6.6.5 The 3 levels of decision making in production management

In this paragraph a unified framework for production decision-making is provided. The framework applies across a variety of processes, but managers should emphasize different decisions, depending on the process type under consideratio

In continuous process a paramount issue should be the coordination of items at a single bottleneck operation, to achieve as high a capacity utilisation as possible. In contrast in assembly processes the primary concern should be the appropriate coordination of raw materials, components, and so forth, across multiple stages of production. Batch flow operations may have a single bottleneck, and thus managers should focus on managing that resource. Alternatively, they may have a strong similarity to assembly process so that material coordination should be the key management focus. Job shops tend to have moving bottlenecks, and often have few components and materials, so that the important issue is short-term scheduling.

Anthony (1965) proposed that managerial activities in a production context fall into three broad categories, whose names have been somewhat modified over the years to become strategic planning, tactical planning and operational planning.

Strategic planning 

Strategic (or long-range) decisions of relevance to the production area (but with important interactions with other functional areas) included which products to produce, on which of the dimensions of cost, quality, delivery and flexibility to compete; where to locate facilities; what production equipment to use; and long-range choices concerning raw materials, energy and labour skills.

Tactical planning 

Tactical (medium-range) plans, with a planning horizon from six months to two years into the future, take the basic physical production capacity constraints and projected demand pattern, established by a long-range plan, and ration available resources to meet demand as effectively and as profitable as possible. Even though basic production capacity is essentially fixed by long-range considerations, production capacity can be increased or decreased within limits in the medium term. A decision can be made to vary one or more of the following: the size of the work force, the amount of overtime worked, the number of shifts worked, the rate of production, the amount of inventory, the shipping modes and possible the amount of subcontracting utilized by the company. These plans, in turn, constrain but provide stability to what can be done at the operational level.

Operational planning 

Operational (short-term) activities provide the day-to-day flexibility needed to meet customer requirements on a daily basis within the guidelines established by the more aggregate plans discussed above. Short-range operating schedules take the orders directly from customers, or as generated by the inventory system and plan in detail how the products should be processed through a plant. In most cases detailed schedules are drawn up for one week, then one day and finally one shift in advance. The schedules involve the assignment of products to machines, the sequencing and routing of orders through the plant, the determination of replenishment quantities for each stock keeping unit and so on.
Please have a look at Table 2: Summary of Anthony’s hierarchy applied to the production function1

Table 2: Summary of Anthony’s hierarchy applied to the production function

Try to find the degree of use of the 3 above mentioned decision-making levels in your company. Do you believe that you properly implement these stages? If not, do you think you could suggest some margins of improvement to your production manager?

1 Edward A. Silver, David F. Pyke, Rein Peterson, (1998)