Production planning for small businesses isn’t about a perfect production line reminiscent of large manufacturers. It’s about optimising to work efficiently with what you have, and it’s a crucial part of operations management.
When you think about production, what image does it conjure up? A production line and conveyor belts, or the task of making products? Hopefully, it’s the latter, because whether you make candles and homemade soap or find yourself in food manufacturing, your small business falls squarely into the category of production.
Production planning can help any business become more efficient, reduce losses and ensure you can respond to urgent sales timeously.
What Is Production Planning?
Production planning is like a map that shows the resources or materials needed, the time it takes to produce and how it is made.
According to Stock Smith, a good production plan factors in the actual production capacity, not just sales generation. It factors in elements such as labour, production time, material quantity and availability, and equipment. It asks questions like:
- How many units of each product do I need to make this week?
- Do I have enough raw materials on hand, or do I need to place orders?
- How long will production actually take?
- How many units can I realistically make with the equipment I have?
- Can I handle this alongside my other orders?
These questions help you understand how much time you can spend on delivering an order and when you need to receive new materials. A further implication is that this allows you to have the right funds available to purchase supplies.
Why Is Production Planning Important?
A production plan allows you to not leave anything up to fate or luck. It allows you to accurately say: “From this date to this date, I will need X amount of people with a labour cost of a certain amount and Y amount of materials with a particular cost.”
Here’s why being able to verbalise that is so important.
1. Profitability: With a clear production plan, entrepreneurs can calculate their costs accurately, ensuring that pricing decisions can be made without leaving it up to guesswork that eats into margins.
2. Cash flow: Cash flow management is improved when you can see what materials you are going to need and ensure you have the exact amount available. Furthermore, you can see how many products your cash is tied up in and for how long between production and final sale.
3. Customer satisfaction: Improved planning means that you can ensure that you produce and deliver products on time and communicate restocks when necessary. By managing customer expectations, you can set realistic expectations and deliver top-notch service.
In short, it ensures that expectations meet reality at all stages of the production process.
What Is Production Scheduling?
A key part of production planning is production scheduling. This is the side that makes the “when” and “how” possible beyond the initial “what” and “how much”.
The schedule can take on a visual appearance, like a timetable, that indicates to the entrepreneur and their staff how the rest of the process will run for the “making” part of production.
Using a well-defined schedule helps you spot bottlenecks before they become a bigger problem. It goes as far as explaining the manufacturing process step by step, highlighting how long each part would take. For example, baking a cake.
A timetable could indicate that a simple, one-tier cake takes 10 minutes to prepare all the ingredients and gather the baking tools. Next, mixing the ingredients can take another 10 minutes; then it goes into the oven and bakes for 20 minutes. A timetable also indicates that there are different stages to one long process; for instance, the baking stage has been completed, but then there needs to be a cooling-down period between the cake exiting the oven and the decoration stage.
These “in-between” stages are an important part of the process and need to be included in the timetable. Candle manufacturing may require time for it to set, items that are painted need to dry thoroughly between coats, clothing needs to be washed and dried… these are part of the steps too.
Sticking to our example of a cake business, after three hours cooling down, the cake’s decoration may take another hour and packaging another 20 minutes before it is ready to be picked up. Therefore, a cake’s full manufacturing time can be calculated as five hours total.
Calculating time like this helps you to plan efficiently and deliver your orders on time. If you have multiple employees and multiple orders, you can then see when employee A can reasonably start icing cakes while ensuring that employee B’s faster baking times don’t cause a bottleneck in the production line.
How to Set Up Production Planning
SMEs come in various shapes and sizes, especially on the manufacturing side. Keeping this in mind, production planning is relevant to all, but the approach changes. For larger, tech-enabled businesses, an ERP system is useful to manage the production plan and related activities.
However, low-tech options exist too. This is particularly useful if you are new to production planning and you need to work out all the kinks first, before you move to a digital system.
The steps below outline what you need to set up your production when you are starting from zero.
Step 1: Document Your Products and Recipes
The cake analogy perfectly shows where the start of your production planning is. First, you need to know what ingredients you need for which parts of your recipe. This “ingredient list” is called the bill of materials (BOM) for every item you sell.
A BOM lets you clearly plan for the exact amount of materials you need.
Step 2: Assess Your Demand
Demand is based on the real sales data that you tracked over a set historical period. This could be seasonal sales or simply from the last six months. It should answer what your monthly and weekly sales are, what the average lead time is that you need and when customers can expect their delivery.
Step 3: Map Your Capacity
Capacity means what can reasonably be produced in a given time period. Just because you are able to bake a new cake every hour does not mean you can complete a fully decorated cake every two hours. Your number of employees and what each can reasonably complete is factored in here. Additionally, if you have a small oven or mixer that can only take a limited number of cakes, your equipment limitations come into play too.
Identify whether your manufacturing equipment has limitations and keep these in your calculations.
Step 4: Check Your Material Inventory
It’s not enough to know how much material you need, but you don’t have it in stock. This is where inventory management also becomes an important part of your production planning.
You need to be aware of your inventory levels and whether these materials are enough for the production scheduled for the coming weeks or days. You will also need to understand how long it takes for each type of material to be ordered and delivered, and therefore when you need to order it.
Step 5: Build Your Production Schedule
Create the timetable that indicates when and what tasks need to be completed and by whom.
Step 6: Set Up Reorder Triggers
As mentioned, a key element in thorough planning is that you take reordering of materials into consideration. Set minimum stock levels for your most-used materials so you get a warning before you run out.
Step 7: Track, Review, Adjust
Starting from scratch means that you might need multiple iterations of your production plan before you have the perfected version. Additionally, as the business scales, your production plan will also need to adjust.
