Production Planning and Inventory Control MCQ Quiz - Objective Question with Answer for Production Planning and Inventory Control - Download Free PDF

Explanation:

Master Production Schedule (MPS):

• The Master Production Schedule (MPS) is a critical component of production planning in manufacturing operations. It represents a detailed plan that specifies the starting and finishing times of different products. This schedule serves as a bridge between customer demand and the production system, ensuring that the right products are manufactured at the right time in the required quantities. The MPS is a key input for material requirements planning (MRP) and helps in achieving a balance between supply and demand.
• The primary purpose of the MPS is to ensure that production aligns with customer demand while optimizing the use of available resources. It provides a clear roadmap for production activities, helping to avoid overproduction, underproduction, and stockouts. The MPS also ensures that production is carried out efficiently, minimizing waste and reducing costs.
• The MPS is created based on customer orders, sales forecasts, and inventory levels. It is typically divided into time buckets, such as daily, weekly, or monthly intervals. The schedule specifies the quantities of each product to be produced in each time bucket, along with the starting and finishing times for production activities. The MPS is regularly updated to reflect changes in customer demand, production capacity, and inventory levels.

Key Features:

• The MPS specifies the quantity of each product to be produced over a specific time period.
• It defines the starting and finishing times for the production of each product, ensuring that deadlines are met.
• The schedule takes into account factors such as available production capacity, inventory levels, and lead times.
• It serves as a guideline for procurement, ensuring that raw materials and components are available when needed.

Advantages:

• Helps in achieving a balance between supply and demand, reducing the risk of stockouts and overproduction.
• Provides a clear roadmap for production activities, ensuring that deadlines are met.
• Improves resource utilization by optimizing the use of available production capacity.
• Facilitates better coordination between production, procurement, and sales functions.

Explanation:

Pre-Planning in Manufacturing Operations:

• Pre-planning in manufacturing operations involves identifying, analyzing, and preparing for all the necessary activities and requirements before the actual production process begins. It is a critical phase that ensures the smooth flow of operations, optimal resource utilization, and effective management of uncertainties.

Forecasting:

• Forecasting is the process of predicting future production requirements based on past data, market trends, and expected demand. It is a vital operational function that comes under pre-planning because it provides the foundation for all subsequent planning and decision-making activities. Accurate forecasting helps in determining the resources needed, scheduling production, and minimizing wastage.
• Forecasting involves analyzing historical data, considering external factors such as market demand, economic conditions, and seasonal variations, and using mathematical models or software tools to predict future requirements. This process enables manufacturers to anticipate challenges and prepare accordingly, ensuring that production meets demand efficiently.

Explanation:

Scheduling Decisions:

• Scheduling decisions in any business or manufacturing environment involve planning and organizing tasks, resources, and timelines to achieve specific goals. These decisions are critical as they ensure that operations are conducted efficiently, cost-effectively, and on time to meet customer demands. Among the various parameters influencing scheduling decisions, sales forecasting plays the most significant role.

Sales Forecasting:

• Sales forecasting is the process of predicting future sales based on historical data, market trends, and other relevant factors. It is a critical tool for businesses as it provides insights into anticipated demand, enabling organizations to plan resources, inventory, and production schedules accordingly. Accurate sales forecasting ensures that the production aligns with market demand, preventing overproduction or underproduction, which could lead to financial losses or missed opportunities.

Importance of Sales Forecasting in Scheduling Decisions:

• Resource Allocation: Sales forecasting helps businesses allocate resources such as manpower, machinery, and raw materials effectively. By understanding expected sales, companies can schedule operations to ensure that resources are used efficiently without wastage.
• Inventory Management: Accurate forecasting ensures that inventory levels are optimized. Businesses can avoid excess stock, which ties up capital, or stockouts, which lead to lost sales and customer dissatisfaction.
• Production Planning: Forecasted sales data provide a foundation for production schedules. This ensures that products are manufactured in the right quantity at the right time to meet customer demand.
• Cost Optimization: By aligning production schedules with sales forecasts, companies can reduce costs associated with overtime, expedited shipping, and storage of excess inventory.
• Customer Satisfaction: Meeting delivery deadlines and ensuring product availability are critical for maintaining customer trust and satisfaction. Sales forecasting facilitates accurate scheduling, helping businesses achieve these goals.

How Sales Forecasting Influences Scheduling Decisions:

Sales forecasting provides actionable data that serves as a roadmap for scheduling decisions. For example:

• In a manufacturing setup, if sales forecasts predict a spike in demand for a product, production schedules can be adjusted to increase output, ensuring that the demand is met on time.
• In a service-based industry, forecasts indicating increased demand for services can lead to adjustments in workforce schedules, such as hiring temporary staff or extending working hours.
• For seasonal businesses, sales forecasts help prepare for peak seasons by scheduling additional shifts or increasing inventory levels in advance.

