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SCMH Section 1.1.3Sales, Master Scheduling andSequencing Guidance MaterialRevision Letter: ARevision Date: 1-April-2014www.iaqg.org/scmh Section 1.1.3

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Table of contents

1 Introduction

1.1 Classification of production

1.1.1 Project

1.1.2 Lot / Batch / Intermittent

1.1.3 Line / Repetitive

1.1.4 Continuous

1.2 Strategies of production

1.3 Manufacturing Resources Planning (MRP2)

2 Master Planning

2.1 Demand management

2.2 Sales & Operations Planning and Resource Requirement

Planning

2.3 Master Production Scheduling and Rough Cut Capacity

Planning

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1. Introduction

Manufacturing is complex. Some firms manufacture a few different products whereas othersmanufacture many products (or many families of products), and some products are built at highproduction rate whereas some others are produced at low rate (or even one unit each). However,each uses a variety of processes, machinery, equipment, labor skills and material. To beprofitable, a firm must organize all these resources to make the right goods at the right time at theright quality and do so as economically as possible. To do that, it is essential to have a goodplanning and control system to reconcile demand with supply (that means to ensure the

organization will always be able to deliver to its commitments and will not commit if it is notcapable). A good planning and control system must answer the following four questions:

-What are we going to make?

-What does it take to make it?

-What do we have?

-What do we need?

Manufacturing Resources Planning (MRP2) is a planning and control system with 5 major levels:Strategic Business Plan; Sales and Operations Planning; Master Production Schedule; MaterialRequirements Planning; Purchasing and Production Activity Control.


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Each level varies in purpose, time span, and level of detail. Characteristics are summarized in thefollowing table:

Master Planning encompasses Demand Management, Sales and Operations Planning andMaster Production Scheduling. But before focusing on the core content of this section, we haveto lay the foundations of Supply Chain Management and set terms back in context. Paragraph 1.1is devoted to the classifications of production we can come across, paragraph 1.2 summarizesthe main strategies of production and paragraph 1.3 presents the Manufacturing ResourcesPlanning (MRP2) model widely used in industry.


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1.1. Classification of Production

There are many ways of organizing a production facility to manufacture the product needed. Somefactors that affect the organization are for example:

-The management approach to manufacturing,

-The volume of each product required,

-The question of high cost specialized products, or low cost high volume mass-produced

products,-Is the product engineered to order or is it produced against a forecast?

There are four broad typologies of manufacturing process methods in common use: Projectmanufacturing, Intermittent manufacturing, Repetitive manufacturing and Continuous process.They can be classified according to the variety (or complexity) of the products and the volumemanufactured.


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1.1.1 Project

Project manufacturing includes the manufacture of one-off major capital equipment. Part of thelead-time to supply the equipment includes the design time plus the purchasing lead-time for thematerial and special equipment.

Initially the project is planned in broad terms to reserve capacity, but as the detailed designbecomes available so should it be specified into the planning system. A project team createdespecially for the purpose controls these types of projects.

Firms using project manufacturing usually compete on the basis of product design capability and

quality.Project production is characterized by complex sets of activities that must be performed in aparticular order within the given period and within the estimated expenditure. Each project has adefinite beginning and a definite end. Where the output of a project is a product, such productsare generally characterized by immobility during transformation. Often delays take place in thecompletion of the projects. Such delays are generally very expensive due to escalation in the costof factors of production and incidents of penalties.

1.1.2 Lot / Batch / Intermittent

These three terms indicate a form of manufacturing in which the jobs pass through functionaldepartments in batches or lot.

Batch manufacturing involves the production of a part with a certain amount of repetition. Jigs andfixtures may be used and the manufacturing process is defined as a series of operations. Foreach operation the machine to be used is identified and the work to be carried out defined. Thebatch is delivered to the machine, which is set up for the batch, and the full quantity is produced.The machine is then used for batches of other products.

