In an industrial scenario marked by volatility, ever-shorter life cycles, and increasing cost pressure, production planning is no longer a simple operational process. It has become a strategic lever. Its ability to orchestrate demand, resources, materials and production capacity in an integrated way enables companies to ensure continuity, service level, margins and sustainable growth.
An effective Production Planning model does not just determine what to produce and when: it creates a common language in the company, aligns functions, and defines rules, processes, and tools that can make the decision flow clear, stable, and measurable.
This article offers a comprehensive and structured reading of the main pillars of the model: from Supply Chain definition to production strategies, from Demand Planning to Sales & Operations Planning (S&OP), to Master Scheduling, MRP and Capacity Planning logics. A course that shows how only a true integrated planning system can turn complexity into competitive advantage.
The Supply Chain is the global network of facilities, information, and physical flows that enables the transformation of raw material into a finished product and deliver it to the end customer. The Supply Chain Management encompasses the design, planning, execution, and control of all these activities with the goal of creating value, synchronizing supply and demand, reducing variability, and ensuring end-to-end performance.
The Planning sits at the center of this ecosystem because it represents the connection point between business strategy and operations. This is where goals, budgets, and business priorities are translated into concrete production, procurement, and distribution plans.
The first variable to understand to build an effective planning system is the production strategy adopted by the company. The four main strategies - Engineer to Order (ETO), Make to Order (MTO), Assembly to Order (MATO), and Make to Stock (MTS)- deeply affect downstream processes: from forecasting, to inventory management, to Master Scheduling and MRP.
The choice depends on factors such as:
In the typical product lifecycle, ETO and MTO predominate in the launch and growth phases, while ATO and MTS are more common in maturity, when volumes increase and standardization becomes a priority goal.
Defining one's strategy (or strategies, if different mixes exist) correctly is essential: each model involves a different decoupling point between forecast and customer order, and thus requires a different organizational set-up and planning approach.
Manufacturing layout also significantly conditions the planning model.
.The main types are:
Each layout requires a specific planning model. For example, in a continuous or process context it will be natural to adopt capacity planning as the first driver, while in contract MTO contexts the priority will be orders and materials.
Effective planning is not a single process, but a hierarchical system that connects different time horizons and different levels of granularity:
The quality of execution depends on the alignment of all these levels. A weak S&OP, for example, generates downstream instability on MPS, MRP, and scheduling, with heavy impacts on inventory and service level.
Demand Planning combines statistical and qualitative techniques to construct the forecast demand for products or services. Demand can come from:
Typical patterns (trend, seasonality, random variability) affect the choice of forecasting technique and stocking policies.
The basic principles are clear:
Main indicators include:
MAD: Mean Absolute Deviation
This indicator has the objectives of determining deviations between demand and forecast ,planning around the error and correctly sizing the safety stock and thus improving forecasting techniques
BIAS: the tendency to deviate from the mean value
MAPE (mean absolute percent error)
measured via monitoring dashboard.
With
The XYZ Classification of Historical Product Demand (variability) is carried out to assign the class of demand variability to each item. It is based on the calculation of the Coefficient of Variation and the density of demand
σ sigma: is the standard deviation of the time series of demand
µ mean: is the average of the demand
ABC indicator: is a classification of materials that can be used to filter them in planning transactions to enable smarter management of product portfolio and stock policies.
The Sales & Operations Planning is the process that integrates all business plans--sales, marketing, product development, manufacturing, procurement, and finance--into a single monthly tactical plan. It is the point of contact between strategy and operations.
The S&OP process involves five steps:
The benefits are many:
Without a stable and disciplined S&OP, each successive stage of planning becomes reactive, fragmented, and inefficient.
Resource Planning (RP) aims to verify the feasibility of the plan defined by the S&OP over the medium to long term. It uses the Bill of Resources, a simplified bill of materials that represents the average allocation needed for a product family.
The process allows for:
The Master Production Schedule (MPS) translates the S&OP plan into a production schedule for individual codes, with precise quantities and dates.
The objectives of the MPS are:
The disaggregation of the plan is fundamental and is based on coefficients derived from historical analysis. The structure of the planning changes depending on the strategy:
The ATP is defined as the stock and planned orders not yet used to fulfill customer orders. It does not consider commitments from the forecast but only from confirmed customer orders. It is of 2 types:
To properly manage promises to the customer, an essential element for reliability and service level.
