How to design flexible Production Planning system that adapts in real time

Production and capacity planning are key to any successful manufacturing setup. Real efficiency happens when every part of the planning process works together smoothly. Picture this: your top forecasts flow into master production schedules. These then guide material needs and turn into clear daily schedules on the shop floor.

Of course, things don’t always go as planned. A sudden customer order might come in, or a machine could break down. That’s when your planning system needs to stay flexible ready to adapt and respond in real time.

Let's explore how each layer of production planning links together. We’ll discuss why tracking the right KPIs and defining ownership matters. Plus, we’ll see how modern tools, like ERP platforms and optimization systems, can help you integrate everything. Linking strategy, data, and execution boosts resource use. It keeps customers happy and builds a smarter, stronger manufacturing operation.

Linking the different levels of planning

High-level production planning to MPS: 

Aggregate demand (if original demand is defined at that level) is disaggregated into specific SKUs and distributed across weeks/months.  

Good forecast accuracy at the lowest level is needed as it ensures that the MPS is realistic and actionable, avoiding overproduction or resource underutilization. 

MPS to MRP: 

Weekly SKU targets drive material requirements. The BOM ensures accurate raw material planning for each product type. 

Timely updates to the BOM and lead times in the system of record are crucial. For instance, any delay in binding agent procurement impacts production schedules downstream. 

MRP to detailed scheduling: 

Material availability dictates the feasibility of daily/hourly task assignments in detailed schedules. 

Next, details about machine & labor availability and any other constraints need to be taken into account, while allowing for flexibility because of changes in priorities or late urgent orders coming in. 

Handling changes on these levels 

Scenario 1) a priority customer order arrives 

Impact: adjustments required in the MPS, MRP, and Detailed Scheduling. 

Actions: update MPS to include the new order. Need to Run MRP again to adjust material procurement/manufacturing. Re-sequence detailed schedules, potentially delaying lower-priority tasks 

Scenario 2) machine breakdown 

Impact: delays in daily production. 

Actions: adjust the detailed schedule, assuming the breakdown is only for a short duration. Then communicate changes upstream to revise the MRP and potentially the MPS if needed. 

Example: insulation manufacturing company 

Earlier, we gave the example of an insulation manufacturing company. In this case, a priority FG-20mm order comes in. FG-20mm has the highest margins and this order has been given priority for a key customer that has a service level agreement in place.  

Scenario: adjusting for priority FG-20mm order

MPS impact: FG-20mm targets increase in this week. FG-10mm and FG-30mm targets decrease proportionally to fit capacity, since no extra labor capacity was available in this example. 

MRP impact: Adjust BOM requirements to prioritize FG-20mm materials, expediting binding agent procurement. 

Detailed schedule impact: Reschedule machines to prioritize FG-20mm, leading to a delay in FG-10mm production. This might need to be communicated towards sales or the relevant customers. 

Time fencing

Time fencing is a crucial concept in production planning that helps maintain stability in the short term while allowing flexibility for adjustments in the longer term. It divides the planning horizon into distinct zones—frozen, slushy, and liquid—each with specific rules for how changes can be made.  

This covers the first few days to a few weeks, depending on the industry and lead times. 

Plans are fixed and require significant approval for changes since changes in this period can disrupt operations, increase costs, and lead to inefficiencies. 

Begins after the frozen zone and extends up to the cumulative lead time for production and material procurement. 

Limited flexibility; changes are possible but require approval and coordination. 

Covers the horizon beyond the cumulative lead time, typically up to 12 months. 

High flexibility; plans are dynamically generated by planning systems based on forecasts. Used for long-term resource planning and capacity leveling. 

The focus is on aligning the plan with sales and operations planning (S&OP) goals. 

Ownership and accountability

• Frozen zone: detailed schedulers and operations teams are responsible for execution. 

• Slushy zone: master schedulers take ownership of adjustments and feasibility checks. This article dives deeper into the slushy zone.  

• Liquid zone: long-term planners and demand planners ensure alignment with strategic goals.

KPIs, ownership, and roles in production & capacity planning

To ensure that each planning level is aligned, tracking key metrics and assigning clear roles is crucial.  

The following metrics also help to assess production & capacity utilization. Production planning is not just about meeting customers deadlines but it’s about balancing competing priorities: customer service, resource efficiency, and cost control (or service, cost, cash as Bram Desmet lays out with the Supply Chain Triangle concept).

