Lecture 8 Master Product Scheduling Revisited Books Introduction

Lecture 8 Master Product Scheduling (Revisited) Books • Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P. E. , CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph. D. , CFPIM, North Carolina State University, Lloyd M. Clive, P. E. , CFPIM, Fleming College • Operations Management for Competitive Advantage, 11 th Edition, by Chase, Jacobs, and Aquilano, 2005, N. Y. : Mc. Graw-Hill/Irwin.

Objectives • • Master product scheduling Round cut capacity planning Planning horizons Types of Production-Planning and Control Systems • Developing MPS • Evaluation MPS • Planning links to MPS

Purpose • The master production schedule states the requirements for individual end items by date and quantity. It is limited by the production plan and must “disaggregate” the production plan. • Master planning seeks to plan and control the impact of independent demand on material and capacity.

Purpose • The master production schedule is a vital link between sales and production – It makes possible valid order promises – It represents a contract between sales and production.

Inputs • Inputs to the master production schedule include – The production plan – The forecast – Orders from customers – Additional independent demand – Inventory levels – Capacity constraints

Objectives • The objectives of a master production schedule are to – Maintain the desired level of customer service – Make the best use of resources – Keep inventories at the desired level

Preparing an MPS • Make a preliminary MPS • Perform rough-cut capacity planning • Resolve differences

Rough-cut Capacity Planning • Rough-cut capacity planning checks whether critical resources are available to support the preliminary master schedule. • A resource bill shows the time required for individual items on a critical resource. • What are some possible critical resources?

Resolving Differences • The third step in developing an MPS is to resolve any differences between the priority plan and available capacity. Available capacity must be equal to or greater than required capacity • If required capacity exceeds available capacity – Capacity must be increased or – Plan must be altered • How can capacity be increased or demand be decreased?

Resolving Differences • The master production schedule must be judged by three criteria – – – Resources use. Is the MPS within capacity restraints in each period of the plan? Does it make the best use of resources? Customer service. Will due dates be met and will delivery performances be acceptable? Cost. Is the plan economical, or will excess cost be incurred for overtime, subcontracting, expediting, or transportation?

Production Scheduling and Sales • An MPS is not a sales forecast, it is instead a forecast of production. It may not necessarily be what we want; it should be what we can do. • The MPS must be realistic and achievable. Otherwise, the plan fails, deliveries are not met, and manufacturing has to react to circumstances rather than planning for them.

MPS and Delivery Promises Units Production Capacity or Inventory Available-to. Promise Customer Orders Time • As orders are received, they “consume” available production and inventory • Any part not consumed is available-to-promise

Available-to-Promise • Available-to-Promise is – the uncommitted portion of a company’s inventory and planned production, maintained in the master schedule to support customer order promising. The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which an MPS receipt is scheduled APICS Dictionary, 8 th edition

Available-to-Promise • The ATP calculation assumes that the entire ATP will be sold before the next scheduled receipt. When calculating ATP, consider all orders until the next scheduled receipt. ATP for period 1 = on hand - customer orders due before next MPS scheduled receipt ATP for periods 2, 4, and 6 = MPS scheduled receipt - customer orders due before next MPS scheduled receipt

Available-to-Promise On hand = 200 units

Available-to-Promise On hand = 200 units

Available-to-Promise On hand = 200 units

Available-to-Promise On hand = 200 units

Planning Horizon The planning horizon is defined as the amount of time the master schedule extends into the future. This is normally set to cover a minimum of cumulative lead time plus time for lot sizing lowlevel components and for capacity changes of primary work centers or of key suppliers. APICS Dictionary, 8 th edition

Planning Horizon B Lead Time = 6 weeks A Lead Time = 2 weeks C Lead Time = 5 weeks F What is the minimum planning horizon in this example? D Lead Time = 8 weeks E Lead Time = 16 weeks

Time Fences and Zones 0 2 weeks 26 weeks Frozen Slushy Actual Orders Actual and Forecast (Emergency Changes Only) (Trade-offs) Due Date Demand Time Fence Liquid Forecast Only (Changes constrained by production plan Planning Time Fence 21

Master Production Scheduling (MPS)

Objectives of MPS • Determine the quantity and timing of completion of end items over a short-range planning horizon. • Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer. • Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result.

Time Fences l The rules for scheduling 1 -2 weeks 2 -4 weeks +/- 5% +/- 10% +/- 20% Change No Change Frozen 4 -6 weeks 6+ weeks Firm Full Open

Time Fences • The rules for scheduling: – Do not change orders in the frozen zone – Do not exceed the agreed on percentage changes when modifying orders in the other zones – Try to level load as much as possible – Do not exceed the capacity of the system when promising orders. – If an order must be pulled into level load, pull it into the earliest possible week without missing the promise.

Developing an MPS • Using input information – Customer orders (end items quantity, due dates) – Forecasts (end items quantity, due dates) – Inventory status (balances, planned receipts) – Production capacity (output rates, planned downtime) • Schedulers place orders in the earliest available open slot of the MPS • . . . more

Developing an MPS • Schedulers must: – estimate the total demand for products from all sources – assign orders to production slots – make delivery promises to customers, and – make the detailed calculations for the MPS

Example: Master Production Scheduling Arizona Instruments produces bar code scanners for consumers and other manufacturers on a produceto-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks. The minimum lot size is 1, 500 scanners, and the safety stock level is 400 scanners. There are currently 1, 120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown on the next slide.

