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Production Planning, Process Control & Inventory Management (Workload, Scheduling, MRP, Ordering Systems)

Production Management Planning Grade 3 生産管理プランニング (BC検定) · ビジネス・キャリア検定 生産管理プランニング3級 · Written by Tokutei Pass based on the official study texts; not copied verbatim.

1. Overall System of Process Control (3 Areas of Production Planning, 5 Areas of Production Control, and Forms)

Process control is the activity of planning (Plan) and controlling (Do, Check, Act) work flow and shop-floor production capacity to reliably achieve the customer's required delivery date (D) and quantity under specified quality (Q) and cost (C).

The planning function—Production Planning—is divided into three areas: (1) Process routing planning, which determines processing sequences, machines, and methods; (2) Workload (man-hour/capacity) planning, which balances workload and shop capacity; and (3) Scheduling, which determines start and completion dates.

The execution, check, and action function—Production Control—consists of five areas: (1) Order release / manufacturing preparation (issuing manufacturing orders and material requisition slips); and (2) Dispatching (directing the start order of jobs on the shop floor).

These are joined by (3) Progress control / expediting (tracking delays or advances against plan); (4) Physical inventory / WIP control (matching the physical location and quantity of work-in-process); and (5) Capacity / surplus power control (adjusting workload-capacity imbalances across shops).

Key points


  • Three areas of Production Planning: (1) Process routing planning (process charts, operation standards), (2) Workload planning (load accumulation charts), (3) Scheduling (master schedule tables, Gantt charts).

  • Five areas of Production Control: (1) Order release (manufacturing orders, job instruction tickets, issue slips, move tickets), (2) Dispatching, (3) Progress control, (4) Physical WIP control, (5) Surplus capacity control.

  • Routing planning decides 'how to make', workload planning decides 'how much work volume', and scheduling decides 'when to make'.
WordMeaning
Production Planning (Routing, Workload, and Scheduling)
Production Control (Order release, Dispatching, Progress, Physical WIP, and Capacity control)
Manufacturing order, Job instruction ticket, Material issue slip, Move ticket

2. Supply Chain Management (SCM) and the 3 Buffers Against Demand Fluctuation (Inventory, Capacity, Time)

Integrally managing the entire chain of procurement, production, logistics, and sales—from raw material and parts suppliers through manufacturing plants, distribution centers, wholesalers, and retailers to final consumers—for total optimization is called Supply Chain Management (SCM).

Along the supply chain, the boundary point where forecast-driven push production switches to actual-demand-driven (confirmed order) pull production—and where strategic inventory is held—is the Decoupling Point.

To absorb market demand fluctuations and forecast errors for stable supply, there are three types of buffers: (1) Buffer by goods (inventory), (2) Buffer by capacity, and (3) Buffer by time.

(1) Buffer by goods means holding safety stock of finished products or parts (central to Make-to-Stock); (2) Buffer by capacity means maintaining production capacity margin through overtime, holiday shifts, subcontracting, or standby equipment; and (3) Buffer by time means adjusting via delivery lead time waited by the customer.

Key points


  • SCM = End-to-end management of information and material flows from parts procurement to production, sales, and customer delivery to reduce inventory and shorten lead time.

  • Three buffers absorbing demand fluctuations: (1) Goods buffer (product/parts inventory), (2) Capacity buffer (overtime, subcontracting, surplus equipment), (3) Time buffer (delivery date / lead-time adjustment).

  • Make-to-Stock primarily uses the goods (inventory) buffer, whereas Make-to-Order primarily uses the capacity buffer and time buffer.
WordMeaning
Supply Chain Management (SCM)
Three buffers (Goods buffer, Capacity buffer, Time buffer)
Decoupling point and Bullwhip effect

3. Hierarchical Production Plans by Horizon (Master, Medium-, Short-Term Schedules) and Rolling Plans

Production plans are established hierarchically by time horizon. First, based on business and sales plans, a Long-term production plan (basic production plan / master long-range schedule) is created in 1-year to 6-month units to set production quotas by product family, capital investment, and staffing plans.

Next, in 3-to-6-month or monthly (1-month) units, a Medium-term production plan (aggregate production plan / medium-range schedule) defining monthly production volumes by product, inventory levels, and required man-hours is formulated, along with the Master Production Schedule (MPS).

Then, in weekly to daily units, this is broken down into a Short-term production plan (detailed production plan / short-range operational schedule) that specifically assigns which shop and machine will process which product or part, when, and in what quantity.

To flexibly adapt to demand changes, reviewing a 3-month monthly plan every month—fixing the immediate first month while sequentially updating plans for the second month onward based on the latest order results—is called a Rolling Plan.

