Production Plan is an important part of a Business Plan. It ensures the volume to be produced or supplied to the sales team during a period. It is made considering the all the factors of production such as the availability of required materials, manpower, machines, required additional resources, constraints of production facilities, seasonal fluctuations, market demand and other external factors which might affect the plan.
The person who is in-charge of preparing production plan has some co-ordination roles. Since, the first step of Production Plan is to ascertain the quantity to be produced during the period. For this reason he must get a sales forecast from sales department beforehand.
He will then look for available quantities in the warehouse do determine net quantities to be produced. For this reason he will take total required volume then keep a buffer stock or safety stock (may be for a month or two), then determine the net volume to be produced.
Net Volume= Total Required Volume+Safety Stock-Available Stock at Warehouse
Safety stock is kept in order to avoid uncertainty of required raw materials to produce the planned quantity or to meet urgent sudden demand in the market or for other reason which may arise in the course of production process.
The entire volume required in a sales year will not be produced at a time or in a single campaign. Market demand or seasonal fluctuation may be the determimant of quantity to be produced. Other than this there will be some uncertainties related to shelf life of product, pilferage, deterioration, risk of theft or fire or some other reasons behind the operation.
The person in-charge with the production plan will consider the capacity of the production facility and existing constraints thereon. He will then check and balance with all other related departments in order to ensure the smooth production of required volume to be produced during the period.
Excess production than the budgeted quantity should be avoided in this instance. Excess production may have some adverse impact in the profitability of the business operations. We will publish more articles on production plan in future.