A production planning system is essential to ensure that a company's processes, machinery,
equipment, labour skills and material are organized efficiently for better profitability. There are
many factors that need to be considered in the planning system. For example, a firm may require
a large number of different components. AIso demand can vary daily in this ever-changing
world. New sales orders corne in. Some get cancelled; there may be breakdowns in the workshop;
backlogs build up; there may be late or early delivery from suppliers. It is difficult to keep track of
all these changes manually. To handle these situations, many companies keep safety stock.
However, if a company has an effective production planning system there is no need to keep high
safety stock. The money blocked in the excessive safety stock can be released. At the same time,
opportunity costs due to stock-outs can be minimized.