MASTER PRODUCTION SCHEDULE (MPS)

MASTER PRODUCTION SCHEDULE (MPS) Anticipated build schedule for manufacturing end products (or product options) A statement of production, not a statement of market demand MPS takes into account capacity limitations, as well as desires to utilize capacity fully Stated in product specifications in part numbers for which bill of material exist Since it is a build schedule, it must be stated in terms used to determine component-part needs and other requirements; not in monetary or other global unit of measure Specific products may be groups of items such as models instead of end items The exact product mix may be determined with Final Assembly Schedule (FAS), which is not ascertained until the latest possible moment If the MPS is to be stated in terms of product groups, we must create a special bill of material (planning bill) for these groups Task performed by a master production scheduler Construct and update the MPS Involves processing MPS transactions, maintaining MPS records and reports, having a periodic review and update cycle (rolling through time), processing MPS 1 March 2016

and responding to exception conditions, and measuring MPS effectiveness on a routine basis On a day-to-day basis, marketing and production are coordinated through the MPS in terms of Order Promising Order promising is the activity by which customer order requests receive shipment dates An effective MPS provides Basis for making customer delivery promises Utilising plant capacity effectively Attaining the firm s strategic objectives as reflected in the production plan and Resolving trade-off between manufacturing and marketing Since MPS is the basis for manufacturing budgets, the financial budgets should be integrated with production planning/mps activities When MPS is extended over a time horizon, is a better basis for capital budgeting Based on the production output specified in the MPS the day-to-day cash flow can be forecasted The MPS should be realizable and not overstated When scheduled production exceeds capacity, usually some or all of the following occur: Invalid priority Poor customer service (missed deliveries) MPS 2 March 2016

Excess in-process inventories High expediting costs Lack of accountability Resource planning Production planning Demand management Rough-cut capacity planning Master Production Schedule Front End Detailed Capacity Planning Material Requirements Planning (MRP) Material and Capacity Plans Engine Shop-floor Control Systems Purchasing Systems Back End Fig. 1: Manufacturing Planning and Control System MPS 3 March 2016

Capacity constraints Forecasts Production plan Customer order Master Scheduling What to produce When to produce How much to produce Product lead time constraints Linkage to Other Company Activities The Demand Management Block Represents a company s forecasting, order entry, order promising and physical distribution activities Includes all activities that place demand on manufacturing capacities Demand may be actual and forecast customer orders, branch warehouse requirements, interplant requirements, international requirements and service part requirements The Production Plan Block Fig. 2: The Master Production Schedule Represents role of production in the strategic business plan of the company MPS 4 March 2016

Reflects the desired aggregate output from manufacturing necessary to support the company game plan The aggregate plan constraints the MPS, since the sum of the detailed MPS quantities must always equal the whole dictated by the production plan The Rough-cut Capacity Planning Block Provides a rough evaluation of potential capacity problems from a particular MPS Structured Approach to Master Scheduling Select the items and /or levels in the product structure to be included in the master schedule Determine the time horizon and time fences for the master schedule Obtain demand information for each item in the schedule over the time horizon Prepare tentative master schedule Perform rough-cut capacity planning on the tentative master schedule Revise the tentative master schedule so it is capacity feasible Note on Master Schedule Stability Freezing and time fencing concepts are used for stability No changes (or changes only after tougher negotiations) incorporated in certain number of recent periods of the schedule in the case of freezing MPS 5 March 2016

Frozen period provides a stable target for manufacturing to hit Time fences specify periods in which various types of changes can be handled Two common fences are demand fence and planning fence Demand fence is the shorter of the two Inside the demand fence, the forecast is ignored in calculating the available Within the demand fence it is very difficult to change the MPS Planning fence indicates the time at which the master production scheduler should be planning more MPS quantities Between the demand fence and the planning fence, management trade-offs must be made to make changes Outside the planning fence, the master production scheduler can make changes MPS 6 March 2016

