Strategic Management: Formulation and Implementation

Operating Systems

The primary operating systems used in operation management are forecasting, capacity planning, aggregate production planning, scheduling, material requirement planning, and purchasing. Forecasting it will be discussed in Volume 2. Quality control, another major system that is important in operation management, is discussed above.

Capacity planning is the process of determining the people, machines, and major physical resources, such as buildings, that will be necessary to meet the production objectives of the organization. Capacity is the maximum output capability of a productive unit within a given period of time. Capacity planning involves three different time horizons: long-range, medium, and short range.

Aggregate production planning is the process of planning how to much supply with product or service demand over a time horizon of about 1 year. Operations managers can use several approaches to meet short-term and intermediate-term fluctuating demand: hiring and lying off employees, using overtime and idle time, building up inventory, taking back orders, subcontracting, and combining approaches.

The master production schedule (MPS) translates the aggregate plan into a formalized production plan encompassing specific products to be produced or services to be offered and specific capacity requirements over a designate time period.

Materials requirements planning (MRP) is a computer-based inventory system that develops materials requirements for the goods and services specified in the master schedule and initiates the procurement actions necessary to acquire the materials when needed.