Each batch can have a totally different routing through the work centers and the work content willdiffer for each batch. Shop floor reporting is required for this to work satisfactorily.

This typology of production is characterized by large work-in-progress and long manufacturinglead-time. Delays may occur due to lack of materials or components, imbalanced workflow, designchanges, inaccurate parameters. To overcome work shortages and keep workers and machines

busy, more work is released to the shops which, in turns increases work-in-progress.

1.1.3 Line / Repetitive

Line or repetitive manufacture includes the production of high volumes of individual productsproduced on an assembly or flow line. The key factors that distinguish this type of production are:

-The line has balanced work stations and works at a fixed rate,-The sub-assemblies being produced in other shops are fed directly to the line and the twoproduction rates are linked together,-There is a lower work-in-progress than in an intermittent manufacturing configuration.


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1.1.4 Continuous

The process happens for 24 hours a day, 7 days a week. The volumes are high and the routingis fixed. The material is automatically supplied and transferred from one part of the process toanother.

The capacity is usually controlled using finite capacity planning and is restricted by the pipe orvessel size.

Aeronautic and Space companies mainly belong to Project and Intermittent manufacturingtypologies.

1.2. Strategies of Production

Manufacturing environments can be classified thanks to the decoupling point approach.

The decoupling point defines the stage in the manufacturing value chain, where a particularproduct is linked to a specific customer order. Different manufacturing environments such asmake-to-stock, assemble-to-order, make-to-order and engineer-to-order, relate to differentpositions of the decoupling point. These may be considered as product delivery strategies, havingdifferent implications for manufacturing objectives such as customer service, manufacturingefficiency and inventory investment.

Let’s take the example of a 4-common phases supply chain process where a company receivescomponents and raw material from suppliers, manufactures semi-finished, assembles sub-assemblies and delivers. When calculating the position of the decoupling point in the chain, we


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may find it in the middle of one given phase. Then, to be on line with market expectations, thecompany will build a certain type of inventory on the right side of the decoupling point, asvisualized in the figure:

Firms that serve their customers from finished goods inventory are known as make-to-stock firms. Make-to-stock is a manufacturing strategy in which final products are made in advance ofany orders by the final consumer. From the customer’s perspective, these are “off the shelf”products. Companies follow this strategy when the market dictates that their products be finishedand available for immediate purchase and use.

Firms that combine a number of options together to meet a customer’s specifications are c alledassemble-to-order firms. In the assemble-to-order strategy, the company builds sub-assembliesand assembles the end products only when a customer order has been received.


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Firms that make the customer’s product from raw material, parts and components are make-to-order firms. In that configuration, product is designed but the company does not startmanufacturing until a customer order is received. Highly customized products are generally madein this fashion.

An engineer-to-order firm will work with the customer to design the product, and then make itfrom purchased materials, parts and components. This is the Engineer to order strategy. Engineerto order products are by definition either unique or very complex and produced only in smallquantities. Special purpose machine tools, space shuttles are all engineer to order products. InETO companies, no product is engineered and/or manufactured until the company has at least a

letter of intent, a contract, or a customer order. At that point the design process can begin, afterwhich material is ordered and the product is produced and delivered to the customer.

Of course, many firms will serve a combination of these environments. The decoupling point maydiffer between products and over time for a particular manufacturing firm.

1.3 Manufacturing Resources Planning (MRP2)

MRP2 is a Manufacturing Planning and Control System concerned with planning and controllingall aspects of manufacturing, including managing materials, scheduling machines and people,and coordinating suppliers and key customers.

Some definitions:

-Demand refers to the products that the organization is being asked to provide, expressedin customer orders, sales forecasts, distribution center replenishment, interplant transfers,

-Supply refers to the resources available to meet that demand: materials, manpower,machinery, suppliers and their capacity, testing, storage space, money.


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Note the feedback loops:

-At each level, plan must be checked against capacity to ensure its feasibility.

