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 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)

� Excess in-process inventories

� High expediting costs

� Lack of accountability

Production planning

Master Production Schedule

Resource planning

Front End

Material Requirement

Planning (MRP)

Material and Capacity Plans

Detailed Capacity Planning

Engine

Purchasing Systems

Shop-floor Control Systems Back End

Demand Management

Rough-cut capacity planning

Manufacturing Planning and Control System

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

� Represents role of production in the strategic business plan of the company

� 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

Master Scheduling

Capacity constraints

Forecasts

Production plan

Customer order

What to produce

When to produce

How much to produce

Product lead time constraints

The Master production 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

• 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

DTF = Demand time fence; PTF = Planning time fence

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

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

Assemble Product Mfg. Parts Purchase Material Aggregate Plans

Cumulative lead time

Production Plan

Master schedule

Zone 1 Zone 2 Zone 3

Today DTF PTF

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

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 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 commonality – the narrowest part of the product structure helps organisations to identify the MPS unit or level

General Product Structures

Environment Forecast Master schedule level Classification

Make-to-stock End items End items Single-level master schedule

Make-to-order

DLT ≥ PLT

None required End item from actual orders

Single-level master schedule

Make-to-order DLT < PLT

Families with planning bill

Family planning bill and percentage of end items

Two-level master schedule

Assemble-to-order

Generic end item with planning bill

Generic end item and percentage of options

Two-level master schedule

DLT = Delivery lead time; PLT = Product lead time Master Schedule Levels

Finished product

Limited number of standard Items assembled

from components

Finished product

Many items made from

common subassemblies

Finished product

Many items made from limited number of materials

Number of possible models = (2)(4)(3)(5) = 120 combinations Number of product modules = 2 + 4 + 3 + 5 = 14 Options

An Example of Planning Bill of material

Vehicles

One of 2 Engines

One of 4 Interiors

One of 3 Transmissions

One of 5

Bodies

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 M0.10

Body N 0.10

Master Production Scheduling Technique

• MPS record is 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 20 20 20 20 20 20 20 20 20 20 20 20

MPS 10 10 10 10 10 10 10 10 10 10 10 10

On hand 20

A time-phased MPS record

• The above record is a highly simplified example of master production schedule involving an item with a beginning inventory of 20 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 represent expected back orders

• 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

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

Levelling Strategy

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

Chase strategy

There are many alternative MPS plans between these two extreme

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

Lot sizing in the MPS

• Manufacturing in batches produces inventories that last between production runs. This inventory is called cycle 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 above MPS record. 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 week. 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 35 more units than the original 12-week forecasts. The implication of this (without revised MPS) is available in the table below

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

Using the revised forecast after one week

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

MPS revised to accommodate revised forecast after one week

Identify the problems associated with revising the MPS

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 rate 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

MPS Record of an Item

• 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

• 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

• 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 period until the next MPS)

Both of these rules, however, have to be modified to reflect subsequent period ATP deficiencies

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

MPS Record with ATP and Actual Orders

• 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

• Note that the later customer orders are covered by the later MPS quantities

o 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.

o 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

A 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 manufactured 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 Lines Sales Forecast (standard boats for each series)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

FunRay series 8,000 9,000 6,000 6,000

SunRay series 4,000 5,000 2,000 2,000

StingRay Series 9,000 10,000 6,000 7,000

Toatl 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 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 5,000 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 is to 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 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 each of Neptune’s fishing boat lines. 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

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 2nd 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. 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 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 the 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.