Key points


  • Three scheduling horizons: Long-range schedule (long-term: annual/semi-annual) → Medium-range schedule (medium-term: monthly / 3–6 months) → Short-range schedule (short-term: weekly/daily).

  • Master Production Schedule (MPS) = Defines period-by-period production quantities for each final product and serves as the starting point for MRP (Material Requirements Planning).

  • Rolling plan = Planning method that periodically reflects actual results and latest demand forecasts to sequentially review and update the schedule.
WordMeaning
Long-range schedule, Medium-range schedule, Short-range schedule
Aggregate production plan and Master Production Schedule (MPS)
Rolling plan (periodic schedule revision)

4. Workload Planning (Loading & Leveling), Workload Calculation with Defect Rate, and Production Capacity

In Workload planning (load planning / capacity planning), the Workload (in man-hours or machine-hours)—the volume of work required to achieve the production plan—is calculated and compared against the shop's available Production capacity.

When non-conforming items (defects) occur in a process, extra units must be input to ensure the required number of good units is obtained; therefore, Workload = (Unit processing time × Required good units + Setup time) ÷ Conforming rate (1 - Non-conforming rate).

Meanwhile, Human production capacity is calculated as: Number of workers × Scheduled working hours per person × Attendance rate × Operating ratio (proportion of direct work time) × Work efficiency; Machine production capacity is calculated as: Number of machines × Operating hours per machine × Availability (operable rate).

Aggregating and graphing workload by shop and period is called Loading (Yamazumi), and adjusting peak loads that exceed capacity back within capacity limits via overtime, worker reallocation, subcontracting, or shifting schedules earlier/later is called Leveling (Yamakuzushi).

Key points


  • Workload accounting for defects = Required net processing time ÷ Conforming rate (= 1 - Defect rate). Crucial point: divide by the conforming rate, do not multiply.

  • Human production capacity = Workers × Working hours × Attendance rate × Operating ratio × Efficiency / Machine production capacity = Machines × Operating hours × Availability.

  • Loading (aggregating workload) → Surplus capacity calculation (Capacity - Workload) → Leveling (smoothing imbalances between capacity and load).

  • Example: 950 good units needed, unit processing time 0.2 hr, defect rate 5% (conforming rate 0.95) → Workload = (950 × 0.2) ÷ (1 - 0.05) = 190 ÷ 0.95 = 200 hours. With 2 workers, 160 hr/month, attendance 100%, operating ratio 80%, efficiency 100%, human capacity = 2 × 160 × 1.0 × 0.8 × 1.0 = 256 hours (surplus capacity = 256 - 200 = 56 hours)
WordMeaning
Workload and Production capacity (Surplus capacity = Capacity - Workload)
Loading (Yamazumi) and Leveling (Yamakuzushi)
Human production capacity, Machine production capacity, and Conforming rate

5. Scheduling (Forward vs Backward, 4 Elements of Standard Schedule) and Dispatching Rules

There are two scheduling methods: Forward Scheduling starts from the earliest available start date (present) and adds process times forward sequentially from Process 1 to find the expected completion date; Backward Scheduling starts from the customer's specified due date and calculates backward from the final process to find the latest start date for each process.

The Standard schedule (manufacturing lead time)—the standard time required to pass through each process—consists of the sum of four elements: (1) Processing time (setup time + net machining time), (2) Inspection time, (3) Transport time, and (4) Waiting / delay time (inter-process allowance and queue time).

When multiple jobs are waiting on the shop floor, the priority rule deciding which job to load onto a machine first is called a Dispatching Rule.

Representative rules include: (1) First-Come, First-Served (FCFS) processing in arrival order; (2) Shortest Processing Time (SPT) prioritizing the job with the shortest processing time to minimize mean flow time; (3) Earliest Due Date (D.Date / EDD) prioritizing the job with the earliest due date; and (4) Minimum Slack rule prioritizing the job with the smallest slack (= Remaining time until due date - Remaining processing time).

5. Scheduling (Forward vs Backward, 4 Elements of Standard Schedule) and Dispatching Rules

Key points


  • Forward scheduling = Calculates forward from start date to find earliest completion date / Backward scheduling = Calculates backward from due date to find latest start date (basis of JIT and MRP).

  • Four elements of standard schedule: (1) Processing time (setup + main operation), (2) Inspection time, (3) Transport time, (4) Waiting (allowance) time.

  • Major dispatching rules: FCFS (first-come, first-served), SPT (shortest processing time), D.Date (earliest due date), Minimum Slack (smallest remaining margin time).

