Introduction to Business

Module 12: Managing Processes

Production Planning

What you'll learn to do: explain the components involved in planning and scheduling the production process

Production doesn’t happen by magic. Think about hosting a large party for your parents’ anniversary. The first thing you have to do is find a location that is large enough to accommodate all the people you will be inviting. Once you have identified the location, you then need to visit the site and decide how it will be laid out. Where should the tables and chairs go, where will you set up refreshments, and what about a gift table? Once you've decided on the layout, then you need to start making a list of the materials you’ll need for the party. This includes everything from plates, cups, and napkins to hiring a DJ and a caterer. Lastly, based on the number of guests, you'll need to calculate how much of everything—food, drinks, etc.—to order.

Operations managers engage in similar planning, but they use different terminology to describe the different parts of the plan. In production planning, the components are facility location, facility layout, materials-requirement planning (MRP), and inventory control.

Learning outcomes

  • Explain facility location
  • Explain facility layout
  • Explain materials-requirement planning (MRP)
  • Explain just-in-time inventory control (JIT)
  • Differentiate between Gantt charts, PERT, and the critical path method

Facility Location and Layout

Facility Location

Of all the pieces of the planning puzzle, facility location is the most strategic and critical. Once you build a new manufacturing facility, you have made a substantial investment of time, resources, and capital that can't be changed for a long time. Selecting the wrong location can be disastrous. Some of the key factors that influence facility location are the following:

  • Proximity to customers, suppliers, and skilled labor
  • Environmental regulations
  • Financial incentives offered by state and local development authorities
  • Quality-of-life considerations
  • Potential for future expansion

The next step, after planning the production process, is deciding on plant layout—how equipment, machinery, and people will be arranged to make the production process as efficient as possible.

Practice Question

Facility Layout

After the site location decision has been made, the next focus in production planning is the facility’s layout. The goal is to determine the most efficient and effective design for the particular production process. A manufacturer might opt for a U-shaped production line, for example, rather than a long, straight one, to allow products and workers to move more quickly from one area to another.

Service organizations must also consider layout, but they are more concerned with how it affects customer behavior. It may be more convenient for a hospital to place its freight elevators in the center of the building, for example, but doing so may block the flow of patients, visitors, and medical personnel between floors and departments.

There are four main types of facility layouts: process, product, fixed-position, and cellular.

Process Layout

The process layout arranges workflow around the production process. All workers performing similar tasks are grouped together. Products pass from one workstation to another (but not necessarily to every workstation). For example, all grinding would be done in one area, all assembling in another, and all inspection in yet another. The process layout is best for firms that produce small numbers of a wide variety of products, typically using general-purpose machines that can be changed rapidly to new operations for different product designs. For example, a manufacturer of custom machinery would use a process layout.

Process layout, production of kitchen cabinets shows job x, and job y. For job x, the product or material flow goes as follows. 1, receiving and raw material storage. 2, foundry. 3 rough machine. 4 shear and punch. 5 Debur. 6 fabrication. 7 assembly. 8 packaging and shipping. For job y, the product or material flow goes as follows. 1, receiving and raw material storage. 2, shear and punch. 3 finish machine. 4, debur. 5, assembly. 6 painting. 7 packaging and shipping. Figure 1. An Example of a Process Facility Layout. Source: Adapted from Operations Management, 9th edition, by Gaither/Frazier.

Product Layout

Products that require a continuous or repetitive production process use the product (or assembly-line) layout. When large quantities of a product must be processed on an ongoing basis, the workstations or departments are arranged in a line with products moving along the line. Automobile and appliance manufacturers, as well as food-processing plants, usually use a product layout. Service companies may also use a product layout for routine processing operations.

Product, or assembly line, layout. Assembly of flat screen televisions. The process is as follows. Assemble chassis; install circuit board; install flat screen; install speakers; final assembly; and inspected by, shown as a number. Figure 2. An Example of a Product Facility Layout. Source: Adapted from Operations Management, 9th edition, by Gaither/Frazier.

In the following video, Jansen, a Swiss steel maker, describes how the company's offices were designed to maximize the productivity and creativity of its engineers:

Fixed Position

Some products cannot be put on an assembly line or moved about in a plant. A fixed-position layout lets the product stay in one place while workers and machinery move to it as needed. Products that are impossible to move—ships, airplanes, and construction projects—are typically produced using a fixed-position layout. Limited space at the project site often means that parts of the product must be assembled at other sites, transported to the fixed site, and then assembled. The fixed-position layout is also common for on-site services such as housecleaning services, pest control, and landscaping.