Key metrics for production planning

Key metrics for production planning center around utilization of the different resources, how well actual operations match against the schedule, and material availability rate.  

Out of these, you can see where you have under/overcapacity, whether your planning/scheduling approach is working, and whether your procurement can match your current schedules.  

• Formula: Capacity utilization = (required capacity/available capacity)×100  

• Example (fiberglass production): 

• Monthly required capacity for fiberglass: 29,000 units×6 hours/unit=1,000 hours 

• Monthly available labor hours: 174,000 hours. 

• Capacity utilization = (174,000/180,000)×100=96.7% 

Formula: Schedule adherence = (Units produced/Units scheduled)×100 

Example: fiberglass schedule for week 1: 7,250 units. Actual output: 6,737.5 units. 

Schedule adherence=(6,738/7,250)×100=81.9% 

Formula:  

Material availability rate (total materials required/materials available on time)×100  

Example:  

Fiberglass required in week 1: 8,410 kg. Available on time: >8,410 kg. 

Material availability rate would be 100% for week 1  

Ownership and roles 

Organizing production planning depends on company size and complexity, but there are 2 main approaches: 

1. Functional setup: different planners specialize in distinct areas, such as demand planning, master scheduling, or detailed scheduling. While this promotes expertise, it may create handover gaps and inefficiencies. 

2. End-to-end setup: a single planner manages the entire planning process for specific product portfolios. This ensures accountability and holistic oversight but may lack deep specialization in specific areas. 

Most organizations benefit from a hybrid structure, combining functional expertise (e.g., raw material planning) with end-to-end responsibilities for other processes. Clearly defining handovers and accountability helps bridge gaps and maintain efficiency. 

The future of planning is shifting towards exception-based planning, empowering planners to focus on strategic decision-making rather than routine tasks.  

In this podcast episode, combining and separating demand and supply planning roles is discussed. 

Here's how responsibilities typically align across planning levels:

The aggregate plan  

Owner: S&OP process owner or based on the demand planner’s input 

Responsibility: define long-term production and capacity targets, aligning with sales forecasts and business goals 

Master production scheduling (MPS) and rough-cut capacity planning (RCCP) 

Owner: master schedulers 

Responsibility: translate high-level targets into SKU-level schedules, ensuring feasibility against key resources like machines and labor 

Material requirements planning (MRP) and capacity requirements planning (CRP) 

Owner: material planners 

Responsibility: manage procurement and ensure material availability and labor alignment to support weekly production needs 

Detailed scheduling and finite capacity planning 

Owner: production schedulers  

Responsibility: assign daily/hourly tasks, sequence resources for efficiency, and monitor execution on the shop floor 

This article by Allics dives deeper into the division of planners and schedulers and an end-to-end approach. 

3. Technology and tools for production & capacity planning

Some ERP systems include production & capacity planning and there are also advanced planning & scheduling systems that focus exclusively on the planning aspect. Besides that, because of the specific needs for production & capacity planning in each industry, there are also providers for specific industries. Hereunder is an overview of these kinds of systems:

1. ERP systems for integrated planning 

ERP (Enterprise Resource Planning) systems provide an integrated approach to managing production and capacity planning. These systems consolidate data across various functions such as inventory, procurement, and manufacturing, creating a unified platform for decision-making. 

• Often-used tools: 

• SAP MRP module: Focuses on material requirements planning, linking raw material availability with production schedules. 

• SAP PP/DS (Production Planning and Detailed Scheduling): Combines MRP with detailed finite capacity scheduling to optimize production sequences and reduce setup times.

2. Advanced planning and scheduling (APS) systems

APS systems are designed to enhance traditional ERP capabilities by incorporating optimization techniques for scheduling and resource allocation. These tools are ideal for handling complex, multi-variable planning challenges. 

Key features: 

• Optimization of schedules using advanced solvers. 
• Real-time scenario analysis and what-if simulations. 
• Support for finite capacity scheduling and sequence-dependent setups. 
  

3. Specialized tools for industry-specific needs

Some industries have unique planning challenges that require specialized tools. These tools are tailored for specific use cases, offering features that address niche requirements. 

Examples: 

• ABC Plan for Pharma: a specialized tool for pharmaceutical companies, managing strict regulatory requirements and expiration-sensitive inventory. 

• Replan (which got acquired recently): a lightweight planning tool designed for smaller manufacturers needing flexibility without the overhead of full-scale ERP. 

• More Optimal: focuses on optimization solutions for small to mid-sized manufacturing companies.