Business management | Production planning (HL only)

Production Planning (HL Only)

Hello HL students! Welcome to one of the most technical and rewarding topics in Operations Management: Production Planning.
This chapter takes the foundations you learned at SL (like methods of production) and adds powerful, quantitative management tools. Don't worry if this seems tricky at first—we will break down complex scheduling tools like Critical Path Analysis (CPA) step-by-step. Mastering this is key to excelling in HL papers!

1. The Fundamentals of Production Planning

Production planning is the strategic process of ensuring that a business produces the right goods or services, in the right quantity, at the right time, using the most efficient methods and resources available.
It's essentially creating the "map" and "schedule" for your operations.

The Three Key Decisions in Production Planning

Production planning must address three critical questions:

1. What to produce (Based on forecasting demand).
2. How much to produce (Determined by capacity and resource availability).
3. When to produce (Scheduling and sequencing tasks).

Key Takeaway: Production planning links demand (Marketing) with supply (Operations) to minimize waste and maximize efficiency.

2. Capacity Utilization and Productivity

Before scheduling, managers must understand the limits of their operations—their capacity—and how well they are currently performing—their productivity.

a. Capacity Utilization

Capacity is the maximum output a business can produce in a given period using available resources. Capacity utilization measures how much of that maximum capacity is actually being used.

Capacity Utilization Formula:

$$ \text{Capacity Utilization} = \frac{\text{Actual Output}}{\text{Maximum Potential Output}} \times 100\% $$

Analogy: The Empty Cinema
If a cinema has 100 seats (Maximum Capacity) but only 70 tickets were sold for the 7 PM screening (Actual Output), the capacity utilization is 70%.

• High Utilization (e.g., 95%): Good, as resources aren't wasted. However, there is no flexibility to handle sudden surges in demand or machine breakdowns, leading to stress and rushed service.
• Low Utilization (e.g., 50%): Bad, as resources (machinery, staff, building) are sitting idle, increasing fixed costs per unit.

Common Mistake to Avoid: Aiming for 100% utilization sounds good, but it often sacrifices quality, increases worker fatigue, and leaves no buffer for unexpected problems. The optimal level is usually slightly below 100%.

b. Productivity

Productivity is the measure of the efficiency of inputs (resources) used in the production process.

Productivity Formula:

$$ \text{Productivity} = \frac{\text{Total Output}}{\text{Total Input}} $$

This is often measured per worker or per hour (e.g., Output per Worker per Month).

Did you know? Increasing capacity (buying a new machine) is costly and long-term. Increasing productivity (training staff to use existing machines faster) is often a cheaper, quicker way to boost output!

Key Takeaway: Capacity is the maximum potential; Utilization is how much of that potential is used; Productivity is how efficiently inputs are converted into output.

3. Scheduling Tool 1: Gantt Charts

A Gantt chart is a visual management tool used to plan and schedule projects. It illustrates the start and finish dates of the terminal elements and summary elements of a project.

How a Gantt Chart Works:

• The vertical axis lists the activities (tasks).
• The horizontal axis represents time (days, weeks, or months).
• Horizontal bars show the scheduled duration of each task.

Example: Planning a New Product Launch
The chart visually shows that "Market Research" takes 4 weeks, and "Product Design" can only start after the research is complete. This helps managers track progress and identify which tasks are running behind schedule.

Advantages of Gantt Charts:

• Simple visualization: Easy for everyone (employees, managers, clients) to understand.
• Monitor progress: Managers can see at a glance if tasks are on time.
• Resource allocation: Helps prevent scheduling conflicts (e.g., two tasks needing the same specific machine at the same time).

4. Scheduling Tool 2: Critical Path Analysis (CPA)

Critical Path Analysis (CPA), or Network Analysis, is an advanced project management technique used to determine the minimum time required to complete a complex project.

The Core CPA Concepts

1. Activity: A specific task that requires time and resources (e.g., "Pour the concrete").
2. Node (or Event): A point in time representing the start or completion of one or more activities (e.g., "Concrete pouring complete").
3. Network Diagram: The visual representation of all activities, nodes, and their dependencies.
4. Critical Path: The sequence of activities that takes the longest time to complete. If any activity on this path is delayed, the entire project will be delayed.
5. Float (or Slack): The amount of time an activity can be delayed without delaying the whole project. Activities on the Critical Path have zero float.

Analogy: Building a House
Building the foundation (Activity A) must be done before building the walls (Activity B). If Activity A takes 10 days, and Activity B takes 5 days, the total minimum time is 15 days. CPA identifies all these required sequences and finds the longest total duration, which is your unavoidable project deadline.

Step-by-Step Guide to Calculating CPA

To find the critical path, you must perform two passes on the network diagram:

Step 4.1: The Forward Pass (Calculating Earliest Times)

The forward pass calculates the earliest time each activity can possibly start and finish.

• Earliest Start Time (ES): The earliest time an activity can begin. This is determined by the Earliest Finish Time (EF) of the preceding activity.
• Earliest Finish Time (EF): The earliest time an activity can be completed.

The Formula for EF:

$$ \text{EF} = \text{ES} + \text{Duration} $$

Rule for the Forward Pass: When an activity has multiple predecessor activities (coming into the node), the ES of the next activity is the LARGEST (latest) EF of all preceding activities. (We must wait for the absolute last predecessor to finish before starting.)

Step 4.2: The Backward Pass (Calculating Latest Times)

The backward pass starts from the end node (using the project's total EF as the final LF) and works backward to find the latest possible times without delaying the project.

• Latest Finish Time (LF): The latest time an activity can finish without delaying the whole project.
• Latest Start Time (LS): The latest time an activity can start without delaying the whole project.

The Formula for LS:

$$ \text{LS} = \text{LF} - \text{Duration} $$

Rule for the Backward Pass: When an activity has multiple subsequent activities (leaving the node), the LF of the preceding activity is the SMALLEST (earliest) LS of all succeeding activities. (If we wait for the latest LS, we will delay the smallest LS.)

Step 4.3: Finding Float and the Critical Path

Float (Slack) Formula:

Float is the spare time available for an activity.

$$ \text{Float} = \text{LS} - \text{ES} \quad \text{OR} \quad \text{Float} = \text{LF} - \text{EF} $$

Identifying the Critical Path:
The Critical Path is made up of all activities that have zero float. These are the bottlenecks that management must closely monitor.

Memory Aid:
Forward Pass = Use the Largest EF (to find the next ES).
Backward Pass = Use the Smallest LS (to find the previous LF).

Advantages and Disadvantages of CPA

Advantages:

• Prioritization: Clearly identifies which tasks are critical and require the most management focus (zero float).
• Time Reduction: Allows managers to analyze how to crash the project (speed up critical activities) to meet tight deadlines.
• Resource Planning: Helps in efficient allocation of resources by ensuring non-critical activities are scheduled during downtime.

Disadvantages:

• Time Consuming: Can be complex and time-intensive for very large projects.
• Assumes Certainty: Relies on accurate estimates of activity duration; if estimates are wrong, the critical path identified will be wrong.
• Static Tool: Doesn't account easily for unexpected external factors or changes (like supply chain delays or sickness) once the project is underway.

Key Takeaway: CPA is vital for large, complex projects as it determines the absolute minimum completion time and highlights the activities (the Critical Path) that management must never allow to be delayed.