Example: Master Production Scheduling • Demand Estimates WEEK 1 2 3 4 5 6 CUSTOMERS 500 1000 500 200 700 1000 BRANCH WAREHOUSES 200 300 400 500 300 200 MARKET RESEARCH 0 50 0 0 10 0 PRODUCTION RESEARCH 10 0 0

Example: Master Production Scheduling WEEK • Computations 1 2 3 4 5 6 CUSTOMERS 500 1000 500 200 700 1000 BRANCH WAREHOUSES 200 300 400 500 300 200 MARKET RESEARCH 0 50 0 0 10 0 PRODUCTION RESEARCH 10 0 0 TOTAL DEMAND BEGINNING INVENTORY REQUIRED PRODUCTION ENDING INVENTORY 710 1350 900 700 1010 1200 1120 410 0 560 1160 460 1500 0 410 560 1160 460 950 1500 950 1250

Example: Master Production Scheduling • MPS for Bar Code Scanners WEEK 1 SCANNER PRODUCTION 0 2 3 1500 4 0 5 6 1500

Rough-Cut Capacity Planning • As orders are slotted in the MPS, the effects on the production work centers are checked • Rough cut capacity planning identifies underloading or overloading of capacity

Example: Rough-Cut Capacity Planning Texprint Company makes a line of computer printers on a produce-to-stock basis for other computer manufacturers. Each printer requires an average of 24 labor-hours. The plant uses a backlog of orders to allow a level-capacity aggregate plan. This plan provides a weekly capacity of 5, 000 labor-hours. Texprint’s rough-draft of an MPS for its printers is shown on the next slide. Does enough capacity exist to execute the MPS? If not, what changes do you recommend?

Example: Rough-Cut Capacity Planning • Rough-Cut Capacity Analysis WEEK PRODUCTION 1 2 3 4 5 TOTAL 100 200 250 280 1030 LOAD 2400 4800 6000 6720 24720 CAPACITY 5000 5000 25000 UNDER or OVER LOAD 2600 200 1000 1720 280

Example: Rough-Cut Capacity Planning • Rough-Cut Capacity Analysis – The plant is underloaded in the first 3 weeks (primarily week 1) and it is overloaded in the last 2 weeks of the schedule. – Some of the production scheduled for week 4 and 5 should be moved to week 1.

Demand Management • Review customer orders and promise shipment of orders as close to request date as possible • Update MPS at least weekly. . work with Marketing to understand shifts in demand patterns • Produce to order. . . focus on incoming customer orders • Produce to stock. . . focus on maintaining finished goods levels • Planning horizon must be as long as the longest lead time item

Types of Production-Planning and Control Systems

Types of Production-Planning and Control Systems • • Pond-Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

Pond-Draining Systems • Emphasis on holding inventories (reservoirs) of materials to support production • Little information passes through the system • As the level of inventory is drawn down, orders are placed with the supplying operation to replenish inventory • May lead to excessive inventories and is rather inflexible in its ability to respond to customer needs

Push Systems • Use information about customers, suppliers, and production to manage material flows • Flows of materials are planned and controlled by a series of production schedules that state when batches of each particular item should come out of each stage of production • Can result in great reductions of raw-materials inventories and in greater worker and process utilization than pond-draining systems

Pull Systems • Look only at the next stage of production and determine what is needed there, and produce only that • Raw materials and parts are pulled from the back of the system toward the front where they become finished goods • Raw-material and in-process inventories approach zero • Successful implementation requires much preparation

Focusing on Bottlenecks • Bottleneck Operations – Impede production because they have less capacity than upstream or downstream stages – Work arrives faster than it can be completed – Binding capacity constraints that control the capacity of the system • Optimized Production Technology (OPT) • Synchronous Manufacturing

Synchronous Manufacturing • Operations performance measured by – throughput (the rate cash is generated by sales) – inventory (money invested in inventory), and – operating expenses (money spent in converting inventory into throughput) • . . . more

Synchronous Manufacturing • System of control based on: – drum (bottleneck establishes beat or pace for other operations) – buffer (inventory kept before a bottleneck so it is never idle), and – rope (information sent upstream of the bottleneck to prevent inventory buildup and to synchronize activities)

Wrap-Up: World-Class Practice • Push systems dominate and can be applied to almost any type of production • Pull systems are growing in use. Most often applied in repetitive manufacturing • Few companies focusing on bottlenecks to plan and control production.

