2. High-level production & resource planning

Defining the high-level production plan

This plan, sometimes with a different name (and sometimes not even utilized in a company if they immediately use the master production schedule), serves as the foundation of the production and capacity planning. It aligns long-term production goals with estimated customer demand while ensuring that resources like labor, materials, and machinery are available to meet those goals.

It typically spans 6–24 months and is based on aggregated demand. The goal at this stage is to balance demand and capacity and identify bottlenecks at a high level.

Key components of the high-level production plan

Inputs into the plan:

Forecasted demand: Aggregated at product family or group level. Aggregating demand involves combining demand data from individual SKUs to product families or groups. This simplifies the planning process at this stage and provides a clearer picture of high-level production requirements. Furthermore, the BOM (bill of materials) explains the materials that are needed for each finished product (thereby deriving the “dependent” requirements – a deeper explanation in video format here)

Inventory targets: Safety stocks or buffer inventory levels – this will be added to the forecasted demand and included in the production & capacity planning

Production policies: Make-to-order (MTO) or make-to-stock (MTS) for different types of products. A company might employ a mix of these for its assortment of products.

Capacity availability: High-level capacity estimations for labor, machines, and materials.

Resource constraints: Known bottlenecks in equipment, staffing, machines,...

Outputs of the plan:

Monthly or even quarterly production targets

Resource plans for labor (e.g. seasonal workforce adjustments if demand fluctuates), materials, and machines

Level-loading or production smoothing is considered at this stage as well. This means that production is kept at a relatively steady rate, although demand might fluctuate during certain periods, to avoid bottlenecks in production and ensure high utilization rates.

Example for an insulation manufacturing company

Let’s look at this level of planning in a simplified example. The example company produces two types of insulation materials: fiberglass sheets and spray foam (perhaps not the most sexy products but highly necessary and useful for insulation purposes!).

Inputs into the plan

Inputs	Values
Forecasted demand (units)	Fiberglass: 300,000/year; Spray foam: 200,000/year
Monthly demand (aggregated)	Fiberglass: 25,000; Spray foam: 16,667
Inventory targets	Safety stock: 16% of monthly demand (= 4,000/month)
Production policy	Make-to-stock for fiberglass; make-to-order for spray foam
Labor capacity	180,000 worker-hours per month
Machine capacity	Fiberglass: 1,500 units/day; Spray foam: 2,000 units/day, operating 5 days in 7

Checking production requirements against the capacity

Shown for fiberglass only (,feel free to do the same for spray foam yourself):

1. Calculate required machine hours:

Fiberglass production rate: 1,500 units/day.

Monthly demand: 25,000 units + 4000 safety stock units

Machine days needed: 29,000÷1,500 = 19.33 days

Machines are running very near max capacity for the fiberglass production. The machines only run 5 out of 7 days.

2. Check labor capacity:

Worker productivity: 1 unit/6hours

Labor hours required for fiberglass: 29,000units×6hours/unit=174,000hours

Total labor hours needed: 174,000.

Result: Labor is near the max capacity of 180,000 hours per month.

3. Material requirements:

Fiberglass requires 1 kg of raw material per unit.

Monthly material requirement: 1kgx29,000 units = 29 tons

Of course, there are different types of employees, materials and machines to consider in a real company, but this gives an indication of the level of detail (or lack thereof) this plan is concerned with.

Defining the high-level production plan: aligning demand and capacity