financial data—As the CEO tries to understand the company's overall
performance, he or she may find many different versions of the truth. Finance has its own
set of revenue numbers, sales has another version, and the different business units may
each have their own versions of how much they contributed to revenues. ERP creates a
single version of the truth that cannot be questioned because everyone is using the same
system.

To standardize manufacturing processes—Manufacturing companies, especially those

with an appetite for mergers and acquisitions, often find that multiple business units
across the company make the same widget using different methods and computer
systems. Standardizing those processes and using a single, integrated computer system
can save time, increase productivity and reduce headcount.

To standardize HR information— Especially in companies with multiple business units,

HR may not have a unified, simple method for tracking employee time and communicating
with them about benefits and services. ERP can fix that.
 PRODUCTION AND OPERATIONS MANAGEMENT

Master Production Schedule (MPS)

It is very important to prepare master production schedule before starting the production functions.
The tabular presentation of aggregate production plan is called master production schedule (MPS)
and it highlights about the production process quantity, quality, timing of production etc. After the
determination of aggregate planning, the next step is to prepare the master production schedule.
Master Production Schedule (MPS) is the process of schedule, which translates aggregate plans into
production schedules for individual products. From the following queries the master production
schedule is prepared in an organization.
 What to produce?
 How much to produce?
 When to produce?
 What product mix be?
Actually master production schedule is the extended version of aggregate planning because it
translates the aggregate product into individual product plan. This is prepared by trial and error
approach to meet forecasted demand and inventories to avoid excessive production set up costs and
to produce capacity level. A Master Production Schedule or MPS is the plan that a company has
developed for production, inventory, staffing, etc. It sets the quantity of each end item to be
completed in certain period planning horizon. A Master Production Schedule is the master of all
schedules. It is a plan for future production of end items.
MPS Inputs MPS Outputs (production plan)
 Forecast Demand  Amounts to be Produced
 Production Costs  Staffing Levels
 Inventory Costs  Quantity Available to Promise
 Customer Orders  Projected Available Balance
 Inventory Levels
 Supply
 Lot Size
 Production Lead Time
 Capacity
The Master Production Schedule gives the information needed to plan and control the
manufacturing operation. The application ties overall business planning and forecasting to detail
operations through the Master Production Schedule. Furthermore, MPS is translating form a
business plan into a comprehensive product manufacturing schedule that covers what is to be
assembled or made, what materials are acquired and how much cash are required . MPS is a key
component of material requirements planning (MRP). Besides these, the forecasting of future market
demand and customer orders is also included in MPS.

Steps in Preparation of MPS

The basic objective of MPS is to plan about production by identifying demands of individual
production in products group. It contains two steps in preparation of MPS. They are as follows:
(a) Disaggregation of Aggregate Plan: Disaggregation of aggregate plan means the allocation of
overall production plans about products group into various individual products plan. There may
not be clear instruction about each individual products in aggregate plan that when and how
much they will be produced. Therefore it is necessary to disaggregate the aggregate production
 PRODUCTION PLANNING & SCHEDULING CHAPTER - 5

plan prior to develop MPS. The process of translating aggregate plan into individual product plans
is called ‘disaggregating’. During disaggregating, many problems have been faced. Therefore,
master production schedule (MPS) is prepared using ‘Trial and error approach’.
For example, the aggregate product used in certain company's aggregate plan is made up of
three families A, B and C and each family has various models. This disaggregating must then be
repeated as we decompose the plan for each family into production plans for individual items.
This disaggregation process is not a simple procedure because there are several steps in the
process and variety of tradeoffs that must be made before a final item by item production
schedule is obtained. When we allocate company's planned production of 250,000 (let) units in
certain month to the three product families, should it make 150,000 units of family A? If we
allocate too much production to family A, company may not be able to meet the demand for
items in families B and C during same month. If we allocate 100,000 units of production to
family A, we must still decide whether to produce all 100,000 units at one time or divide this
production into two or three separate runs. Finally, for a run of each family, we must allocate
production to each item within the family and sequence production of individual items in
families B and C during same month.

