Production Planning

Production planning determines what products should be produced, how many units should be produced, and when production should occur while considering forecast demand, inventory, workforce, materials, machine capacity, and production lead times. A basic production balance is Production = Demand + Desired Ending Inventory - Beginning Inventory. This relationship connects production decisions to inventory levels across planning periods. Short-term planning may use a Master Production Schedule (MPS) to specify when finished products should be produced, while aggregate planning considers product families, workforce levels, inventory, overtime, subcontracting, and capacity over a longer planning horizon. A production plan must account for available capacity: required production hours cannot exceed the capacity provided by available machines and labor unless overtime, additional shifts, subcontracting, or other capacity actions are introduced. Two common aggregate-planning strategies are level production, which keeps the production rate relatively stable while inventory absorbs demand variation, and chase production, which changes production capacity or output to follow demand more closely. Inventory provides a buffer between production and demand but creates holding costs and may become obsolete. Safety stock can be maintained to protect against demand or supply uncertainty. Material requirements must also be synchronized with production through bills of material, inventory records, and lead times. A feasible production plan satisfies demand and inventory requirements without violating capacity, material, workforce, or policy constraints. Production planning is therefore a time-phased resource allocation problem rather than simply a forecast of how many units customers will buy.