-The planning and control system works from the top down and has feedback from thebottom up.

Planning and control processes exist at several levels: the most common are business planning,

Demand

Management

Capacity RequirementPlanning

Resource (Requirement)Planning

Sales &OperationsPlanning

MasterProductionSchedule

ProductionActivityControl

Purchasing

MaterialRequirement Planning

StrategicBusiness

Plan

I/O control Operations sequencing

Rough Cut Capacity

Plannin

Check feasibilitythrough resourcesavailability check



Control, monitor andreport

SBP drivesS&OP

S&OP constrainsSBP when

inconsistent

S&OPdrivesMPS

MPS constrainsS&OP wheninconsistent

MPSdrivesMRP

MRP constrainsMPS when

inconsistent

Step by step Step by step

MRP2Model

Master Planning scope


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sales and operations planning, master scheduling, material requirements planning, productionactivity control. Each level addresses different decision-making needs, covers a planning horizon,and is stated in units appropriate for the level. The highest level addresses long-term needs, suchas the decision to build facilities. The lowest level addresses short-term needs, such as decidingwhich of two waiting jobs should be run through an assembly process first.

Each level produces two types of plans. The first is for the delivery of that level’s focus (left sideof the MRP2 model), and the second is for providing the capacity needed to support that delivery(right side of the MRP2 model).

The 5 levels in the Manufacturing Resources Planning model are:

Strategic Business Planning

Business Planning acts as the brain of the system. As a function of top-level tactical and financialplans of the company, it is the driver of all other activities. Business planning communicatesthrough both annual and monthly financial budgets that project revenues and expenses for allmajor elements of the business. Being a top-level function, business planning is done by thepresident and other executives of the company and their staffs.

Sales and Operations Planning (S&OP)

S&OP is an operational plan designed to execute the strategic objectives represented in thebusiness plan. It’s generally expressed in financial as well as nonmonetary terms: units, tons,

hours… S&OP is conducted within the broad framework of product families, rates, volumes, andmonthly / quarterly periods.

Sales and Operations Planning is an estimation of long term manufacturing needs.

It is established at an aggregated level of the product hierarchy, at product families’ level, andconsiders:

-Sales forecasts and commercial ranges evolution (launching, end of life-cycle...),

-Resources needed (machines and human resources, long lead time raw materials, cashflow and working capital needed),

S&OP is a real simulation tool that allows operational feasibility of the company’s strategy by

verifying the adequacy between commercial objectives and manufacturing capacities andfinancial resources.

It is a monthly process that takes into account the trends and is a reference for the variousactivities (manufacturing, commercial, financial, human resources, purchasing…).

Production planning determines the quantities of each product family on a planning horizon fromtwelve to thirty months, the time bucket length is one month, and the production plan is reviewedmonthly.


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Master Production Schedule (MPS)

MPS leans on the following data to determine the manufacturing medium-term activity for enditems:

-The Sales and Operations Planning,

-The customer ’s order portfolio,

-The available materials and resources.

The master scheduler must develop a plan that makes it possible, given the resources available

to the company, to meet the requirements articulated by the Sales and Operations Planning. Thisplan takes the form of items, quantities and specific dates. But here the level of planning is notwithin the broad context of product families, but of individual product family members; and herethe dates are not expressed in months or quarters, but in days and weeks. Furthermore, masterscheduling must meet those requirements with a plan (schedule) that makes optimal use of thecompany’s valued productive resources and time.

In MPS, the planning horizon usually covers three to six months with a time bucket length of oneweek, and reviews are conducted weekly or biweekly.

The MPS must be considered as a contract between:

-Operations which promise to deliver the right product at the right time. This implies a

realistic commitment based upon the best knowledge of the existing and probable situationand a check against the resources available,

-Marketing and sales that buy the production as soon as the products are available, evenif they don’t need it at that time. But they know they may keep their promises to theircustomers.

