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Master Production Schedule

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6 MASTER PRODUCTION SCHEDULE

MGT2405, University of Toronto, Denny Hong-Mo Yeh

So far, in discussing material requirement planning (MRP), we have assumed that master

production schedule (MPS) is ready to be fed into MRP. In fact, human users involve in

MPS procedure much more than in MRP. MPS drives all kinds of planning including MRP

of an enterprise. MPS is so important that users involve intensively, while MRP is normally

an automatic computer procedure.

MPS Objectives and Data Sources

In this section, we discuss the importance of MPS and its input data. MPS itself is a major

input to the MRP.

 Importance of MPS

A production plan is an aggregate plan that schedules product families in relatively

long time intervals. Master production schedule is used for individual end products

and in shorter time intervals. MPS is important in the following aspects:

1. It is the link between what is expected (production planning) and what is actually to

be built, i.e., material requirement planning and final assembly schedule (FAS, to be

discussed).

2. It develops data to drive the detailed planning, MRP. MPS is a priority plan for

manufacturing. It keeps priorities valid.

3. It is the basis for calculating the resources available (capacity) and the resources

needed (load). It provides devices to reconcile the customers’ demand and the plant’s

capability.

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4. It makes possible reliable delivery promises. It provides salespeople information on

available-to-promise (ATP) indicating when end products are available. ATP will be

discussed later.

5. It is a tool that can be used to evaluate the effects of schedule changes. It is a device

for communication and a basis to make changes consistent with the demands of the

marketplace and manufacturing capacity.

6. It is a contract between marketing and manufacturing departments. It is an

agreed-upon plan. It coordinates plans and actions of all organizational functions and

is a basis to measure the functions’ performance.

7. It provides management with the means to authorize and control all resources needed

to support integrated plans.

8. In the short horizon, MPS serve as the basis for planning material requirement,

production of components, order priorities, and short-term capacity requirements.

9. In the long horizon, MPS serves as the basis for estimating long-term demands on

the company resources such as people, equipment, warehousing, and capital.

 MPS as a primary Input to MRP

MRP input data include MPS, external demand for components, forecasts of

independent demand for components, BOM, and fundamental data in item master such

as lead times, safety stocks, scrap allowances and lot-sizing rules. Among the above

data, MPS is the primary input to MRP. It enables MRP to translate the end item

schedules into individual component requirements. Therefore, MRP depends on the

validity and realism of the MPS for its effectiveness.

Suppose that there are 30 end products made from 5,000 components, parts, and raw

materials. MPS helps people to concentrate on the planning of the 30 independent end

items, and leave the other 5,000 dependent items to be processed automatically by

MRP.

External demands for components include service-part orders, interplant orders, OEM

orders, components needed for sales promotion, R&D, destructive testing, etc.

Forecasts of independent demand for components include service parts no longer used

in regular production which are better planned by time phased order point (TPOP).

After reviewing forecasts, the planners input the quantities they decide are reasonable

for such items as added gross requirements. External demands and forecasts for

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independent components normally are not incorporated in the MPS but are instead fed

directly into MRP as separate inputs.

 Data sources for MPS

The data needed to develop an MPS include:

1. Customer orders.

2. Dealer orders.

3. Inventory replenishment orders.

4. Forecast for individual end products.

5. Interplant requirements.

6. Distribution center requirements.

7. Inventory levels for end products.

8. Safety stock.

9. Released production orders for end products.

10. Capacity constraints.

Time-Phased Order Point

Time phased order point (TPOP) is a technique similar to MRP logic. It is used to conduct

planning for independent demand items, where gross requirements come from a forecast,

not via explosion of the planned order releases of the parent items. TPOP can be used in

planning service part requirements. This technique can also be used to plan distribution

center inventories as well as plans for service parts. TPOP is an approach that uses time

intervals thus allowing for time-phased lumpy demands instead of average demand as in

ROP.

TPOP is a preferred alternative to reorder point replenishment techniques (ROP) for the

following reasons:

1. TPOP allows planning for known lumps in future demand; ROP accepts average

demand only.

2. TPOP provides information on future planned orders, which is the data required in

planning the needed resources. ROP only provides information for overall resources

requirement.

3. TPOP permits re-planning for requirements; this keeps relative priorities valid for

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all shop orders. ROP does not consider future requirements.

4. TPOP links planning for independent and dependent demands for items with both

types. Service part demand planning is an example.

