Supp K
Supp K
Supp K
Master Production
Scheduling
Learning Goals
After reading this supplement, you will be able to . . .
1. discuss the importance of the master production schedule (MPS) and the nature
of the information that can be derived from it.
2. develop an MPS in a make-to-stock environment.
3. compute available-to-promise quantities for end items.
K.2
supplement k .
FIGURE K.1
Master Production
Scheduling Process
Authorized
production
plan
Prospective master
production
schedule
Are resources
available?
No
Yes
Material
requirements
planning
Authorized master
production
schedule
FUNCTIONAL INTERFACES
Operations needs information from other functional areas to develop an MPS that
achieves production plan objectives and organizational goals. Although master production schedules are continually subject to revision, changes should be made with a
full understanding of their consequences. Often changes to the MPS require additional
resources, as in the case of an increase in the order quantity of a product. Many companies face this situation frequently, and the problem is amplified when an important
customer is involved. Unless more resources are authorized for the product, less
resources will be available for other products, putting their schedules in jeopardy. Some
companies require the vice presidents of marketing and manufacturing jointly to
authorize significant MPS changes to ensure mutual resolution of such issues.
Other functional areas can use the MPS for routine planning. Finance uses the MPS
to estimate budgets and cash flows. Marketing can use it to project the impact of product mix changes on the firms ability to satisfy customer demand and manage delivery
schedules. Manufacturing can use it to estimate the effects of MPS changes on loads at
critical workstations. Personal computers, with their excellent graphic capabilities,
give reports in readable and useful formats. Computers allow managers to ask whatif questions about the effects of changes to the MPS.
K.3
Projected on-hand
On-hand
MPS quantity
Projected
inventory at the end inventory at the due at the start requirements
of this week
end of last week
of this week
this week
This calculation is similar to that for the projected on-hand inventory in an MRP
record and serves essentially the same purpose (see Chapter 12, Resource Planning).
In some weeks, there may be no MPS quantity for a product because sufficient
inventory already exists. For the projected requirements for this week, the scheduler
uses whichever is largerthe forecast or the customer orders bookedrecognizing
that the forecast is subject to error. If actual booked orders exceed the forecast, the
projection will be more accurate if the scheduler uses the booked orders because
booked orders are a known quantity. Conversely, if the forecast exceeds booked
orders for a week, the forecast will provide a better estimate of requirements for that
week because some orders are yet to come in.
The manufacturer of the ladder-back chair produces the chair to stock and needs
to develop an MPS for it. Marketing has forecasted a demand of 30 chairs for the
first week of April, but actual customer orders booked are for 38 chairs. The current
on-hand inventory is 55 chairs. No MPS quantity is due in week 1. Figure K.2 shows
an MPS record with these quantities listed. As actual orders for week 1 are greater
than the forecast, the scheduler uses that figure for actual orders in calculating the
projected inventory balance at the end of week 1:
55 chairs
38 chairs already
MPS quantity
Inventory currently
promised for
17 chairs
(0 for week 1)
in stock
delivery in week 1
FIGURE K.2
Master Production
Schedule for Weeks
1 and 2
April
Quantity
on Hand:
55
Forecast
30
30
Customer
orders
(booked)
38
27
Projected
on-hand
inventory
17
13
MPS quantity
MPS start
Explanation:
Forecast is less than booked
orders in week 1; projected
on-hand inventory
balance = 55 + 0 38 = 17.
Explanation:
Forecast exceeds booked orders
in week 2; projected on-hand
inventory balance = 17 + 0 30
= 13. The shortage signals
a need to schedule an MPS
quantity for completion in week 2.
K.4
supplement k .
In week 2, the forecasted quantity exceeds actual orders booked, so the projected
on-hand inventory for the end of week 2 is 17 0 30 13. The shortage signals
the need for more chairs in week 2.
Step 2. Determine the Timing and Size of MPS Quantities. The goal of determining
the timing and size of MPS quantities is to maintain a nonnegative projected on-hand
inventory balance. As shortages in inventory are detected, MPS quantities should be
scheduled to cover them, much as planned receipts are scheduled in an MRP record
(see Chapter 12, Resource Planning). The first MPS quantity should be scheduled
for the week when the projected on-hand inventory reflects a shortage, such as week
2 in Figure K.2.1 The scheduler adds the MPS quantity to the projected on-hand
inventory and searches for the next period when a shortage occurs. This shortage signals a need for a second MPS quantity, and so on.
Figure K.3 shows a master production schedule for the ladder-back chair for the
next eight weeks. The order policy requires production lot sizes of 150 units, which is
the same as FOQ 150 (see Chapter 12, Resource Planning). A shortage of 13 chairs
in week 2 will occur unless the scheduler provides for an MPS quantity for that period.