To summarize the interaction between the two levels S&OP and MPS: the Sales & OperationsPlanning is a commitment to provide resources while the Master Production Scheduling is acommitment to deliver the products.

Material Requirements Planning (MRP)

Material Requirements Planning MRP determines the quantities necessary to realize the MasterProduction Schedule. It uses bill of materials and routings to calculate the quantity of componentsneeded and manage the short term capacity.

It uses the quantities in inventory, the work-in-process products and pending suppliers’ orders todetermine, by article and by period, the necessary purchasing and manufacturing orders to fulfillthe customers' orders.

Production Activity Control (PAC)

PAC is a scheduling and a follow up of the purchasing orders and the manufacturing orders. At


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that step, we execute what has been planned in the upper levels of the MRP2.

The global MRP2 model is now laid down. Paragraph 2 addresses specifically the “MasterPlanning” activities.

Master planning refers to a group of business processes of the highest level of the MRP2 model.Master planning includes demand management (forecasting and order servicing), sales andoperations planning (production and resource planning), and master production scheduling(master schedule and rough-cut capacity plan).

2. Master Planning

Purposes of Master Planning are:

-To ensure integration and implementation of the business, sales, marketing, engineering,finance, and manufacturing plans,

-To manage inventory and backlog to a position desired by the company’s executive team ,

-To promise product deliveries and feel confident about the ability to keep these promises,

-To plan and commit resources to satisfy customer demands,

-To drive detail material and capacity requirements,

-To create a foundation for accountability within the company to customers and tosuppliers.

2.1. Demand Management

Demand management is the function of recognizing and managing all forms of demand.

Integrating information from and about customers, whether they are internal or external, into themanufacturing planning and control system, is a key concern for a firm. Demand managementincludes activities that range from determining or estimating the demand from customers throughconverting specific-customer orders into promised delivery dates, to helping balance demand withsupply.

Demand management is a gateway module in manufacturing planning and control, providing thelink to the marketplace, sister plants, warehouses, and other important "customers”. As such, it isin demand management that we gather information from and about the market doing things likeforecasting customer demand, entering orders, and determining specific products requirements.Moreover, it is through this module that we communicate with our customers by promising deliverydates, confirming order status, and communicating changes. Demand management is alsoconcerned with identifying all sources of demand for manufacturing capacity, including service-part demands and intercompany requirements.


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Demand management is the key connection to the market in the front end of the ManufacturingPlanning and Control system.

Businesses are forced to look well ahead in order to plan their investments, launch new products,and decide when to close or withdraw products and so on. The sales forecasting process is acritical one for most businesses. Key decisions that are derived from a sales forecast include forexample employment levels required and investment in production capacity.

A forecast is an estimate of uncertain future events. Even though forecasts are almost always inerror, it is better to have the limited information provided by a forecast than to make decisions intotal ignorance about the future. Firms must anticipate future demand to best plan how to satisfyit through on-hand inventory or available capacity. The production or procurement lead time oftenrequires production and ordering decisions to be made before demand occurs.

Forecasting requires that all factors surrounding the decision-making process are recorded.Factors that affect forecasting include sales demand patterns, economic conditions, competitoractions, market research, product mixes, and pricing.


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Example of forecasting process of a company that supplies mechanical parts for Aerospaceindustry

Long term forecasts

1) Describe the programs the company works for

2) Update the rate for each family for the coming years


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3) Compare the most recent issue with the previous one and measure the forecast reliability

-Last rate given by the Customer (yearly and/or monthly)

-Previous known rate (yearly and/or monthly)

-Variation in % between consecutive issues

How to read the table?

This table shows forecasts and orders for a given product.

Current month is Dec-08.