ROP is to be discussed in chapter seven. TPOP differs from MRP in that TPOP covers each

individual item while MRP covers all the items in a product structure. The gross

requirements in TPOP are drawn from independent sources while the gross requirements in

MRP come from the explosion of higher level data. The planned order releases in TPOP are

not further exploded, but the POR in MRP are exploded to next level items.

From Production Plan to Master Production Schedule

Production plans and master production schedules differ in their precision. Production

plans are “macro” plans, while MPS are “micro” plans. Production planning is for

preparing resources to accomplish business objectives. Resource requirement planning is

used to reconcile business objectives with the resources available. MPS is the schedule of

end item production. It is a decision of manufacturing actions subject to the constraints of

capacity.

It is a set of decisions that determines manufacturing actions subject to capacity

constraints.

Rough-cut capacity planning is used to obtain a realistic MPS and therefore a realistic MRP.

Suppose the following production plan is for a product family X of three end products A, B,

and C: (The initial on-hand inventory for X is 500.)

Table 1: Production Plan for Product Family X

Month 1 2 3 4

Forecast 620 800 660 760

Production Plan 720 720 720 720

PAB 500 600 520 580 540

The on-hand inventory for X consists of the inventories of its end items shown in Table 2:

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Table 2: On-hand Inventory

Item On-hand Inventory

Product A 250

Product B 150

Product C 100

Product Family X 500

The master scheduler must devise an MPS to fit the constraints of the PP. MPS is derived

from the customer orders and the forecasts, but must not exceed the production plan

quantities. Table 3 is a valid MPS for the first two months.

Table 3: MPS for End Items

Item Week 1 2 3 4 5 6 7 8

GR 78 85 86 90 96 100 120 100

MPS 90 90 90 90 90 90 90 90

PAB 250 262 267 271 271 265 255 225 215

GR 48 50 46 52 58 60 70 55

MPS 54 54 54 54 54 54 54 54

PAB 150 156 160 168 170 166 160 144 143

GR 28 30 32 32 38 44 40 36

MPS 36 36 36 36 36 36 36 36

PAB 100 108 114 118 122 120 112 108 108

MPS Techniques

Master production scheduling is a time-phased order point (TPOP) procedure. The planned

order releases (POR) in the TPOP are the master schedules fed into the MRP system. MPS

are done for the MPS items (end products). In assemble-to-order (ATO) cases, a module is

defined as an MPS item, and all its ancestors must also be MPS items. Two-level master

production schedules are used in assemble-to-order cases. Related topics are discussed as

follows.

 Demand Time Fence (DTF)

DTF is a point of time in MPS. The DTF is set between the current date and the

planning time fence (PTF). The region between the current date and the demand time

fence contains actual orders that are frozen. Change of orders within DTF may cause

unstable production problems. No unanalyzed and unapproved changes are allowed

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for the MPS in this region. DTF is the earliest due date for taking a customer order.

Promising a customer order with a due date prior to DTF may cause late delivery. But

it does not mean that it is impossible to take an order with a due date earlier than DTF.

As long as there is enough available-to-promise (ATP) within the DTF, we can still

promise a customer order delivering before DTF.

 Planning Time Fence (PTF)

PTF is set between DTF and the end of planning horizon. The region between DTF and

PTF contains actual orders and forecast orders. The region beyond PTF contains only

forecast customer orders. Between DTF and PTF, actual customer orders replace the

forecast quantities.

Now DTF PTF End of Planning Horizon

Region 1: Regin 2: Regin 3:

Frozen customer Customer orders replace Forecasts

Orders the forecasts

Figure 1: DTF and PTF

PTF is the accumulated lead-time for the end products. Related purchase orders or

manufacturing orders may have been released. Change of customer orders within PTF

may bring the necessity of rescheduling purchase orders or manufacturing orders. A

customer order with due date later than PTF can easily be changed for related

activities have not started yet.

MPS considers only the customer orders within DTF for it is not likely that any new

orders will fall in this region. MPS considers the larger of the customer orders and the

forecasts from DTF to PTF for new orders keep replacing the forecasts in this region.

If customer orders exceed forecasts, it means that the demand is underestimated, and

MPS considers customer orders. MPS considers only the forecasts for it is not likely

that many customer orders are received that early.

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 Projected Available Balance (PAB)

Projected available balance is the projected inventory of the end items if the MPS

quantities are completed. MPS quantity is the quantity of end items that we planned to

manufacture. It includes the scheduled receipts and the firm planned orders (FPO).