Today DTF PTF Zone 1 Zone 2 Zone 3 Master schedule Production Plan Assemble Product Mfg. Parts Purchase Material Aggregate Plans Cumulative lead time DTF = Demand time fence; PTF = Planning time fence Fig. 3: Master Schedule Time Fences Business Environment and MPS Encompasses the production approach used, the variety of products produced, and the markets served by the company Based on the marketing environment the firms are classified as Make-to-stock, Make-to-order and Assemble-to-order The MPS approach to this environment The choice between these alternatives is largely one of the unit (end items, specific customer orders, or some group of end items and product options) used for the MPS MPS 7 March 2016

Make-to-stock Produces in batches, carry finished goods inventories for most end items MPS is the production statement of how much of and when each end items is to be produced E.g.:- Consumer goods and supply items Many organisations tend to group end items into model grouping in the MPS preparation The end item information is delayed until the latest possible time and the end item schedule is available in the final assembly schedule. All product so grouped are run together in batches to achieve economical run for component parts Make-to-order Carry no finished goods inventory and builds each customer order as needed Very large number of possible production configurations Small probability of anticipating a customer s exact need Customers expect to wait for a large portion of the entire design and manufacturing lead time E.g.: - Special purpose machine tools MPS unit is typically defined as the particular end item or set of items comprising a customer order MPS 8 March 2016

Assemble-to-order Limitless number of possible end item configurations, all made from combination of basic components and subassemblies Customer delivery time is often shorter than total manufacturing lead time Large number of end item possibilities makes forecasting exact end item configurations extremely difficult and stocking end items very risky Tries to maintain flexibility by starting basic components and subassemblies into production and not starting final assembly until a customer order is received E.g.: - Dell computers The MPS unit is stated in planning bills of material The MPS unit (Planning bill) has its components as a set of common parts and options Note Choice of MPS unit is somewhat open to definition by the firm Some firms may produce end items that are held in inventory, yet still use assemble-to-order approaches Some firms use more than one of these approaches at the same time Structural Features Identifying the general product structure of an organisation and locating the point of greatest MPS 9 March 2016

commonality the narrowest part of the product structure helps organisations to identify the MPS unit or level Finished product Finished product Finished product Limited number of standard Items assembled from components Many items made from common subassemblies Fig. 4: General Product Structures Table 1: Master Schedule Levels Many items made from limited number of materials Environment Forecast Master schedule level Classification Make-to-stock End items End items Single-level master schedule Make-to-order DLT PLT Make-to-order DLT < PLT Assemble-toorder None required Families with planning bill Generic end item with planning bill End item from actual orders Family planning bill and percentage of end items Generic end item and percentage of options DLT = Delivery lead time; PLT = Product lead time Single-level master schedule Two-level master schedule Two-level master schedule MPS 10 March 2016

Vehicles One of 2 Engines One of 4 Interiors One of 3 Transmissions One of 5 Bodies Number of possible models = (2)(4)(3)(5) = 120 combinations Number of product modules = 2 + 4 + 3 + 5 = 14 Options PLANNING BILL Engine A 0.60 Engine B 0.40 Interior C 0.40 Interior D 0.30 Interior E 0.20 Interior F 0.10 Transmissions G 0.60 Transmissions H 0.25 Transmissions I 0.15 Body J 0.30 Body K 0.30 Body L 0.20 Body M 0.10 Body N 0.10 Fig. 5: An Example of Planning Bill of Material MPS 11 March 2016

Master Production Scheduling Technique MPS record is a time-phased record to show relationships between production output, sales forecast, and expected inventory balance Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 10 10 10 10 10 10 10 10 10 10 10 10 Available 5 5 5 5 5 5 5 5 5 5 5 5 MPS - 10 10 10 10 10 10 10 10 10 10 10 On hand 15 Fig. 6: A time-phased MPS record The above record (Fig. 6) is a highly simplified example of master production schedule involving an item with a beginning inventory of 15 units, sales forecast of 10 units per week, and MPS of 10 units per week as well The MPS row states the timing for completion of units available to meet demand The details for starting production of the various components and assembly of the product are taken care of by the MRP system The available row represents the expected inventory position at the end of each week Any negative values in the available row represents expected back orders An MPS is allocated to a period where available inventory quantity is equal to zero or less if MPS is not allocated MPS 12 March 2016

