Production planning and control II. The planning horizon problem

Abstract

A general model of the production planning and control problem based on modern control theory is given. This model is used to develop principles for planning under uncertainty and to illustrate the strong connection between the structure of the production-inventory system, the characteristics of the environment, and the planning horizon. It is shown that the planning horizon is a function of the structure of both the production-inventory system and the market dynamics. Further, it is shown that the planning horizon is independent of the level of uncertainty and that the planning horizon problem is effectively decoupled from the problems of measuring the state of the production-inventory system and market forecasting. IntroductionThe most vexing problem of production management is uncertaintyuncertainty about market demand, uncertainty about the current status of the production and inventory systems, and uncertainty about the costeffectiveness of production-inventory control policy in meeting demand. Managers attempt to reduce uncertainty by forecasting both market demand and inventory levels. Implicit in these forecasts is a planning horizon-a point in time to which sales forecasts must be made and production planning accomplished. Intuitively, we know that uncertainty grows in some proportion to the length of the planning period. How much, is generally unknown, and even less is known about the impact of uncertainty on system performance. The usual procedure for handling such problems is to decompose the overall production planning and control problem into three general areas: (1) market forecasting; (2) inventory control; and (3) production scheduling. Yet very little is known about the specific information requirements for decision making in large-scale systems; even less is known about the information needs of the individual decision-maker. The tendency of large organizations in the past several years has been to develop and implement vast, expensive, and complex management information systems in the hope that, in supplying large quantities of information, enough would be supplied. This kind of blanket approach too often ignores the basic issues, including the type and quantity of information needed about the organization and its environment, the uses to which information is put, and, more importantly, the relationships between information, decision-making behaviour, and system performance.