Explanation:

Material Requirements Planning (MRP)

Definition: Material Requirements Planning (MRP) is a systematic approach to production planning, scheduling, and inventory control. It is primarily used in manufacturing to ensure that the right materials are available at the right time and in the right quantities to meet production demands. MRP helps organizations streamline their operations by optimizing inventory levels, reducing waste, and improving overall efficiency.

Working Principle: MRP operates by taking into account three critical inputs:

• Master Production Schedule (MPS): This defines what is to be produced, when, and in what quantities.
• Bill of Materials (BOM): This is a comprehensive list of all the raw materials, components, and subassemblies required to manufacture a product.
• Inventory Data: This includes current inventory levels, lead times, and safety stock requirements.

Using these inputs, MRP calculates the material requirements to ensure timely production while minimizing excess inventory. It provides a detailed schedule for purchasing or producing the necessary components and materials.

Correct Option Analysis:

The correct option is:

Option 3: Better inventory planning and scheduling

This option highlights one of the key benefits of MRP. By integrating data from the Master Production Schedule, Bill of Materials, and inventory records, MRP allows for precise planning of material requirements. This ensures that materials are available exactly when needed, avoiding overstocking or stockouts. The result is:

• Improved Inventory Management: MRP helps maintain optimal inventory levels, reducing carrying costs and freeing up working capital.
• Efficient Scheduling: By aligning material availability with production schedules, MRP minimizes production delays and enhances operational efficiency.
• Reduced Waste: MRP ensures that only the required quantities of materials are ordered, minimizing excess inventory and associated waste.

In addition, MRP provides valuable insights into future material needs, enabling proactive decision-making and better resource allocation. This leads to more streamlined operations and improved customer satisfaction, as products can be delivered on time and in full.

Additional Information

To further understand the analysis, let’s evaluate the other options:

Option 1: Reduced customer service and satisfaction

This option is incorrect because MRP is designed to improve customer service and satisfaction. By ensuring that products are manufactured and delivered on time, MRP helps organizations meet customer expectations. Reduced customer satisfaction would result from poor planning or inventory management, which MRP specifically aims to address.

Option 2: Increased raw material costs

This option is also incorrect. On the contrary, MRP helps reduce raw material costs by optimizing inventory levels and preventing overstocking. By purchasing materials only when needed and in the right quantities, organizations can negotiate better prices, reduce storage costs, and avoid obsolescence.

Option 4: Slower response to market changes

This option is incorrect as well. MRP enables organizations to respond more quickly to market changes by providing a clear picture of material requirements and production schedules. With accurate data and planning, companies can adapt their production processes to meet changing customer demands or market conditions.

Conclusion:

Material Requirements Planning (MRP) is a powerful tool for optimizing production and inventory management. The correct option, Better inventory planning and scheduling, accurately captures one of the primary benefits of MRP. By ensuring that materials are available when needed and in the right quantities, MRP helps organizations improve efficiency, reduce costs, and enhance customer satisfaction. The other options misrepresent the impact of MRP, as it is specifically designed to address the challenges they describe.

Explanation:

Job Rating or Job Evaluation

• Job evaluation, often referred to as job rating, is a systematic process used to determine the relative worth of different jobs within an organization. It focuses on evaluating the role or position rather than the individual performing the role. By understanding the relative worth of jobs, organizations can establish a fair and equitable compensation structure, aligning pay rates with the responsibilities, skills, and qualifications required for each job.
• The primary purpose of job evaluation is to determine the relative worth of different jobs. This process helps an organization create a structured and logical hierarchy of positions, ensuring fair pay and fostering a transparent compensation system. By identifying the value of jobs, companies can allocate resources effectively, maintain internal equity, and remain competitive in the job market.

Key Steps in Job Evaluation:

• Job Analysis: Collecting detailed information about the job's duties, responsibilities, required skills, and qualifications.
• Job Description: Creating a formal document that outlines the key aspects of the job, such as its purpose, reporting relationships, and primary tasks.
• Job Rating: Using a systematic method to evaluate the job's value based on factors like complexity, impact, and required expertise.
• Job Grading: Grouping jobs into categories or levels based on their evaluation, which simplifies the process of assigning pay scales.

Methods of Job Evaluation:

• Ranking Method: Jobs are ranked in order of their perceived value or importance to the organization.
• Classification/Grading Method: Jobs are categorized into predefined grades or classes based on their characteristics.
• Point-Factor Method: Jobs are evaluated using a scoring system, where points are assigned based on factors like skills, effort, and responsibility.
• Factor Comparison Method: Jobs are compared by assessing key factors such as knowledge, mental effort, physical effort, and working conditions.

Benefits of Job Evaluation:

• Ensures equity and fairness in the workplace by standardizing compensation for similar roles.
• Helps in budgeting and resource allocation by aligning pay structures with organizational priorities.
• Improves employee satisfaction by establishing transparent and justifiable pay policies.
• Supports strategic decision-making regarding promotions, recruitment, and retention.