  • Example: At current time Day 0, Job A (due in 10 days, remaining processing time 7 days) and Job B (due in 8 days, remaining processing time 3 days) → A's slack = 10 - 7 = 3 days, B's slack = 8 - 3 = 5 days. Earliest Due Date rule prioritizes B; Minimum Slack rule prioritizes A
WordMeaning
Forward Scheduling and Backward Scheduling
Four elements of standard schedule (Processing, Inspection, Transport, Waiting time)
Dispatching rules (FCFS, SPT, Earliest Due Date, Minimum Slack)

6. Bill of Materials (BOM: Structure vs Summary Type) and MRP (Available Inventory & Net Requirements Calculation)

A Bill of Materials (BOM) showing which parts and raw materials and how many are needed to build one unit of a product has two types: a Structure BOM (indented/single-level BOM) that represents the parent-child assembly hierarchy level by level, and a Summary BOM that lists the total quantity of every part used in one product regardless of hierarchy level.

MRP (Material Requirements Planning) uses the Master Production Schedule (MPS), Structure BOM, and inventory records to automatically calculate which parts are needed, when, and in what quantity. First, parent production quantities are multiplied by component usage quantities per parent to find Gross Requirements.

Next, Scheduled Receipts (open purchase orders already placed and due to arrive) are added to On-Hand Inventory currently in the warehouse, and Allocated Quantities (reserved for other uses) and required Safety Stock are subtracted to calculate Available Inventory.

Then, Available Inventory is subtracted from Gross Requirements to determine Net Requirements (the true shortage that must be procured), which are grouped into lots and ordered or released for manufacturing offset earlier by the procurement lead time.

6. Bill of Materials (BOM: Structure vs Summary Type) and MRP (Available Inventory & Net Requirements Calculation)

Key points


  • Structure BOM = Represents parent-child hierarchical relationships of products, units, and parts (suited for design changes and MRP explosion) / Summary BOM = Totals overall part usage per unit of product.

  • Available Inventory = On-hand inventory + Scheduled receipts (open orders) - Allocated quantity (and safety stock).

  • Net Requirements = Gross requirements - Available inventory (for common parts used in multiple parent units, sum all requirements to get gross requirements).

  • Example: Produce 100 units of Product X; 1 X requires 2 Unit As and 1 Part a; 1 Unit A requires 3 Part as → Gross requirement for Part a = 100 × (2 × 3 + 1) = 700 units. With on-hand inventory 150, scheduled receipts 80, and allocated 30, available inventory = 150 + 80 - 30 = 200 units, and net requirement = 700 - 200 = 500 units
WordMeaning
Structure BOM and Summary BOM (Bill of Materials)
MRP (Material Requirements Planning) and Gross requirements
Available inventory, Net requirements, and Lead-time offsetting

7. Basics of Inventory Control (Stock vs Non-Stock Items, Fixed-Order-Quantity vs Periodic-Review Systems)

Materials handled in factories are divided into Stock items (standard parts, general materials, etc., kept in constant inventory because they are used repeatedly across many products) and Non-stock / special-order items (dedicated parts, etc., procured only in the required amount each time a production plan or customer order occurs).

The two representative replenishment systems for stock items are the Fixed-Order-Quantity system (Reorder Point system) and the Periodic-Review (Fixed-Interval) system. In the Fixed-Order-Quantity system, whenever inventory drops to a predetermined Reorder Point, a fixed quantity (such as the Economic Order Quantity) is ordered.

The Fixed-Order-Quantity system has irregular order timing and a fixed order size; because administration is simple, it suits low-unit-cost B and C items with stable demand. The Two-Bin system (Double-bin method)—dividing stock into two bins and reordering when the first bin empties—is a simple application of fixed-quantity ordering.

Conversely, the Periodic-Review system checks demand forecasts and current stock at fixed order intervals (order cycles, e.g., the 1st of every month or every Monday) and calculates a varying required order quantity each time; it suits expensive, critical A items requiring tight inventory reduction.

7. Basics of Inventory Control (Stock vs Non-Stock Items, Fixed-Order-Quantity vs Periodic-Review Systems)

Key points


  • Stock items = Materials constantly held in inventory for repeated use / Non-stock items = Materials ordered only in required quantities per customer order or production plan.

  • Fixed-Order-Quantity system = Irregular order timing, fixed order quantity (orders a fixed amount when stock hits the reorder point; suits B & C items; includes the two-bin method).

  • Periodic-Review system = Fixed order timing, varying order quantity each time (suits expensive A items with demand fluctuations).