Reason for carrying positive projected inventory balance Forecasts involve some degree of error, and the MPS is a plan for production that may not be exactly achieved Projected inventory balance provides a tolerance for errors that buffers production from sales variations Various MPS approaches for seasonal products The forecast for the next 12 weeks is given in Fig. 7 which shows an average demand of 10 units and the MPS planner plans 10 units as MPS in every week as the planner follows a level strategy. Currently the planner has 20 units as onhand inventory. (This on-hand inventory, the planner maintains to buffer against demand variability, and production uncertainty which will be reflected as MPS variability.) The MPS record in that case is as shown in Fig. 7. Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Available 25 30 35 40 45 50 45 40 35 30 25 20 MPS 10 10 10 10 10 10 10 10 10 10 10 10 On hand 20 Fig. 7: Level Strategy For the same situation given above (for the level strategy), the MPS record, when chase strategy is followed, is given in Fig. 8. In this strategy also the planner uses the on-hand inventory to buffer against demand and MPS uncertainty. MPS 13 March 2016

Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Available 20 20 20 20 20 20 20 20 20 20 20 20 MPS 5 5 5 5 5 5 15 15 15 15 15 15 On hand 20 Fig. 8: Chase strategy There are many alternative MPS plans possible between these two extremes. Lot sizing in MPS Whenever an MPS is planned, the lot size is 30 units. The record given in Fig. 9 shows that the MPS planner plans an MPS quantity, when available quantity is zero or negative. Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Available 15 10 5 30 25 20 5 20 5 20 5 20 MPS 30 30 30 30 On hand 20 Fig. 9: MPS with Lot sizing Manufacturing in batches produces inventories that last between production runs. This inventory is called cycle stock. Safety Stock in MPS Revise the MPS in the Fig. 9 considering a safety stock of 5 units. Assume that the on-hand contains the safety stock. Fig. 10 shows the revised MPS record. MPS 14 March 2016

Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Available 15 10 35 30 25 20 35 20 35 20 35 20 MPS 30 30 30 30 On hand 20 Safety stock = 5 Fig. 10: Modified MPS record considering safety stock Rolling Through Time This helps to updates the record to reflects the actual conditions It is necessary not only to construct the MPS but also to process actual transactions and modify the MPS Consider the MPS record given in Fig. 9. The first week is over and the following changes occurred: The actual sales were 10 units in the first week instead of 5 units and a different forecast is available for the next 12 weeks. The new forecast at the end of the first week is for 10 units per week for the next 5 weeks and 15 units per week for the following 7 weeks (7 through 13). The new 12-week forecast incorporates 25 more units than the original 12-week forecasts in the first five weeks. The implication of this (without revising the MPS) is available in Fig. 11. MPS 15 March 2016

Week Number 2 3 4 5 6 7 8 9 10 11 12 13 Forecast 10 10 10 10 10 15 15 15 15 15 15 15 Available 0-10 10 0-10 -25-10 -25-10 -25-10 25 MPS 30 30 30 30 On hand 10 Fig. 11: Using the revised forecast after one week The MPS record shown in Fig. 11 indicates that the plan has several periods with shortages. The planner revises the plan considering allocation of MPS quantity in a period when available becomes zero or negative is given in Fig. 12. Week Number 2 3 4 5 6 7 8 9 10 11 12 13 Forecast 10 10 10 10 10 15 15 15 15 15 15 15 Available 30 20 10 30 20 5 20 5 20 5 20 5 MPS 30 30 30 30 30 On hand 10 Fig. 12: MPS revised to accommodate revised forecast after one week Identify the problems associated with the revised MPS given in Fig. 12. As per the plan in Fig. 9, the production department has to give 30 units in week 4 of the production calendar, but the revised plan asks this quantity by now (week 2 of production calendar). This is impossible. MPS 16 March 2016