Role of the MPS • Aggregate plan: – Specifies the resources available (e. g. : regular workforce, overtime, subcontracting, allowable inventory levels & shortages) • Master production schedule: – Specifies the number & when to produce each end item (the anticipated build schedule) – Disaggregates the aggregate plan Page 46

Business Planning Hierarchy Page 47

Planning Links to MPS Page 48

Objectives of MPS • Maintain the desired customer service level • Utilize resources efficiently • Maintain desired inventory levels Page 49

Developing an MPS: • Assume: – Make-to-stock environment – Production is in fixed quantities of 125 (MPS) – 110 units in beginning inventory (BI) Page 50

Sample Problem Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Projected Available 110 MPS • • • We start with 110 units in Beginning Inventory Projected Available: How many units are available at the end of each time period? MPS: Replenishment Shipments that need to arrive at the beginning of the time period Projected Available =BI + MPS - Forecast Page 51

Step 1 • Find first negative “projected available” • We start with 110 units in Beginning Inventory • Projected Available: How many units are available at the end of each time period? (safety stock criteria could be in place > 5) • MPS: Replenishment Shipments that need to arrive at the beginning of the time period Page 52

Schedule Production Page 53

Repeat Page 54

Continue, Until Complete Page 55

Evaluating the MPS • Customer service issues: – Does “available-to-promise” inventory satisfy customer orders? – What new orders can we take from customers and when? Page 56

Available to Promise • When a customer places an order, they do not expect immediate delivery (negotiable). • The product will delivered by some later date. • ATP = how many uncommitted units the company has available at a given time Page 57

New Calculation for Projected Available Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Customer Orders 35 25 25 20 0 15 0 0 10 Projected Available 110 Available to Promise MPS Projected Available = BI + MPS – Max (Customer Orders ; Forecast)

Available-to-Promise “Action Bucket” Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Customer Orders 35 25 25 20 0 15 0 0 10 Projected Available 60 10 85 35 85 10 60 10 85 35 125 110 Available to Promise MPS 50 125 125 • “Action Bucket” = the current period • Only calculate ATP during in Action Bucket and when MPS occurs ATP action bucket = BI +MPS-customer orders before next replenishment 110 + 0 – (35+25) = 50 Page 59

Available-to-Promise “Replenishment periods” Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Customer Orders 35 25 25 20 0 15 0 0 10 Projected Available 60 10 85 35 85 10 60 10 85 35 110 Available to Promise MPS 50 80 110 125 115 125 125 125 • ATP for replenishment periods ATP = MPS - customer orders between current MPS and next scheduled replenishment ATP period 3 = 125 – (25 + 20)= 80 ATP period 5 = 125 – (0 + 15)= 110 Page 60

New Order • Suppose we get an order for 200, can we accept this for delivery in period 5? Page 61

Worksheet for New Order for 200 Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Customer Orders 35 25 25 20 200 15 0 0 10 Projected Available 60 10 85 35 125 110 Available to Promise MPS 50 80 125 125 Fit in the order for 200 (can’t change MPS) Page 62

New Order for 200 Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Customer Orders 35 25 25 20 200 15 0 0 10 Projected Available 60 10 85 35 -40 -115 -65 -115 -40 -90 110 Available to Promise MPS 50 80 -90 125 115 125 125 125 • Negative number in Projected Available = might be a problem in the future • Negative number in Available to Promise= always a problem Solution? Page 63

Split up New Order for 200 Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Customer Orders 45 25 105 20 110 15 0 0 10 125 Projected Available 110 Available to Promise MPS 125 125 Check to see if this is OK Page 64

Can you now take 2 more orders? Period 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 50 50 75 75 50 50 Customer Orders 45 25 105 20 110 15 0 50 10 0 0 40 Projected Available 60 10 30 -20 -5 -80 -30 110 Available to Promise MPS 40 0 0 125 125 125 • 50 units to be delivered in Period 8 • 30 units to be delivered in Period 12 Page 65

Time Fences Page 66

Time Fences • Frozen: no changes are possible with a certain period of time (i. e. 8 weeks) • Time Fence (length of period schedule is frozen, liquid, etc. ) • Demand Fence: MPS numbers do not change and focus is on orders not forecast • Planning Fence: Master Production Scheduler is planning more MPS. Page 67

Rough-cut capacity planning • An estimate of the plans’ feasibility • Given the demonstrated capacity of critical resources (e. g. : direct labor & machine time), have we overloaded the system? Page 68

Rough-Cut Capacity Planning • Determine required resources & proposed workload: Hours/unit Page 69

Calculate Required Labor Hours • Compare with hours available Page 70

Calculate Required Machine Hours • Compare with hours available Page 71

Summary • MPS Major Functions – To form the link between production planning and what manufacturing builds. – To plan capacity requirements. The MPS determines the capacity required. – To plan material requirements. The MPS drives the material requirements plan. – To keep priorities valid. The MPS is a priority plan for manufacturing. MGMT 3750 72

Summary • MPS Links Between Sales and Production – To aid in making order promises. The MPS is a plan for what is to be produced and when. As such, it tells sales and manufacturing when goods will be available for delivery. – To be a contract between marketing and manufacturing. It is an agreed-upon plan. MGMT 3750 73

Summary • The MPS must be realistic and based on what production can and will do. If not, the following may be the results – Overload or underload of plant resources. – Unreliable schedules resulting in poor delivery performance. – High levels of work-in-process (WIP) inventory. – Poor customer service. – Loss of credibility in the planning system. MGMT 3750 74

End of Lecture 8