DISAGGREGATING OF AGGREGATE PLAN

AGGREGATE
AGGREGATE PLAN PLAN
PLANNED
PLANNED PRODUCTION
PRODUCTION FOR PRODUCT
FOR PRODUCT
TYPE TYPEORBY
BY MONTHLY
MONTHLYBASIS
QUARTERLY OR
QUARTERLYBASIS

FAMILY A FAMILY B FAMILY C

PLANNED PRODUCTION PLANNED PRODUCTION
PLANNED PRODUCTION FOR
FOR PRODUCT TYPE BY FOR PRODUCT TYPE BY
PRODUCT TYPE BY MONTHLY
MONTHLY OR QUARTERLY MONTHLY OR QUARTERLY
OR QUARTERLY BASIS
BASIS BASIS

ITEM I ITEM II ITEM III

PLANNED PRODUCTION FOR
PLANNED PRODUCTION FOR PLANNED PRODUCTION FOR PRODUCT TYPE BY
PRODUCT TYPE BY MONTHLY PRODUCT TYPE BY MONTHLY MONTHLY OR QUARTERLY
OR QUARTERLYBASIS OR QUARTERLY BASIS BASIS

b) Developing MPS: Master production schedule can be developed in various form. Sometimes it
can be developed on the basis of demand of output and some time on the basis of raw material.
Whereas some time it can be developed or prepared for simplicity without considering demand
and raw material required for product. A simple format of MPS for a week is given below:
Master Production Schedule for a week
Days
Products
Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total
A 2 2 2 2 2 2 2 14
B 10 - 10 - 10 - 10 40
C 15 10 5 20 - 20 8 82
 PRODUCTION AND OPERATIONS MANAGEMENT

The table shows that "A" product started from Sunday and each day produced 2 units to produce
14 units a week. Product "B" started from Sunday and it produced on alternate day with fix
quantity of 10 units. Similarly product "C" also started from Sunday and it can be produced in
flexible quantity as per the favor of condition.

Scheduling for different production system

The scheduling can be defined as the detailed planning of material, labor and machine time, so that
materials and parts will be at right place and at right time that a job can be completed within the
planned time. There are various methods or structure for production and a single schedule may not
be suitable for each production stature. So, how scheduling is prepared under various productions
structure is mentioned below:
(i) Scheduling for job shop production: The production structure or system, on which the job of
production is done by opening work shop or work centers, is called job-shop production.
Clinics, beauty parlor, computer centers, machinery garage etc are the examples of job-shop
production system. Under this system, various types of products are produced in low scale and
generally productions are done after customer order only.
A job shop is a process focusing production system that employs general purpose production
facilities. Generally production is done as per customer order. Larger number of different
products is produced, each in relatively small volumes. Example- machine shops, multi
especially clinics, computer centers and consulting forms.
Job shop type of production is more concerned with day to day scheduling. There would be a
variety of jobs. Each job has variety of operations to be performed. The operations are not
usually of the kind that last for days. Most of them are done within hours and fractions of hours.
Various semi finished items are produced which may have to wait for further operations to be
done on them.
The scheduling for job-shop production system is more concerned with day to day operations,
because there are various functions are to be done each day and which may not be related with
previous and next days functions. Sometimes, some functions are changed by some hours only.
So scheduling for job-shop production is prepared day by day generally.
Activities of scheduling operations:
• Assenting the different job to different facilities
• Sequencing the jobs and operation at a facility or on a machine, so as to achieve the production
department objective
• Monitoring the achievement
(ii) Scheduling for continuous production or mass production: The production system on which
production function is done regularly and continuously during the period is called continuous
production system. Under this, low variety of products is produced in massive scale by
considering present and future demand. So, it is also known as mass production system. Since
production is regularly done during the period, so the scheduling for the production system is
prepared on the basis of aggregate production plan. Work-force and inventory level also affects
the production schedule in this production structure.
For continuous or mass production system, aggregate plan determines the production levels,
workforce requirement and resulting inventory levels in aggregate terms. The scheduling
problem for such system is to develop detailed master schedules for individual end products
 PRODUCTION PLANNING & SCHEDULING CHAPTER - 5