Production department has to give 30 units in week 5 as per the plan in Fig. 12 which as per the plan in Fig. 9 is to provide only in week 8. This is also a difficult task for the production department. Assume that the MPS planner was preparing the plan with safety stock (of 15 units) regularly and as a result the on-hand inventory for the first period is 35 units. The plan in Fig. 9 modified on the basis of on-hand 35 units and safety stock 15 is as shown in Fig. 13. Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Available 30 25 20 45 40 35 20 35 20 35 20 35 MPS 30 30 30 30 On hand 35 Safety stock = 15 Fig. 13: MPS plan in Fig. 9 modified considering on-hand = 35 and safety stock = 15 When the plan is as shown in Fig. 13, the rolling through time resulted in the plan as shown in Fig. 14. In this plan no changes is made in MPS. Week Number 2 3 4 5 6 7 8 9 10 11 12 13 Forecast 10 10 10 10 10 15 15 15 15 15 15 15 Available 15 5 25 15 5-10 5-10 5-10 5-10 MPS 30 30 30 30 On hand 25 Safety stock = 15 Fig. 14: Modified MPS plan in Fig.13 after rolling through time Fig. 14 shows that the severity of the problem due to change in current demand and forecast are less compared to the plan in Fig.11. MPS 17 March 2016

Order Promising For many products, customers do not expect immediate delivery, but place orders for future delivery The delivery date (promise date) is negotiated through a cycle of order promising, where the customer either asks when the order can be shipped or specifies a desired shipment date If the company has a backlog of orders for future shipments, the order promising task is to determine when the shipment can be made The delivery date promise procedure is explained with an MPS record of an item shown below Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Available 15 10 5 30 25 20 5 20 5 20 5 20 MPS 30 30 30 30 On hand 20 Fig. 15: A typical MPS plan for ATP incorporation To decide the promise date the quantity available for promise is to be known Available-to-promise (ATP) is the term used to represent this quantity Conventions used in the MPS record with order promise Forecast row shows the forecasting when items will be shipped MPS 18 March 2016

There is a row labeled Orders represents the company s backlog of orders at the start of first week The frequently used convention in the case of available row is to use the greater of forecast or booked orders in any period for projecting the available inventory balance This is consistent with the concept that actual orders, consume the forecast That is, we start out with an estimate (the forecast), and actual orders come into consume (either partially, fully, or over the estimate) Calculation procedure associated with available row is Current period available = Previous period available + MPS (Greater of forecast or orders) An ATP value is calculated for each period in which there is an MPS quantity and also for the first period To calculate the available to promise only the actual orders and scheduled production are considered ATP calculation procedure Fist period ATP = On-hand + any first-period MPS - (all orders until the next MPS) Later period ATP = MPS in that period - (all orders in that and subsequent periods until the next MPS) Both of these rules, however, have to be modified to reflect subsequent periods ATP deficiencies MPS 19 March 2016

Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Orders 5 3 2 Available 15 10 5 30 25 20 5 20 5 20 5 20 ATP 10 30 30 30 30 MPS 30 30 30 30 On hand 20 Fig. 16: MPS record with ATP Suppose an order for 35 units was booked for week 10 in the current period for the above item The ATP row changes as follows Week Number 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 5 5 5 5 5 5 15 15 15 15 15 15 Orders 5 3 2 35 Available 15 10 5 30 25 20 5 20 5 0-15 0 ATP 10 30 25 0 30 MPS 30 30 30 30 On hand 20 Fig. 17: MPS Record with ATP showing ATP calculation under subsequent period ATP deficiency Note that the later customer orders are covered by the later MPS quantities The 35 units order for week 10 could have been covered by 10 units in week 1 plus 25 units from the MPS of week 4. MPS 20 March 2016

This would have left no units for promising from week 1 until week 3, greatly reducing promise flexibility The convention is to preserve early promise flexibility by allocating units to actual orders as late as possible The available row provides the master production scheduler with a projection of the item availability throughout the planning horizon This is important information for managing the master production schedule A negative available quantity at the end of the planning horizon is a signal for more MPS During the planning horizon there is typically some length of time in which changes are to be made only if absolutely essential, to provide stability for planning and execution At the end of this period, master production schedulers have maximum flexibility to create additional MPS quantity Accurate order promising allows the company to operate with reduced inventory levels That is, order promising allows the actual shipments to be closer to the MPS Companies in effect buffer uncertainties in demand by their delivery date promises Firms manage the delivery dates rather than carry safety stock to absorb uneven customer order pattern MPS 21 March 2016