Crucial is the definition of planning timeframes (Planning Time Fence), which stabilize the plan and avoid continuous changes, a major cause of inefficiency and hidden costs.
9.1 Material Requirements Planning (MRP): the logic of material requirements
This is the engine that, starting from the MPS and Bill of Material (BOM), calculates net requirements, proposing production and purchase orders.
To function properly, it requires flawless master data:
The calculation logic is based on the Low Level Code (LLC), which defines the order in which to explode the BOM. Exceptions (advances, postponements, cancellations) must always be monitored through pegging functionality, which allows the source of requirements to be traced.
Faced with an exception or change in the arrival schedule of materials, it is important to trace the source of requirements back to understand the impacts on higher levels.
An MRP that works on unreliable data generates overstock, stock-outs, urgencies, plan instability, and an overall increase in costs.
9.2 Materials management policies and lot sizing
The choice of procurement policy has crucial impacts on inventory, cost, and service level.
Main methods include:
Each technique has specific logic and recommended application depending on variability, code value, order issuance costs, and demand dynamics.
Evolved practices such asVMI (Vendor Managed Inventory) and Consignment Stock can also improve efficiency and reduce operational load, especially for Class C or D materials.
9.3 Capacity Planning: from medium to short term
Capacity planning allows to check whether the material plan is consistent with the production resources.
The Capacity Requirement Planning (CRP) is based on:
The difference between:
determines different approaches and different leveling strategies.
The CRP is critical to avoid unmanaged overloads and to ensure delivery reliability. Analyses such as queuing, wait times, and the application of Little's law (The average number of customers in a system is equal to the average arrival rate multiplied by the average time in the system)allow us to understand how saturation affects overall lead time.
Adopting an integrated planning system leads to tangible and measurable benefits based on our experience:
The key to success does not reside only in techniques - MRP, EOQ, ATP, or CRP - but in system consistency, data quality, process discipline, and the ability of the company to work cross-functionally.
Industrial competition is no longer played on product, quality or price alone, but on the ability to reliably plan demand, capacity and materials along the entire Supply Chain. An integrated Production Planning model makes it possible to reduce inventory by up to 30-40%, increase OTD/OTIF, reduce lead times, and improve plan stability and production efficiency, provided that data, processes, and roles are designed consistently.
For many companies, the first step is not to implement a new tool, but to rethink the architecture of planning processes-dfrom Demand Planning to S&OP, from MPS to Capacity Planning -in an end-to-end and data-driven manner.
If you want to understand where to start in your own reality, see our approach to Lean Production Planning & Demand Planning and how we integrate processes and digital tools into planning.To delve deeper in a practical way, you can evaluate the course “Effective Production Planning” from the Lean Factory School®,which brings real-world cases and operational tools applicable immediately in the enterpriseto the classroom.A robust, integrated and data-driven planning system will be the ones that can meet the challenges of the future.
Why does my MRP generate continuous urgencies and rescheduling?
Incorrect master data (lead time, minimum lots), inaccurate BOMs or lack of Planning Time Fence cause continuous exceptions. Result: stock-outs, extra costs and instability. Solution: valid basic parameters, use pegging to track impacts, and monitor MRP dashboards.
What are the first steps to introduce effective S&OP in my company?
Form a cross-functional team (sales, operations, finance), collect key data (sales, inventory, capacity) and launch a monthly cycle: Data Gathering, Demand Review, Supply Planning, Pre-S&OP, Executive Meeting. Measure with KPIs such as forecast accuracy (>80%) and inventory turns.
How to choose the right lot policy to reduce inventory without losing service?
Depends on variability and item value: EOQ for high fixed costs, Lot-for-Lot for stable demand, min-max for C/D items. Use ABC-XYZ to prioritize and consider VMI for reliable suppliers. Goal: balance holding costs vs. ordering.
What is ATP and how to use it for reliable customer promises?
Available To Promise (ATP): stock + planned orders not allocated to confirmed customers (excludes forecast). Manages realistic promises by calculating discrete or cumulative availability. Sets Time Fence to stabilize and improve OTD/OTIF.
How do I measure whether my Production Planning is improving?
Track KPIs: OTD/OTIF (>95%), inventory reduction (20-40%), forecast accuracy (MAPE <20%), urgencies (<10%), productive OEE. Benchmark: integrated systems reduce inventory by 30% and stabilize plans in 6-9 months
