Production planning

Habari Mwanafunzi! Production Planning: Your Business Blueprint

Welcome to our lesson on Production Planning! Think about the last time you saw a new road being built, or a skyscraper rising in Nairobi. Did the workers just show up one day and start digging? Of course not! There was a detailed plan—a blueprint—that told them what to do, when to do it, and what materials they needed. Production planning is the blueprint for any business that makes a product, whether it's Farmer's Choice sausages, Keringet water, or the furniture in your local Jua Kali workshop.

In this lesson, we will uncover how businesses create this master plan to turn raw materials into finished goods efficiently, saving money and keeping customers happy. Let's get started!

What is Production Planning, Really?

At its core, Production Planning is the process of deciding in advance what to produce, how to produce it, when to produce it, and what resources are needed. It's about looking into the future and making smart decisions today. The goal is to balance two big things: what the customer wants (demand) and what the company can actually make (capacity).

Without a good plan, a business is just guessing. This can lead to:

• Shortages: Not enough product to sell, leading to unhappy customers who might go to a competitor. Imagine no chapati flour in the supermarket before a public holiday!
• Surpluses: Too much product, which ties up money in inventory and storage costs. Think of a farmer with tons of mangoes rotting because they couldn't get them to the market in time.
• Inefficiency: Wasted time, materials, and money. Workers standing around with nothing to do, or machines running unnecessarily.

The Three Levels of Production Planning

Production planning isn't a single event; it happens at different levels, like zooming in on a map. We start with the big picture and get more detailed as we get closer to the actual production date.

1. Long-Range Planning (The 5-Year Vision)

   This is the strategic, high-level planning that looks 2 to 5 years into the future. It's about making major decisions that will shape the company's future.

   • Focus: Facility location (Where to build a new factory?), new product lines, and major equipment purchases.
   • Example: Bidco Africa deciding to invest in a new manufacturing plant in Nakuru to serve the Western Kenya market better. This decision isn't made overnight; it's part of a long-term strategy.
2. Medium-Range Planning (Aggregate Planning - The Yearly Game Plan)

   This level typically covers a period of 6 to 18 months. The goal here is to match your production capacity with the forecasted demand. You're not planning for individual products yet, but for entire product families.

   • Focus: Setting employment levels (Do we need to hire more people for the peak season?), managing inventory levels, and deciding on overtime.
   • Example: A company like Deacons planning its clothing production for the next year. They won't decide on every single shirt size and color, but they will plan the total number of "men's shirts" or "children's dresses" to produce each quarter.
3. Short-Range Planning (Operational - The Weekly Hustle)

   This is where the plan gets real and detailed. It covers a timeframe from a few days to a few months. This is about scheduling the actual work.

   • Focus: Creating a detailed schedule for specific products (Master Production Schedule), ordering materials (MRP), and assigning jobs to specific machines or workers.
   • Example: Broadways Bakery creating a schedule for tomorrow: "From 4 AM to 8 AM, produce 10,000 loaves of white bread. From 8 AM to 12 PM, produce 5,000 loaves of brown bread."

Image Suggestion: An infographic showing a pyramid. The top, smallest section is labeled 'Long-Range Planning (Years)' with icons for a factory and a map. The middle section is 'Medium-Range Planning (Months)' with icons for a calendar and a group of workers. The bottom, largest section is 'Short-Range Planning (Days/Weeks)' with icons for a clipboard, a wrench, and a product on a conveyor belt.

Key Tools & Concepts in Your Planning Toolbox

To be a great production planner, you need the right tools. Let's look at a few essential ones.

1. Demand Forecasting

You can't plan if you don't know what people will want to buy! Forecasting is the art and science of predicting future demand. A simple method is the Moving Average.

Scenario: Mama Bancy's Kiosk wants to predict her mandazi sales for April. She looks at her sales for the past three months: January (1200), February (1300), and March (1400). She can use a 3-month moving average to forecast April's sales.

**Formula: Simple Moving Average**

Forecast = (Sum of demand in previous 'n' periods) / n

**Calculation for Mama Bancy:**

n = 3 months
Previous demand = 1200 (Jan) + 1300 (Feb) + 1400 (Mar) = 3900

Forecast for April = 3900 / 3
                   = 1300 mandazis

So, Mama Bancy can plan to make around 1300 mandazis in April.

2. Aggregate Production Plan (APP) Strategies

In medium-range planning, you need a strategy to handle fluctuating demand. The two most common are:

• Chase Strategy: You produce exactly what is demanded in each period. If demand is high, you hire more workers or use overtime. If it's low, you reduce hours or lay off workers. This is common for perishable goods.

  A flower farm in Naivasha uses a chase strategy. They hire hundreds of temporary workers in the weeks before Valentine's Day (high demand) and let them go afterwards.

• Level Strategy: You maintain a constant production rate and a stable workforce. When demand is low, you build up inventory. When demand is high, you sell from that inventory. This is great for non-perishable goods and keeping your workforce happy.

  A company making plastic water tanks (like Roto Moulders) might use a level strategy. They produce the same number of tanks each month, storing the excess during the dry season to sell during the rainy season when demand for water harvesting is high.