Exercise Problem 1. Problem Neptune Manufacturing Company s production manager wants a master production schedule covering next year s business. The company produces a complete line of small fishing boats for both saltwater and freshwater use and manufactures most of the components part used in assembling the products. The firm uses MRP to coordinate production schedule of the component part manufacturing and assembly operations. The production manager has just received the following sales forecast for next year from the marketing division: Product Sales Forecast (standard boats for each series) Lines 1 st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter FunRay 8,000 9,000 6,000 6,000 series SunRay 4,000 5,000 2,000 2,000 series StingRay 9,000 10,000 6,000 7,000 Series Total 21,000 24,000 14,000 15,000 The sales forecast is stated in terms of standard boats, reflecting total sales volume for each of the firm s three major product lines. Another item of information supplied by marketing department is the target ending inventory position for each product line. The marketing department would like the production manager to plan on having the following MPS 22 March 2016

number of standard boats on hand at the end of each quarter of next year: Product Line Quarterly Target Ending Inventory (In Standard Boats) FunRay series 3,000 boats SunRay series 1,000 boats StingRay series 3,000 boats The inventory position for each product is: Product Line Current Inventory level (In Standard Boats) FunRay series 15,000 boats SunRay series 3,000 boats StingRay series 5,000 boats The master production schedule specify the number of boats (in standard units) to be produced for each product line in each quarter of next year on the firm s single assembly line. The assembly line can produce up to 15,000 standard boats per quarter (250 boats per day during the 60 days in a quarter). Two additional factors are taken into account by the production manager in preparing the master production schedule: the assembly line changeover cost and the inventory carrying cost for the finished goods inventory. Each assembly line changeover costs $5,000 reflecting material handling costs of changing the stocking of component part on the line, adjusting the layout, and so on. After some discussion with the company comptroller, the production manager concluded that the firm s inventory MPS 23 March 2016

carrying cost is 10 percent of standard boats cost per year. The item value for each of the product line standard units is: Product Line Standard Boat Cost FunRay series $ 100 SunRay series 150 StingRay series 200 The master production scheduler has calculated the production lot sizes as 5,000, 3,000 and 4,000 units, respectively. a) Develop a master production schedule for next year, by quarter, for Neptune s fishing boat line. Identify any problems. b) Verify the lot size calculations using the EOQ formula. Solution for part (a) of the problem When the MPS is prepared here, the constraints to be satisfied are demand, capacity, end of the period inventory and lot sizing. Prepare a tentative MPS satisfying demand and lot sizing constraints. If the planned production is more than the lot size, the production batch is determined as the planned quantity for meeting the requirements. FunRay Series Period 1 2 3 4 Forecast 8000 9000 6000 6000 Available 7000 3000 2000 1000 MPS 5000 5000 5000 On-hand 15,000 MPS 24 March 2016

SunRay Series Period 1 2 3 4 Forecast 4000 5000 2000 2000 Available 2000 -- 1000 2000 MPS 3000 3000 3000 3000 On-hand 3,000 StingRay Series Period 1 2 3 4 Forecast 9000 10,000 6000 7000 Available -- -- -- -- MPS 4000 10,000 6000 7000 On-hand 5000 Scheduled production for assembly line FunRay series -- 5000 5000 5000 SunRay series 3000 3000 3000 3000 StingRay series 4000 10,000 6000 7000 Total 7000 18,000 14,000 15,000 MPS quantity in 2 nd quarter is higher than the capacity. Also, the required quarterly ending inventory is not achieved using the tentative MPS. Now, considering the excess capacity available in certain period, try to satisfy the capacity constraint. The capacity and demand constraints should be satisfied, and the lot sizing and end of the period inventory constraints should be satisfied to the maximum possible extend. MPS 25 March 2016