Fixed position layout, construction of a stadium. The inputs to building the stadium are as follows. Architect; general contractor; mechanical contractor; electrical contractor; plumbing contractor; general labor; materials, such as steel, glass, and cement; and equipment, such as bulldozers, and cranes. Figure 3. An Example of a Fixed-Position Facility Layout. Source: Adapted from Operations Management, 9th edition, by Gaither/Frazier.

To see an excellent example of fixed-position layout, watch the following video that shows how Boeing builds an airplane. Note that this video has no narration; only instrumental music.

Cellular Layout

Cellular layouts combine some aspects of both product and fixed-position layouts. Work cells are small, self-contained production units that include several machines and workers arranged in a compact, sequential order. Each work cell performs all or most of the tasks necessary to complete a manufacturing order. There are usually five to 10 workers in a cell, and they are trained to be able to do any of the steps in the production process. The goal is to create a team environment wherein team members are involved in production from beginning to end.

Practice Question


Materials Planning and Inventory Control

After the facility location has been selected and the best layout has been determined, the next stage in production planning is to determine production material requirements.

Material-Requirements Planning (MRP)

Many manufacturing companies have adopted computerized systems to control the flow of resources and inventory. Materials requirement planning (MRP) is one such system. MRP uses a master schedule to ensure that the materials, labor, and equipment needed for production are at the right places in the right amounts at the right times. The schedule is based on forecasts of demand for the company’s products. It says exactly what will be manufactured during the next few weeks or months and when the work will take place. Sophisticated computer programs coordinate all the elements of MRP. The computer comes up with materials requirements by comparing production needs to the materials the company already has on hand. Orders are placed so items will be on hand when they are needed for production, while maintaining the lowest possible amount of materials and product to remain in house. MRP helps ensure a smooth flow of finished products.

Practice Question

Some manufacturing firms have moved beyond MRP systems and are now using enterprise resource planning (ERP) systems. ERP systems provides an integrated and continuously updated view of core business processes using shared databases maintained by a database management system. ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments—orders, purchase orders, and payroll. The applications that make up the system share data from and between various departments (e.g., manufacturing, purchasing, sales, accounting, etc.). ERP facilitates information flow between all business functions and manages connections to outside stakeholders.

Even with the implementation of highly integrated planning software, operations managers still need to plan for and control inventory.

Just-in-Time (JIT) Manufacturing

Just-in-time (JIT) manufacturing is strategy that companies employ to increase efficiency and decrease waste by receiving goods only when they are needed in the production process, thereby reducing inventory costs. In theory, a JIT system would have parts and materials arriving on the warehouse dock at the exact moment they are needed in the production process. To make this happen, manufacturers and suppliers must work together closely to prevent just-in-time from becoming "just-isn’t-there". Operations managers must accurately forecast the need for materials, since even the slightest deviation can result in a slowdown of production.

PRactice Question

Unexpected events like the shutdown of ports due to Hurricane Harvey and the devastation and flooding caused by Hurricane Maria in Puerto Rico can cause chaos in the supply chains of manufacturers, resulting in problems for firms relying on JIT. But if employed properly, and in spite of these risks, a JIT system can greatly reduce inventory-holding costs and smooth production highs and lows.

Scheduling Tools

Photo of the Izmailovo Hotel complex at night. As you might expect, operations managers find that complex processes involve complex planning and scheduling. Consider the Izmailovo Hotel in Moscow shown in the photograph at the right. Built to house athletes during the 1980 Olympics, the complex has 7,500 guest rooms and is one of the largest hotels in the world. Think about cleaning all those rooms—in four thirty-story-high towers—or checking in the thousands of guests. No small operation! Although the Izmailovo doesn't produce a tangible good, it relies on many of the same operations management principles used in manufacturing to stay in business. To increase operational efficiency in complex processes like those of running a giant hotel, operations managers use three common planning tools: Gantt charts, PERT, and the critical path method (CPM).

Gantt Charts

A Gantt chart is a timeline. Multiple projects can be added to the timeline with start and finish dates, and milestones and deadlines are also reflected. This chart is used to determine how long a project will take, the resources needed, and the order in which tasks need to be completed.