including determination of facilities and other resources within the constraints of aggregate
plan.
For example, the aggregate schedule might call for 1000 units in planning period 1, where the
planning period might be a month or six month period. If there is only one product, master
schedule include production schedule of the same however if there is more than one product
master schedule would indicate the quantity of each products to be produced in each planning
period, consistent with aggregate schedule.
Again, scheduling for mass production system is the preparation of master production schedule
(MPS) which can meet the demand of individual product of products group. If the products are
producing in the form of project, then each activity are presented in diagrammatic form
showing their logical sequence of task to be performed with the help of CPM and PERT. Both
CPM and PERT are the network analysis tools and both operates in same manner, but CPM are
used for repetitive nature of project where as PERT are used for "R & D" nature of project which
are very expressive and time consuming.
Objectives in Scheduling of mass production
 Meet customer due dates
 Minimize job lateness
 Minimize overtime
 Maximize machine or labor utilization
 Minimize response time
 Minimize completion time
 Minimize time in the system
 Minimize idle time
 Minimize work-in process inventory
(iii) Scheduling for Batch Production: Batch production system is the mixed form of job-shop and
continuous production system. Under this, production functions are done with a certain size and
quantity but may not continue forever. When consumptions are less than production, then batch
production system is suitable for any organization. The strong feature of this types of
production system is that, productions are done up to a predetermined inventory level only.
After finishing one lot size of production, second lot's production is started and there may be
some periodic gap between the production of one lot and another lot.
A batch production falls between job shop production and continuous production. It is a
common type of production system where the output is kept as inventory and is produced in
substantial volume. An example of batch production is bottling of gin, vodka, rum and other
similar products. The management must decide how many cases of vodka in a given bottle size
should be bottled at one time and when the processing of the batch should begin.
A trade off in the determination of the lot size for an item is to create the balance between set up
cost and inventory cost of holding. Another equally important consideration is the requirement
to produce feasible schedules that meets the demand of all items. For examples, if set up cost are
low relative to holding cost, production in small lot size is preferable.
The scheduling for batch production system is prepared after determining lot size of production.
For Example Bottlers Nepal Ltd produces 20 lakhs bottles of cocacola in a year, then there must be
lot size determined as 10 lacks bottles twice in a year or 500,000 bottles 4 times in a year. But while
determining lot size, the set up cost and inventory handling cost should be considered by an
Operations manager.
 PRODUCTION AND OPERATIONS MANAGEMENT

Necessary steps to prepare production schedules in a batch production unit:

• Prepare individual job schedule
• Assign start and finish dates to each of operation on the job schedule
• Post load of each schedule into the load chart
• Setting delivery date for an item

Capacity Planning
The ability of utilizing efficiency of organization in terms of producing maximum output in a certain
time period is called capacity. In other words it means the ability to hold, receive, store and
accommodate. It is the critical consideration for long term strategy. It is generally measured in terms
of volume of output per unit of time. It is always focused on determining overall capacity level of
capital intensive resources like land, labor, equipment, facilities which support the long term
competitive organizational strategy.
Capacity planning is the process of determining the capacity requirements in future. Operations
management is concerned with the determining capacity requirements in terms of time dimensions.
It is concerned with matching the company's production capability with customer demand in the
most profitable way. This planning should take into account not only for facility, production, and
distribution cost, but also for lost of sales due to the inability to supply on time and any revenue gains
due to quick response.

Estimation of Future Capacity Planning

Capacity planning is the process of determining the capacity requirement in the future. The
operations manager is concerned with the determination of capacity requirement in terms of
following three time dimensions:
(i) Long-range Capacity Planning: It is more focused on modifying the capacity. It is more
difficult to find since future demand and technologies are not certain. Forecasting the future for
the period up to 5 years or 10 years is risky and difficult task. Today’s product may not exist in
future. Clearly long-term capacity planning depends on marketing plans, product development
and the life cycle of the products. This is basically done by the top management of the
organization.
(ii) Intermediate-range Capacity Planning: In the intermediate-range planning, operations
managers’ focus on both modifying the capacity as well as using it. This is the aggregate
planning task and mostly done by the middle level management. In this planning we can add
equipment, personnel, and shifts. We can also go for subcontracting and building or using
inventory.
(iii) Short-term Capacity Planning: Short-term capacity planning is primarily concerned with
scheduling jobs and people, and allocation machinery. As it is difficult to modify capacity in the
short run, it focuses mostly on using the available capacity. This is basically the job of lower
level management. While going for capacity planning, changes in process technology must also
be anticipated. Even if products do not change, the methods for generating them change
dramatically. Capacity planning must involve forecasts of technology as well as product
demand.