3. Master Production Schedule (MPS)

The MPS breaks down the aggregate plan into specific products. It’s the master list of what needs to be produced, how much, and when. It's the direct input for calculating what materials you need.

**ASCII Art: Simple MPS for a Juice Company**

Product: Mango Juice (500ml Pack)
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| Week              |   1   |   2   |   3   |   4   |
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| Forecasted Demand |  800  |  850  |  900  |  820  |
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| Production Plan   |  800  |  850  |  900  |  820  |
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4. Materials Requirement Planning (MRP)

Once the MPS tells you what to build, MRP tells you what to buy. It's an intelligent system that calculates all the raw materials, components, and sub-assemblies needed to produce the final product. It's your ultimate shopping list generator!

Image Suggestion: A flow chart diagram. It starts with a box 'Demand Forecast'. An arrow points to 'Aggregate Plan'. An arrow points from there to 'Master Production Schedule (MPS)'. The MPS box has an arrow pointing to a final box labeled 'Materials Requirement Planning (MRP)', which has smaller arrows pointing out to 'Purchase Orders' and 'Work Orders'.

Let's Calculate! Chase vs. Level Strategy

Imagine "Nakuru Leather Works" makes high-quality leather bags. Let's help them decide on a production strategy for the next quarter.

Given Data:

• Demand Forecast: Month 1 = 100 bags, Month 2 = 150 bags, Month 3 = 120 bags.
• Cost to produce one bag = KES 2,000
• Cost to hold one bag in inventory for a month = KES 100
• Hiring cost per worker = KES 5,000 (Let's assume we can make 50 bags per worker per month)
• Firing cost per worker = KES 8,000
• Starting with 2 workers, no inventory.

**PLAN A: LEVEL STRATEGY (Constant Production)**

1.  **Total Demand:** 100 + 150 + 120 = 370 bags
2.  **Average Production per Month:** 370 / 3 = ~123 bags/month
3.  **Workers Needed:** 123 bags / 50 bags/worker = ~2.46 workers. We'll hire one more worker at the start to make 3 workers (150 bags/month capacity) and keep them. Let's produce 124 bags per month for 2 months and 122 for the last to meet 370. Let's simplify and aim for ~123 per month.
    Let's produce 124 bags each month to be safe. Total production = 372 bags.
    Workers needed: 124/50 = 2.48, so we need 3 workers.
    Hire 1 worker at start: KES 5,000.

4.  **Cost Analysis:**
    *   Month 1: Produce 124. Demand 100. Inventory = 24.
        Inv Cost: 24 * 100 = KES 2,400
    *   Month 2: Produce 124. Demand 150. Use 26 from inventory. End Inv = -2 (shortage, bad plan!).

    **Let's try a better level plan: Produce enough to meet peak demand.**
    Let's maintain a workforce for 150 bags (3 workers).
    Hire 1 worker in Month 1 = KES 5,000.

    *   Month 1: Produce 150. Demand 100. End Inventory = 50.
        Inv Cost: 50 * 100 = KES 5,000
    *   Month 2: Produce 150. Demand 150. End Inventory = 50.
        Inv Cost: 50 * 100 = KES 5,000
    *   Month 3: Produce 150. Demand 120. End Inventory = 50 + 30 = 80.
        Inv Cost: 80 * 100 = KES 8,000

    **Total Cost (Level):**
    Production Cost: 450 bags * 2000 = KES 900,000
    Hiring Cost: KES 5,000
    Inventory Cost: 5000 + 5000 + 8000 = KES 18,000
    **TOTAL = KES 923,000**

**PLAN B: CHASE STRATEGY (Produce to Demand)**

1.  **Workers and Production:**
    *   Month 1: Demand 100. Need 2 workers (capacity 100). No hiring/firing.
    *   Month 2: Demand 150. Need 3 workers. Hire 1 worker. Cost = KES 5,000.
    *   Month 3: Demand 120. Need 2.4 workers, so 3 workers and they work less, or we fire one. Let's fire one. Cost = KES 8,000. We'll produce 120 (let's assume we can schedule this).

2.  **Cost Analysis:**
    *   No inventory costs with a pure chase strategy.
    *   Production Cost: 370 bags * 2000 = KES 740,000
    *   Hiring Cost: KES 5,000 (in M2)
    *   Firing Cost: KES 8,000 (in M3)
    **TOTAL = KES 753,000**

**Conclusion:** In this simplified scenario, the **Chase Strategy is cheaper (KES 753,000)** than the Level Strategy (KES 923,000). However, the company must consider the non-financial cost of constantly hiring and firing skilled leather workers.

Conclusion: The Power of a Good Plan

As you can see, production planning is a powerful function that sits at the heart of any successful manufacturing or production business. It's a blend of forecasting, strategy, and detailed calculation. By mastering these concepts, you understand how companies in Kenya and around the world ensure that the products we love are on the shelves when we want them, and at a price we can afford.

Keep practicing, stay curious, and you'll be well on your way to becoming an operations management guru! You've got this!