Three different, ornate, brightly colored birdhouses.Let’s look at a Gantt chart for producing a birdhouse. Suppose the following activities are required to build and package each birdhouse:

  1. Determine which birdhouse the customer has ordered
  2. Trace pattern onto wood
  3. Cut the pieces of wood from the birdhouse pattern
  4. Assemble the pieces into a birdhouse
  5. Paint birdhouse
  6. Attach decorations to the birdhouse
  7. Prepare customer invoice
  8. Prepare packing and shipping label
  9. Pack birdhouse into shipping carton
  10. Deliver carton to shipping department

Below is the corresponding Gantt chart:

Gantt chart showing the 11 steps listed above and their corresponding timelines and categories. Steps 1 through 6 are combined into the broad task Construct Birdhouse. Steps 7 and 8 are combined into the broad task Customer Invoice. Steps 9 and 10 are combined into the broad task packing and shipping. Construct Birdhouse and Customer Invoice start at the same time, while Packing and Shipping starts after these tasks. Figure 1. Gantt Chart

As you can see, the tasks on the list are displayed against time. On the left of the chart are all the tasks, and along the top is the time scale. A bar represents each work task; the position and length of the bar indicate the start date, duration, and end date of the task. At a glance, we can determine the following:

  • What the various activities are
  • When each activity begins and ends
  • How long each activity lasts
  • Where activities overlap with other ones, and by how much
  • The start and end date of the whole project

Critical Path Method (CPM)

In the critical path method (CPM), the manager identifies all of the activities required to complete the project, the relationships between these activities, and the order in which they need to be completed. Then, the manager develops a diagram that uses arrows to show how the tasks are dependent on each other. The longest path through these linked activities is called the critical path. If the tasks on the critical path are not completed on time, the entire project will fall behind schedule.

To better understand how CPM works, look at Figure 2, which shows a CPM diagram for constructing a house. All of the tasks required to finish the house and an estimated time for each have been identified. The arrows indicate the links between the various steps and their required sequence. As you can see, most of the jobs to be done can’t be started until the house’s foundation and frame are completed. It will take five days to finish the foundation and another seven days to erect the house frame. The activities linked by brown arrows form the critical path for this project. It tells us that the fastest possible time the house can be built is 38 days, the total time needed for all of the critical path tasks. The noncritical path jobs, those connected with black arrows, can be delayed a bit or done early. Short delays in installing appliances or roofing won’t delay construction of the house because these activities don’t lie on the critical path.

Critical path start, 5 days to foundation complete. From here, 7 days until frame is complete. Branches to 3 days, siding is complete. Other branch, 15 days until cabinet walls are complete. From here, 8 days until interior painting is complete. Next, 2 days until carpet installation complete. Last, 1 day until house is ready and clean. From frame complete, 8 days until plumbing is complete; and 5 days until electrical wiring complete. Both plumbing and wiring hook back into critical path at cabinets, with 0 days. From siding complete, 4 days until roofing is complete. From roofing, 6 days until exterior is complete. Then 0 days until house is ready. From cabinets and walls, 3 days for appliance installation complete. From here 0 days until carpet installation complete. Figure 2. A CPM Network for Building a House (Attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license.)


Like CPM, the program evaluation and review technique (PERT) helps managers identify critical tasks and assess how delays in certain activities will affect operations or production. In both methods, managers use diagrams to see how operations and production will flow. PERT differs from CPM in one important respect. CPM assumes that the amount of time needed to finish a task is known with certainty; therefore, the CPM diagram shows only one number for the time needed to complete each activity. In contrast, PERT assigns three time estimates for each activity: an optimistic time for completion, the most probable time, and a pessimistic time. These estimates allow managers to anticipate delays and potential problems and schedule accordingly.

PRactice Question

Did you know...?

PERT was developed by the U.S. Navy. The Navy's Special Projects Office devised this statistical technique for measuring and forecasting progress while they were designing the Polaris-Submarine weapon system and the Fleet Ballistic Missile capability.

CPM was first used for major skyscraper development in 1966 for the construction of the former World Trade Center Twin Towers in New York City.[2]


  1. Kerzner, "Harold (2003). Project Management: A Systems Approach to Planning, Scheduling, and Controlling (8th ed.)"
  2. Kerzner, "Harold (2003). Project Management: A Systems Approach to Planning, Scheduling, and Controlling (8th ed.)"

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