Modified MPS For StingRay series, modify the planned production as 11000 units in first period and for SunRay series, modify the first period MPS quantity as 4000 units. FunRay Series Period 1 2 3 4 Forecast 8000 9000 6000 6000 Available 7000 3000 3000 3000 MPS 5000 6000 6000 On-hand = 15,000 Lot Size = 5000 Ending inventory = 3000 SunRay Series Period 1 2 3 4 Forecast 4000 5000 2000 2000 Available 3000 1000 2000 1000 MPS 4000 3000 3000 1000 On-hand = 3,000 Lot Size = 3000 Ending inventory = 1000 StingRay Series Period 1 2 3 4 Forecast 9000 10,000 6000 7000 Available 7000 4000 3000 3000 MPS 11,000 7,000 5000 7000 On-hand = 5000 Lot Size = 4000 Ending inventory = 3000 MPS 26 March 2016

MPS quantities for assembly line FunRay series 5000 6000 6000 SunRay series 4000 3000 3000 1000 StingRay series 11,000 7,000 5000 7000 Total 15,000 15,000 14,000 14,000 Above MPSs are satisfying production capacity constraints and end of the period inventory constraints. The lot sizing constraints are satisfied under the modified rule (If MPS quantity is greater than suggested lot size, then the lot size is equal to MPS quantity.). But this constraint is not satisfied for period 4 of SunRay series. The constraints - the end of the period inventory given is considered as the minimum requirement. Think of some modification for SunRay series considering excess capacity available in period 3 and without any MPS quantity in period 4. 2. Problem (a) Complete the following MPS time phased record of the product. Week 1 2 3 4 5 6 7 8 Forecast 20 20 20 30 30 30 30 30 Orders 25 15 12 Available Available to promise MPS On hand = 20, MPS lot size = 50. (b) The following events occurred during week 1: Actual demand during week 1 was 30 units. MPS 27 March 2016

Marketing forecasted that 40 units would be needed for week 9. An order for 10 in week 2 was accepted. An order for 20 in week 4 was accepted. An order for 60 in week 6 was accepted. The MPS in week 1 was produced as planned. Update the record after rolling through time. Assume that the demand time fence (DTF) is 4 weeks. Management is not interested to make any change in quantity and period of MPSs in DTF. Do you have any difficulty after rolling through week 1? Solution (a) Week 1 2 3 4 5 6 7 8 Forecast 20 20 20 30 30 30 30 30 Orders 25 15 12 Available 45 25 5 25 45 15 35 5 Available to promise 18 50 50 50 MPS 50 50 50 50 On hand = 20, MPS lot size = 50. (b) When the record is processed at the end of week 1 and no change in MPS is made in DTF, the MPS record is as follows: MPS 28 March 2016

Week 2 3 4 5 6 7 8 9 Forecast 20 20 30 30 30 30 30 40 Orders 25 12 20 60 Available 15 * 3 * 33 * 83 * 23 43 13 23 Available to promise 3 20 0 ** 50 50 MPS 50 50 50 50 On hand = 40, MPS lot size = 50. * Only orders are considered for available to calculate ** If you use the ATP (available to promise) calculation method, the ATP quantity is negative. But the ATP quantity available in the immediate previous period is used to meet the actual order of succeeding period and hence the ATP for the period 5 is made zero. Note that the later customer orders are covered by the later MPS quantities. Incorporation of MPS execution related information in the MPS record Consider the record in the part (a) of problem 2. Assume that the lead time for this item is two weeks when its immediate components (i.e., first level item in its bill of material) are available. The record can be modified to include the planned order release and scheduled receipt. The MPS = 50 units in week 1 of the record shows that 50 units will be received in the beginning of week 1 to the finished goods inventory. That is, a production order might have been released in an early week and based on this production order, production activities might be going-on MPS 29 March 2016

in the production shops. The record will be more informative if the order receipt and order releases are shown in it. The record below shows these details in an MPS record. Week 1 2 3 4 5 6 7 8 Forecast 20 20 20 30 30 30 30 30 Orders 25 15 12 Available 45 25 5 25 45 15 35 5 Available to promise 18 50 50 50 MPS 50 50 50 50 Scheduled receipt 50 Planned order release 50 50 50 MPS 30 March 2016