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How Does Production Planning Reduce Investment in Inventory?

Reduce Investment in Inventory

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Cash investment is necessary for every kind of inventory. Whether the investment is made in raw materials, work-in-process (WIP), or finished items, the money invested won’t be accessible until the inventories are transformed into a finished product with value-added for sale to customers. The greater a company’s cash flow and long-term profitability, the quicker it can turn a customer order into a cash payment for the goods sold. Implementing tools and technologies to manage inventory levels in each stage takes time and effort. Reducing inventory levels too much puts you in danger of experiencing stockouts and losing business when unexpected customer orders arrive, or your supplier encounters unforeseen interruptions. Thus, proper inventory planning is inevitable. 

A lean manufacturing pull system has several advantages and improves the effectiveness, economy, and responsiveness of production systems to client demands. Increased inventory rotations and a finished goods inventory that is more responsive to customer needs to result in a decrease in inventory expenditures. With more money, the company could invest in new machinery, new product lines, and increased earnings for both the company and its shareholders. It is simple to become overly aggressive in inventory reduction efforts before forging solid supplier relationships.

What is Production Planning?

The fundamental questions of what to produce, when to make it, how much to produce, etc., are addressed in production planning. It entails looking at the entire production planning from a long-term perspective. Consequently, the following are the goals of production planning:

  • To guarantee that the proper kind and amount of raw materials, tools, etc., are available during production.
  • To guarantee that capacity usage always aligns with forecasted demand.

The following advantages result from thoughtful production planning, which makes sure that the entire manufacturing process is simplified:

  • Companies are capable of prompt and regular product delivery.
  • The need for raw materials is communicated to suppliers well in advance.
  • It lowers inventory investment.
  • Increasing efficiency brings down production costs as a whole.

The two fundamental techniques of product and process planning are handled by production planning. Three distinct time-dependent levels of production planning are used: long-range planning, which deals with facility planning, capital investment, location planning, etc.; medium-range planning, which deals with demand forecasting and capacity planning; and short-term planning, which deals with day-to-day operations.

Issue With Overstocking

When inventory is overstocked, a significant portion of it will expire before being sold. Even worse, excessive inventory is a sure sign of more serious, expensive issues with company systems and processes that may be firmly ingrained throughout the entire organization.

Poor forecasting, preliminary order or product specifications, inefficient production planning, poor quality, bottlenecks, prolonged cycle times, issues with the product or the process, and/or incorrect performance measures are a few examples. These issues can also get worse over time.

How to Reduce Inventory?

Most business executives concur that to free up cash for investments in activities that would increase revenue, top-heavy inventories must be lowered because they represent a considerable cash vacuum. How is this possible to accomplish?

One of the main obstacles is the false assumption that more than better inventory planning is needed to reduce inventory. The true offenders are the ineffective business procedures that initially lead to huge inventory.

Production scheduling is one of the aspects of manufacturing and distribution that is least comprehended and understood. Unbalanced product flows resulting in bottlenecks, and decreased throughput are typical consequences of inadequate production scheduling. As a result, there is irregular productivity, a large amount of inventory, extended cycle times, and poorer customer service.

How to Manage Production Planning and Control?

The production planning and control system must be integrated for a manufacturing unit of an organization to operate efficiently, effectively, and economically. After the product design is modified and a production procedure is finalized, production planning and subsequent production control take place.

Inventory planning control, resource use, and low productivity are essential issues addressed through production planning and control.

Scheduling, dispatch, inspection, quality control, inventory planning, supply management, and equipment management depend on production planning. Production control guarantees that the production team can meet the desired production target, make the most use of available resources, manage quality, and save money.

What is Production Control?

Production control aims to use a variety of control approaches to gain the best performance possible from the production system to meet the overall production planning goals. Consequently, the following are the goals of production control:

  • Control the management of inventory
  • Put the production schedules together.
  • Optimal use of the industrial process and resources

All production processes can be made to run smoothly by businesses. The bottom line can be improved by ensuring production cost savings. You can keep the quality standard high throughout life and manage resource waste.

Benefits of Production Planning and Control

A successful operation unit requires careful planning and execution. The following are some advantages of production planning and control:

  • By adequately scheduling the machine parts, it guarantees that maximum production capacity is utilized, reducing both overuse and idle time.
  • It ensures that inventory planning levels are always kept at their ideal levels, preventing overstocking or understocking.
  • Additionally, it ensures that production time is maintained at a high level, lengthening turnover time.
  • Since it considers every stage of production, the end product’s quality is always preserved.

About the Company

With the help of their inventory planning software Kronoscope, Fountain9 helps businesses stock their inventories efficiently. To determine how much inventory to reorder without overstocking or understocking, Kronoscope considers the supplier lead times, current inventory stock, forecasted demand, and other factors.

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