The first column on the left side traces the history of previous forecasts and orders. It indicatesthe orders and forecasts for a given month: for example, in Apr-08, there were forecasts for 4parts for Aug-08 and 2 for Oct-08. In May-08, Apr-08 forecasts for Aug-08 have been transformedinto orders, but for Jul-08 other forecasts have been moved forward. You can read it in the lastcolumns: the total on an 18 months horizon has slightly changed (from 39 in April to 42 in May),but the total months 1 to 9 has almost doubled (from 15 in April to 27 in May).

And you can also check the nervousness of the demand by comparing the cumulative quantitymonth after month in the two last lines

Example of demand planning assessment

The forecasting process has to be assessed to ensure it supports adequately business planning,sales and operations planning, and master scheduling. Here are 6 basic questions to assess yourdemand management process. If you answer “YES” 3 or fewer times there are opportunities forimprovement in your organization.


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2.2. Sales and Operations Planning and Resources Requirement Planning

The Sales and Operations Plan is a formal plan created by the senior management. The maininputs are the forecast, the strategic business plan, the financial plan, and the resources available.S&OP is a set of companywide planning and decision-making processes designed to balance thesupply of the products or services with the demand for them, and to link day-to-day operationswith business goals, operational planning, and financial planning. There are four important

aspects of the process. First, the process goes beyond functional units. Second, in addition toplanning, it is a decision-making process as it may include deciding on discontinuing facilities oracquiring new ones. Third, it aims to balance demand and supply sides of the business bydiscussing sales and production plans collaboratively. Fourth, it is to implement the companystrategy by placing a link between strategic planning and operations.

Sales and operations planning is a monthly meeting. The purpose is to create and maintain twobasics plans for managing the business in the medium and long term. The first is the sales plan,which is the agreed volume of sales that will occur in the future periods. The second is the


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Each product has its own routing (i.e. bill of operations)

And at the end we have 2 bills of resources: in fact, even if product 1 and product 3 belong to 2different commercial families and have different bills of operations, industrially speaking, they usethe same bill of resources.

The next step consists in calculating, through allocation keys, how the commercial families“consume” the bill of resources.

Then we break down the forecast among the bills of resources, according to the allocation keys.


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And we compare required capacity vs. available capacity

We have then a factual analysis to anticipate overloaded situations:

-Invest in new equipment,

-Hire and train people,

-Sub contract,

-Anticipate operations,

-Negotiate with Customer.

The plan is created in months and quarters. Typically the first periods are in months and theremainder is in quarter and is used to compare the resources available to those required by theplan. Resources Requirement Planning is used to check if resources required to meet theproduction plan are available.


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Example of Sales and Operations Planning meeting agenda

1) Overall market trend, backlog and forecast status (canvassing in-progress and probabilityattached to them)

2) Production of the previous month vs. forecast

3) Current deliveries of the previous month vs. planned deliveries

4) Customer service level

5) New product introduction

6) Review each family and each set of decisions regarding needed capacity and availablecapacity.

7) Recap of decisions

Ideally, the CEO should be the S&OP process “owner”. Even if the CEO does not attend theexecutive S&OP meeting, as sometimes occurs in very large companies, the CEO should besupportive and insistent that the process be maintained and executed well, since it can have astrong effect on achieving business objectives.

Example of S&OP meeting tool


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Example of Sales & Operations Planning process assessment

This short 6 question assessment checks to see if the S&OP process aligns the entire organizationto support the business strategy and helps to resolve problems when there is imbalance betweenmarket demands and available resources. If you answer “YES” 3 or fewer times there areopportunities for improvement in your organization.

2.3. Master Scheduling and Rough Cut Capacity Planning

Master Scheduling is a business process designed to balance demand and supply at the detailed,mix level. Master Scheduling is primarily a decision-making process, performed by the MasterScheduler.


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The output for this process is the Master Production Schedule, which is the anticipated buildschedule for specific products and customer orders. The master schedule must take into accountthe forecast, the production plan, and other important considerations such as backlog, availabilityof material, availability of capacity, and management policies and goals. The MPS is the key toMRP2 success because everything else within the system is working to meet this plan. The MPSis where marketing and sales meet manufacturing with the master scheduler as the linkman. Theconcept is that order entry and customer promises are made from information on the MPS, andmanufacturing’s task is to meet the schedule, which results in satisfied customers.