Need for Capacity Planning

When an organization decides to produce a new product or decides to produce more, capacity
 PRODUCTION PLANNING & SCHEDULING CHAPTER - 5

planning becomes the first step to think about. Once capacity is evaluated and a need for a new or
expanded facility is assessed, facility location and process technology activities occur. Excessive
capacity would require exploring ways to reduce capacity like temporary closing, selling or
consolidating facilities. Consolidation may involve relocation, a combination of technologies or a
rearrangement of equipment or processes. Capacity is a major consideration for operational strategy.
The reasons for the need of capacity planning are as follows:
 It determines the availability of goods to meet customer’s demand.
 It affects cost efficiency of operations.
 It determines the investment required.

Measurement of Capacity
Capacity is often defined as the capability of an object, whether that is a machine, work center or
operator, to produce output for a specific time period. Many companies ignore the measurement of
capacity, assuming that their facility has enough capacity, but that is often not the case. Increasingly
software programs like enterprise resource planning (ERP) and warehouse management systems
(WMS) calculate throughput based using formulas that are dependent on capacity.
Companies measure capacity in different ways using either the input, output or a combination of the
both as the measure.
For some organization, capacity is simple to measure. For example, Dairy Development Corporation
measures the capacity on the basis “tons of cheese per year” and automobiles company measures the
capacity on the basis of “number of automobiles per year”. However, it is difficult to find a common
unit of output for those organizations whose products lines are more diversified. In this case,
capacity can be expressed in terms of input as a substitute. For example:
 A legal office may express capacity in terms of the number of attorneys employed per year.
 A custom job shop or an auto repair shop may express capacity in terms of available labor hours
or machine hours per week or month or year.
Thus, capacity may be measured in terms of outputs or the inputs of the conversion process. Some
common examples of capacity measures are given below:
Measures of Operating Capacity
Types of Organization Output Measures
Automobile manufacturers Number of autos
Steel producer Tons of steel
Power Company Megawatts of electricity
Cannery Tons of foods
Brewery Liters of beer
Types of Organization Input Measures
Airline Number of seats
Warehouse Square or cubic meter of storage
Job shop Labor or machine hour
Merchandising Square meter of display or sales area
Movie theatre Number of seats
Restaurant Number of seats or tables
University Number of students and/or faculties
 PRODUCTION AND OPERATIONS MANAGEMENT

Sometimes it is difficult to measure capacity in real sense because of day to day variations. For
examples, employees are absent or late, equipments break down, facility down time is required for
maintenance and repair, machine setups are required or the products change over, and vacation
must be scheduled. Since all these variations occur from time to time, the capacity of a facility can
rarely be measured precisely. Thus measurements of capacity should be interpreted carefully.

1. What is production planning and scheduling? Discuss aggregate production.

2. Define capacity. What are the types of capacity planning?
3. What is capacity planning? How can we measure the capacity?
4. Define loading. Differentiate finite and infinite loading.
5. What do you understand by production planning and control? Discuss its main elements and
functions?
6. Why do you capacity-planning concept is essential in operating management?
7. What is an aggregate planning process? Explain how a Master Production Schedule (MPS) is
developed in an organization?
8. What do you understand by aggregate planning process? Explain the advantage and
disadvantage of aggregate planning process?
9. Describe Master Production Scheduling. State and explain the aggregate planning strategies in a
manufacturing organization.
10. Describe how does a Gantt Chart for detailed scheduling differ from a Gantt Load Chart.
11. What capacity planning? How is the capacity planning related to aggregate planning?
12. What is work measurement? Describe one important technique of work measurement.
13. What are priority-sequencing rules? Why are they needed in scheduling process?
14. Explain the Gantt Scheduling chart based in the production planning and scheduling.
15. What is an aggregate planning process? Explain how a Master Production Schedule (MPS) is
developed in an organization.
16. What do you understand by production planning and control? Discuss its main elements and
functions.
17. What is an aggregate planning? Explain how a master production schedule is developed in an
organization.

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