  • Example: In a periodic-review system with order cycle 30 days, procurement lead time 10 days, forecast demand during the 40-day period = 800 units, safety stock 100 units, current on-hand stock 180 units, open orders 120 units → Order quantity this time = 800 + 100 - (180 + 120) = 600 units
WordMeaning
Stock items, Non-stock items, and ABC Analysis
Fixed-Order-Quantity system (Reorder point system / Two-bin method)
Periodic-Review system (Order-cycle system)

8. Formulas for Reorder Point, Average Inventory, Economic Order Quantity (EOQ), and Safety Stock

The Reorder Point in a fixed-order-quantity system equals estimated consumption during the procurement lead time (from order placement to delivery) plus safety stock: Reorder Point = Average daily demand × Procurement lead time (days) + Safety stock.

If the order quantity per order is Q, inventory fluctuates in a sawtooth pattern between (Safety stock + Q) and Safety stock, so Average Inventory = Order quantity Q ÷ 2 + Safety stock.

The optimal order quantity per order that minimizes the sum of annual ordering cost and annual inventory holding cost (total cost) is the Economic Order Quantity (EOQ), calculated as: EOQ = √(2 × Annual demand D × Ordering cost per order S ÷ Annual holding cost per unit H), where H = Unit purchase price P × Annual holding cost rate i.

Furthermore, Safety Stock to prevent stockouts from demand fluctuations is calculated as: Safety factor α × Standard deviation of daily (or unit-period) demand σ × √(Procurement lead time L + Order cycle T) (where T = 0 in fixed-order-quantity systems). In exams, 'allowable stockout rate of 5% gives safety factor α = 1.65' appears frequently.

Key points


  • Reorder Point = Average daily demand × Procurement lead time + Safety stock / Average Inventory = Order quantity ÷ 2 + Safety stock.

  • Economic Order Quantity (EOQ) = √(2 × Annual demand × Ordering cost per order ÷ (Unit price × Annual holding cost rate)) (the point where ordering cost equals holding cost).

  • Safety Stock = Safety factor (1.65 for 5% stockout rate) × Demand standard deviation σ × √(Lead time L + Order interval T) (T = 0 for fixed-order-quantity system).

  • Example: Fixed-quantity ordering with average daily demand 50 units, standard deviation 10 units, lead time 4 days, allowable stockout rate 5% (factor 1.65) → Safety stock = 1.65 × 10 × √4 = 33 units, Reorder point = 50 × 4 + 33 = 233 units. Also, if annual demand is 12,000 units, ordering cost 1,500 yen/order, unit price 500 yen, annual holding rate 20% (holding cost 100 yen/unit), EOQ = √(2 × 12,000 × 1,500 ÷ 100) = √360,000 = 600 units
WordMeaning
Reorder Point and Average Inventory
Economic Order Quantity (EOQ)
Safety Stock and 5% Allowable Stockout Rate (Safety factor 1.65)

Frequent Exam Points and How to Remember Them

Chapter 3 (Questions 9 to 18) accounts for 10 of the 25 specialized questions—the most heavily weighted chapter, packed with calculation problems. First, clearly distinguish the 3 areas of Production Planning (routing, workload, scheduling) and 5 areas of Production Control (order release, dispatching, progress, physical WIP, capacity) and their corresponding forms.

In workload calculations, when a non-conforming (defect) rate r is given, the most critical point is dividing the required workload by the conforming rate (1 - r). Formulas for human production capacity (product of workers, hours, attendance rate, operating ratio, efficiency) and machine capacity also appear frequently.

In scheduling and MRP, the 4 elements of standard schedule (processing, inspection, transport, waiting), the Minimum Slack dispatching rule (remaining time to due date minus remaining processing time), and calculating Gross Requirements from a BOM tree along with Available Inventory (on-hand + scheduled receipts - allocated) and Net Requirements are tested on every exam.

In inventory control, master the contrast between Fixed-Order-Quantity (fixed amount at reorder point, B/C items) and Periodic-Review (calculated amount at fixed intervals, A items), plus the 4 major formulas: Reorder Point, Average Inventory, EOQ, and Safety Stock (safety factor 1.65 at 5% allowable stockout rate).

Key points


  • 3 Plans (routing, workload, scheduling) & 5 Controls (order release, dispatching, progress, physical WIP, capacity), plus 3 buffers against demand change (goods, capacity, time).

  • When defects exist, divide workload by the conforming rate (1 - defect rate). In MRP: Net requirements = Gross requirements - (On-hand + Scheduled receipts - Allocated).

  • Four major inventory formulas: (1) Reorder Point, (2) Average Inventory, (3) EOQ (Economic Order Quantity), (4) Safety Stock (safety factor = 1.65 for 5% stockout rate).
WordMeaning
3 Plans, 5 Controls, and 3 Buffers
Workload, Minimum Slack, and Net Requirements
Formulas for Reorder Point, EOQ, and Safety Stock

Production Planning, Process & Inventory Control (MRP)

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