Input: Sales and Operations Planning (S&OP)

As we have seen in the previous paragraph, one of the primary outputs from S&OP is theProduction Plan. This represents the levels of production, both internally and outsourced,authorized by top management and designed to meet the forecast and inventory targets. TheProduction Plan represents the “marching orders” for the Master Scheduler. S/he must ensurethat the sum of the individual items in the Master Schedule equals the Production Plan, within afew percentage points, plus or minus. It is a way to close the loop between the Strategic BusinessPlan and the company’s weekly and daily activities.

Input: forecasting and demand management

Demand is a primary input to Master Scheduling. It is expressed in a variety of forms: customerorders, quotes to customers, sales forecasts, distribution center replenishment, samples, intra

company demand. The Master Schedule must have visibility into all demands or some items willprobably not be built on time. This will often create a difficult situation, with scrambling, expediting,disruptions to production and/or purchasing, and disappointed customers.

Input: capacity planning

The objective of Master Scheduling is to balance demand and supply at the mix level, and it isCapacity Planning that addresses the supply side of the picture. It entails translating schedulesfor products into workload in order to identify future problems. Capacity Planning serves as acheck to determine whether the schedule is feasible, that is to say enough capacity to do it in thetime available.

Let’s say that the shop floor has the capacity to produce 1000 standards hours of workload perweek. But the Master Schedule is generating a workload of 2000 hours for week 4. Thus it cannotbe produced unless some changes are made. Possibilities include:

-Increase the capacity of the shop floor to 2000 standard hours of workload per week,-Assign some of the work in week 4 to another resource or possibly a sub-contractor,-Change the Master Schedule so that some of the production schedule for Week 4 is madein a different week.


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Outputs from Master Scheduling

-The Master Schedule is the source of customer order promising and thus there is a strongconnection between it and the Demand Management function. The inventory levels, futureproduction, and existing commitments to customers contained in the Master Scheduleshow the people in customer order entry the feasibility of promising incoming orders forspecific products, quantities and ship dates-Material Requirements Planning. The start dates for producing products, as specified inthe Master Schedule, become “need dates” for the components and raw materials requiredto make the products. MRP calculates when items will be needed and how many.

-Financial planning. Master Scheduling uses data in units. It is possible to translate thesenumbers into financial terms, to be used for financial planning. This can yield dollarizedprojections of future shipments, finished goods inventory levels, production volumes.

Priority-capacity balancing at MPS level

Rough-cut capacity planning converts the MPS into requirements for critical resources in order tocheck whether sufficient resources are available to support the MPS. Critical resources includelabor, machinery, and critical parts.

RCCP works on the principle that the company output is the result of work that goes through the

bottlenecks (critical resources). To do this, the master schedule quantities are run against thecapacity requirements of the bottlenecks. The RCCP objectives are:

-To provide a feasibility check of the MPS,

-To give early warning of bottlenecks and how big a problem those bottlenecks are,

-To project the future utilization of the critical work centers,

-To provide the means to manage correctly the work in process to prevent major buildups.

Critical resources are not only machines or direct labor one; they may also be resources thatsupport the manufacturing process such as:

-Process engineering skills,

-People and specific control devices involved in First Article Inspection process,

-Quality organization involved in accepting non-conforming items by concessions,

-Suppliers that have a specific know-how.

These resources belong to business just like workers or machines or tools. Their availability mustbe taken into account as any other resource.


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Example of Master Production Scheduling process assessment

The 6 question assessment checks if the MPS process is managed in order to ensure a balanceof stability and responsiveness. If you answer “YES” 3 or fewer times, there are opportunities forimprovement in your organization.

-End of Document-

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