Firm planned order is a common approach to describe MPS. Master schedulers are

required to firm all the planned order receipts (PORC) before PTF. That is, master

schedulers have to make a decision of what to produce from now to PTF. As shown in

Figure 1, MPS system considers as independent demand only the customer orders in

region 1, the larger of forecast and customer orders in region 2, and the forecast orders

only in region 3.

 Available-To-Promise (ATP)

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. In the

first period, ATP equals on-hand inventory plus MPS (if it is positive) less customer

orders that are due and overdue. In any period containing MPS schedule receipts, ATP

equals the MPS less customer orders in this period and all subsequent periods before

the next MPS schedule receipt. A negative ATP takes over prior periods’ ATP until it

turns from negative to zero or the prior periods’ ATP becomes zero.

 Two-Level Master Production Schedule

It is a master scheduling approach where a planning bill of material is used to master

schedule end items or product families. Key features such as options and accessories

are frequently used in the two-level MPS procedure. For forecast demand, product

families are master scheduled and the usage ratio in the “quantity-per” of planning

BOM is used to calculate the gross requirement of the modules. For customer orders,

options and accessories are defined before the master production scheduling. In this

case, end items instead of families are master scheduled.

 Multilevel Master Production Schedule

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A master scheduling approach that allows any level in an end item’s BOM to be master

scheduled. To accomplish this, MPS items must receive requirements from

independent and dependent demand sources. Higher level MPS items are scheduled

before lower level MPS items.

Case Study: MPS and ATP

Suppose there are two MPS items X and Y with BOM shown in Table 4. Please notice that

the parent part number in Table 4 should be BOM code; we assume all items have default

values for the BOM codes. The sources of independent demand are customer orders and

forecast. The demand time fence (DTF) is period 4, and planning time fence (PTF) is

period 10. The gross requirement from period 1 to period 4 includes actual customer orders.

From period 5 to period 10, the gross requirement in each period is the maximal of

customer order and forecast. The gross requirements include only forecasts beyond period

11. The projected on-hand (POH) and projected available balance (PAB) are identical to

those defined in MRP reports. We assume all the planned order receipts (PORC) are firm

planned orders thus the MPS is equal to the PORC. The calculation of POH, PAB, MPS,

and ATP are done in a TPOP procedure, as shown in Table 5 and Table 6.

Table 4: BOM

Parent Part No. Component Part No. Qty-Per

X C 0.25

X D 1

Y D 1

Y E 1

E F 2

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Table 5: MPS and ATP for X

Part No.=X OH= 55 LT= 1 SS= 0 LS= 40 DTF= 4 PTF= 10

Period 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 18 21 17 17 15 15 29 28 25 25 20 20

Cust. Order 19 20 15 25 12 18 14 16 20 20 15 15

POH 36 16 1 -24 1 -17 -6 6 -19 -4 16 -4

PAB 36 16 1 16 1 23 34 6 21 36 16 36

MPS(PORC) 0 0 0 40 0 40 40 0 40 40 0 40

ATP 1 3 22 10 20 5 25

Table 6: MPS and ATP for Y

Part No.=Y OH= 10 LT= 1 SS= 5 LS= 20 DTF= 4 PTF= 10

Period 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 20 20 20 20 15 15 15 15 20 25 15 30

Cust. Order 30 20 20 15 11 8 0 20 5 5 20 0

POH -20 -15 -15 -10 -5 0 5 -15 -15 -20 -10 -20

PAB 5 5 5 10 15 20 5 5 5 5 10 5

MPS(PORC) 25 20 20 20 20 20 0 20 20 25 20 25

ATP 5 0 0 5 9 12 0 15 20 0 25

Available-to-promise (ATP) appears in the first period and those periods with positive MPS

quantities. The amount of ATP means the quantity that sales can promise the customers

during the period from current period to the period before the next positive MPS period.

The first period ATP (5) of Y in Table 6 is the on-hand inventory (10) plus MPS (25) minus

the accumulated customers in period 1 (30). The accumulated customer orders should

include the second period if the MPS in period 2 is zero. In calculating MPS (or PORC),

safety stock has to be considered to make PAB always above the safety stock. In

calculating ATP, we do not consider the safety stock; any stock can be promised to

customers.

Suppose we receive a customer order for 30 X’s to be delivered in period 7. The total

customer order in period 7 becomes 44. The result of MPS is shown in Table 7.