Given:

The cost of 157 litre of oil is Rs.  29763.65

Calculation:

Cost price of 157 liters of oil = Rs. 29763.65

Cost price of 1 liter of oil = 29763.65/157

⇒ 189.577 ≈ 189.58

∴ The cost per liter is 189.58 (rounded off to two decimal places).

Explanation:

Various techniques of inventory control are explained in the table below:

Concept

Stock items:

• Stock items are defined as material resources that are held in storerooms and issued to activities that require the materials to be completed.
• The stock item record determines whether or not the type of stock can be purchased, repaired, tracked, and so on.

Bin cards:

• Bin means a rack, container, or room where goods are kept. Bin cards are printed cards used for accounting for the stock of material, in stores.
• A bin card is a quantitative record of receipts, issues, and closing balance of each item of stores. For every item of material, separate bin cards are kept.

Concept:

The inventory comprises of a large number of items. All items are not of equal importance. The firm, therefore, should pay more attention and care to those items whose usage value is high and less attention to those whose usage value is low.

There are different types of selective inventory control:

Concept:

This model is used when the replacement is instantaneous and no shortage is allowed. The Economic Order Quantity for this model is given by Wilson Formula.

\({Q^*} = \sqrt {\frac{{2D{C_o}}}{{{C_h}}}} \)

where Q^* = Economic Order Quantity (Units), D = Demand rate (Units/month or Units/year), C_o = Ordering cost/order (Rs.), C_h = Handling cost (Rs./unit/year)

[Note: Time unit of Demand & Handling Cost must be same i.e. units/year or units/month]

Calculation:

Given:

D = 12000 units/year, C_o = Rs. 100, C_h = Rs. 0.80/unit/month ⇒ Rs. 0.80 × 12/unit/year

∵\(\;{Q^*} = \sqrt {\frac{{2D{C_o}}}{{{C_h}}}} \)

\( \Rightarrow {Q^*} = \sqrt {\frac{{2 \times 12000 \times 100}}{{0.80 \times 12}}} \)

⇒ Q^* = 500 units.

Explanation:

• Forecasting is the prediction of future sells or demand of the particular product.
• It is a projection based upon past data and art of human judgement.

Types of forecasting method

Explanation:

Production Planning & Control consist of three different stages.

1. Planning
2. Action
3. Monitoring.

• Planning Stage: Planning stages include activities such as planning the resources, facilities, etc. They are further divided into two stages.
  • Pre-planning Stage: This stage deals with the activities such as product planning, forecasting of the demand on the basis of the past trend, inputs planning, plant and facility planning related to location and layout.
  • Planning Stage: After the pre-planning, the quantity, level of quantity, process capacity, production planning like routing, scheduling materials, tools planning, etc. are carried out in the planning stage.
• Action Stage: It is the real implementation of the plan. It begins with dispatching functions, which deals with the progress of work or job.
• Monitoring: In this stage, the planned activities are controlled and monitored by using various techniques such as inventory control, tool control, cost control, quality control, etc. 

Explanation:

Production Planning & Control consist of three different stages.

1. Planning
2. Action
3. Monitoring.

Planning Stage: Planning stages include activities such as planning the resources, facilities, etc. They are further divided into two stages.

• Pre-planning Stage: This stage deals with the activities such as product planning, forecasting of the demand on the basis of the past trend, inputs planning, plant and facility planning related to location and layout.
• Planning Stage: After the pre-planning, the quantity, level of quantity, process capacity, production planning like routing, scheduling materials, tools planning, etc. are carried out in the planning stage.

Action Stage: It is the real implementation of the plan. It begins with dispatching functions, which deals with the progress of work or job.

Monitoring: In this stage, the planned activities are controlled and monitored by using various techniques such as inventory control, tool control, cost control, quality control, etc. 

Explanation:

In inventory management system there are two ways to review the inventory, they are

Fixed order or quantity system:

• In this system the reorder level of the inventory is fixed as soon as the inventory reaches the reorder level a prescribed quantity is ordered in this system the size of order is fixed while the time of order is variable. It is also called reorder level system or two-bin system or Q-system.

Periodic review system/periodic inventory system:

• In this system the period of time after which inventory is reviewed is fixed, after that particular period new order is placed at that point. In this system the time of order is fixed but the size of order is variable. It is also called fixed period system or P-system.

Explanation:-

MRP II

• Manufacturing Resources Planning (MRP II) is defined as a method for the effective planning of all resources of a manufacturing company.
• MRP II Serves as an extension of MRP

Additional Information

Materials Requirement Planning, It is a planning technic that converts the master production schedule of end products into a detailed schedule for raw materials and parts used in those end products.

Maximum retail price is the highest price labeled on the product which can be charged by the seller of that product.

ERP - Enterprise Resource Planning