In Table 6, since there is no MPS in period 8, the MPS in period 7 must cover the demands

in period 7 and 8, and the ATP is 10 (40-14-16). In Table 7, the customer order quantity in

period 7 increases to 44, which makes the master scheduler to schedule a new MPS (40) in

period 8, and the MPS (40) in period 7 needs only cover the demand in period 7. Even so,

the customer order still exceeds the MPS by 4. To prevent ATP in period 7 from going

negative (-4), 4 units of ATP are moved from period 6 to period 7. The ATP in period 6

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should be 22 (40-18) if the next MPS is enough for the demand of customer orders. Since

the customer order exceeds MPS by 4 units in period 7, the ATP in period 6 decreases by 4

and only 18 remains.

Table 7: MPS Calculation with Insufficient ATP

Part No.=X OH= 55 LT= 1 SS= 0 LS= 40 DTF= 4 PTF= 10

Period 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 18 21 17 17 15 15 29 28 25 25 20 20

Cust. Order 19 20 15 25 12 18 44 16 20 20 15 15

POH 36 16 1 -24 1 -17 -21 -9 6 -19 1 -19

PAB 36 16 1 16 1 23 19 31 6 21 1 21

MPS(PORC) 0 0 0 40 0 40 40 40 0 40 0 40

ATP 1 3 18 0 4 5 25

Distribution Requirement Planning

 Distribution Inventory

Distribution inventory includes all finished goods held anywhere in the distribution

system. It consists of finished goods in warehouses and also in transit. There are

various types of distribution systems. Generally, a distribution has a central supply

warehouse that is supported by a factory, a number of distribution centers, and

customers. An example of distribution system is shown in Figure 2.

DC A DC B DC C

Central Supply

Factory

Customers

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Figure 2: A Distribution System

The purpose of holding inventory in distribution centers is to improve customer

service by locating stock near the customers and to reduce the transportation cost by

allowing the manufacturer to ship in full loads rather than in partial loads over long

distances.

 Distribution Requirement Planning (DRP)

Distribution requirement planning is a system that forecasts what, how many, and

when demand will be required by the distribution centers. This gives the central supply

and the factory an opportunity to plan for the production of finished goods that will be

needed in the near future. In addition to responding to customer demands, it can also

coordinate planning and control of manufacturing and distribution: The DRP for each

distribution center is executed by TPOP, then using MRP logic to explode the planned

order releases for the central supply and factory.

Case Study: Distribution Requirement Planning

The finished product X is stocked in distribution centers A, B and a central supply S. In

order to calculate the planned order releases of the central supply by using the requirements

of the distribution centers, a BOM is created, as shown in Table 8. Since the item numbers

of the products are identical in distribution centers and central supply, phantom items are

defined to represent the products in various sites. These phantom items are used in the

BOM file in Table 8.

Table 8: BOM for Distribution System

Parent Component Qty-Per

X-DCA X-CS 1

X-DCB X-CS 1

X-CS X 1

The lead-time in traditional MRP calculation now means the transportation time. Other

data such as on-hand, safety stock, allocation, lot-sizing rule, etc. are the same as in MRP.

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Distribution inventory in transit is equivalent to the schedule receipt (SR) in MRP. The

explosion, netting, and lead-time offsetting logic are exactly the same as in MRP procedure.

DRP reports are illustrated in Table 9 to Table 11.

Table 9: DRP for Product X in Distribution Center A

Distribution Center A

P#:X-DCA Past OH= 50 TT= 2 SS= 0 AL= 0 LS= 100

Period Due 1 2 3 4 5 6 7 8 9 10 11 12

Fcs Sale 25 30 55 50 30 40 50 40 30 40 50 30

In Transit 100

POH 25 95 40 -10 60 20 -30 30 0 -40 10 -20

PAB 25 95 40 90 60 20 70 30 0 60 10 80

NR 0 0 0 100 0 0 100 0 0 100 0 100

PORC 0 0 0 100 0 0 100 0 0 100 0 100

POR 0 0 100 0 0 100 0 0 100 0 100 0 0

Table 10: DRP for Product X in Distribution Center B

Distribution Center B

P#:X-DCB Past OH= 100 TT= 1 SS= 0 AL= 0 LS= 200

Period Due 1 2 3 4 5 6 7 8 9 10 11 12

Fcs Sale 95 85 100 70 50 60 70 75 85 100 90 75

In Transit 0

POH 5 -80 20 -50 100 40 -30 95 10 -90 20 -55

PAB 5 120 20 150 100 40 170 95 10 110 20 145

NR 0 200 0 200 0 0 200 0 0 200 0 200

PORC 0 200 0 200 0 0 200 0 0 200 0 200

POR 0 200 0 200 0 0 200 0 0 200 0 200 0

Table 11: DRP for Central Supply

Central Supply

P#:X-CS Past OH= 400 LT= 2 SS= 0 AL= 0 LS= 500

Period Due 1 2 3 4 5 6 7 8 9 10 11 12

GR 200 100 200 0 100 200 0 100 200 100 200 0

SR 0

POH 200 100 -100 400 300 100 100 0 -200 200 0 0

PAB 200 100 400 400 300 100 100 0 300 200 0 0

NR 0 0 500 0 0 0 0 0 500 0 0 0

PORC 0 0 500 0 0 0 0 0 500 0 0 0

POR 0 500 0 0 0 0 0 500 0 0 0 0 0

In this case, the distribution centers, central supply, and factory belong to the same

enterprise, and all the DRP are processed within an ERP system. If the distribution centers

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belong to other companies, their planned order releases (POR) are transmitted via Internet

into the ERP system of the factory as independent demands.

Manufacturing Environment

In different manufacturing environments, which are determined by the characteristics of

products, the competition, and the business strategy, a company may respond differently to

the marketplace.

 Make-to-Order (MTO)

Products are finished after receipt of customer orders. The final product is usually a

combination of standard items and items custom designed to meet the special needs of

the customer.

 Engineer-to-Order (ETO)

Includes MTO products whose customer specifications require unique engineering

design or significant customization. Each customer order results in a unique set of part

numbers, bills of material, and routings. Both end items and components have no

standard specifications.

 Assemble-to-Order (ATO)

Includes MTO products for which key components (bulk, semi-finished, intermediate,

subassembly, fabricated, purchased, packaging, etc.) used in the assembly or finishing

process are planned and stocked in anticipation of a customer order. The ATO products

are highly modular. Though the finished goods have no standard specifications, the

modules are standardized components.

 Make-to-Stock (MTS)

Products that are shipped from finished goods and therefore are finished prior to the

arrival of customer orders. The specifications of the MTS products are standard. No

customization is required.

Final Assembly Schedule (FAS)

The FAS is prepared after receipt of a customer order and is constrained by the availability

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of material and capacity. It schedules the operations required to complete the product from

the level where it is stocked to the end-item level. In ATO environments, MPS are made for

the components of end products and FAS are for shippable end products. The planning

horizon of MPS usually covers several months while FAS cover only a few days or weeks.

Most second level MPS items, e.g., modules, are available at the moment FAS is released.

Exceptions occur on a few selected items, which may be put into manufacturing bills of

material (M-bills) and are manufactured or procured during execution of the FAS. These

items are characterized by:

1. High unit cost,

2. Short procurement or manufacturing lead time,

3. Short assembly lead time of their parent, if any,

4. Absence of long setups or quantity discounts.

In ETO environments, no components can be prepared before receiving the customer

orders. MPS is used to forecast the requirements of common raw materials. Wafers in an

integrated circuit design house or iron ingot in an investment casting plant are examples of

low-level MPS items. In these industries, raw materials are few but end products are

numerous. Most process manufacturing industries have this characteristic. For discrete

manufacturing, products are assembled from different parts. The number of end products is

limited while the number of materials is huge. The items planned in MPS and FAS are

identical. MPS and FAS differ in precision. In MTS and ATO environments, MPS often are

based on forecast customer demand; FAS usually contain actual customer orders and may

be constrained by shortages of components.

MPS, FAS, and BOM in various manufacturing environments are compared in Figure 3.

For MTS environment, there are few finished goods made from many raw materials, this

kind of products are called A-type products. Many assembled products in the discrete part

manufacturing are A-type products. The demands are forecasted and the inventory of the

end products is built before customer orders are received. MPS and FAS are prepared for

the finished goods and MRP for semi-finished goods and raw materials. For MTO

environment, since there are enormous possible finished goods and very limited number of

raw materials, we call this category of products V-type products. Many products in process

manufacturing pertain to V-type products. MPS schedules the product families and obtains

the requirement plans for the raw materials. The FAS is scheduled when customer orders

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are received. MRP is not required for V-type products. In the ATO environment, the

finished goods are assembled from optional modules, the number of products is much

larger than the number of modules, and the modules are made from a lot of raw materials.

These products are called X-type products. Forecast of the demand of product families is

used to in the MPS to obtain the requirement of the modules. MRP calculates the

requirement of the raw materials building up the modules. The inventory of the modules is

established according to MRP. The FAS is scheduled when the customer orders are

received, and the ordered finished goods are made from the modules.

Figure 3: Comparison of MPS, BOM, and FAS