FIGURE K.3
Item: Ladder-back chair
Master Production
Schedule for Weeks 18
Quantity
on Hand:
55
Forecast
30
30
30
30
35
35
35
35
Customer
orders
(booked)
38
27
24
Projected
on-hand
inventory
17
137
107
77
42
122
87
MPS quantity
150
150
150
150
MPS start
Explanation:
The time needed to assemble
150 chairs is one week.
The assembly department must
start assembling chairs in week 1
to have them ready by week 2.
1 In
May
Explanation:
On-hand inventory balance
= 17 + 150 30 = 137. The
MPS quantity is needed
to avoid a shortage of 30 17 = 13
chairs in week 2.
some cases, new orders will be planned before a shortage is encountered. Two such instances are building safety stocks
and building anticipation inventories.
Available-to-Promise Quantities
K.5
Once the MPS quantity is scheduled, the updated projected inventory balance for
week 2 is
17 chairs in
MPS quantity
Forecast of
137 chairs
Inventory inventory at the
of 150 chairs
30 chairs
end of week 1
The scheduler proceeds column by column through the MPS record until reaching the
end, filling in the MPS quantities as needed to avoid shortages. The 137 units will satisfy forecasted demands until week 7, when the inventory shortage in the absence of
an MPS quantity is 7 0 35 28. This shortage signals the need for another
MPS quantity of 150 units. The updated inventory balance is 7 150 35 122
chairs for week 7.
The last row in Figure K.3 indicates the periods in which production of the MPS
quantities must begin so that they will be available when indicated in the MPS quantity row. This row is analogous to the planned order receipt row in an MRP record
(see Chapter 12, Resource Planning). In the upper-right portion of the MPS record,
a lead time of one week is indicated for the ladder-back chair; that is, one week is
needed to assemble 150 ladder-back chairs, assuming that items B, C, D, and E are
available. For each MPS quantity, the scheduler works backward through the lead
time to determine when the assembly department must start producing chairs.
Consequently, a lot of 150 units must be started in week 1 and another in week 6.
These quantities correspond to the gross requirements in the MRP record for item C,
the seat subassembly, in Figure 12.6 (see Chapter 12, Resource Planning).
AVAILABLE-TO-PROMISE QUANTITIES
available-to-promise
(ATP) inventory The
quantity of end items
that marketing can
promise to deliver on
specified dates.
In addition to providing manufacturing with the timing and size of production quantities, the MPS provides marketing with information that is useful in negotiating delivery
dates with customers. The quantity of end items that marketing can promise to deliver
on specified dates is called available-to-promise (ATP) inventory. It is the difference
between the customer orders already booked and the quantity that operations is planning to produce. As new customer orders are accepted, the ATP inventory is reduced to
reflect commitment of the firm to ship those quantities, but the actual inventory stays
unchanged until the order is removed from inventory and shipped to the customer. An
available-to-promise inventory is associated with each MPS quantity because the MPS
quantity specifies the timing and size of new stock that can be earmarked to meet
future bookings.
Figure K.4 shows an MPS record with an additional row for the available-topromise quantities. The ATP in week 2 is the MPS quantity minus booked customer
orders until the next MPS quantity, or 150 (27 24 8 0 0) 91 units. The
ATP indicates to marketing that, of the 150 units scheduled for completion in week 2,
91 units are uncommitted, and total new orders up to that quantity can be promised
for delivery as early as week 2. In week 7, the ATP is 150 units because there are no
booked orders in week 7 and beyond.
The procedure for calculating available-to-promise information is slightly different
for the first (current) week of the schedule than for other weeks because it accounts for
the inventory currently in stock. The ATP inventory for the first week equals current
on-hand inventory plus the MPS quantity for the first week, minus the cumulative total
of booked orders up to (but not including) the week in which the next MPS quantity
K.6
supplement k .
FIGURE K.4
MPS Record with
an ATP Row
Quantity
on Hand:
55
May
Forecast
30
30
30
30
35
35
35
35
Customer
orders
(booked)
38
27
24
Projected
on-hand
inventory
17
137
107
77
42
122
87
MPS quantity
150
150
MPS start
150
150
Available-topromise (ATP)
inventory
17
91
Explanation:
The total of customer orders
booked until the next MPS
receipt is 38 units. The ATP =
55 (on-hand) + 0 (MPS
quantity) 38 = 17.
150
Explanation:
The total of customer orders
booked until the next MPS
receipt is 27 + 24 + 8 = 59
units. The ATP = 150 (MPS
quantity) 59 = 91 units.
arrives. So, in Figure K.4, the ATP for the first week is 55 0 38 17. This information indicates to the sales department that it can promise as many as 17 units this
week, 91 more units sometime in weeks 2 through 6, and 150 more units in week 7 or
8. If customer order requests exceed ATP quantities in those time periods, the MPS
must be changed before the customer orders can be booked or the customers must be
given a later delivery datewhen the next MPS quantity arrives. See the solved problem at the end of this supplement for an example of decision making using the ATP
quantities.
K.7
FIGURE K.5
Week
Master Production
Schedule Time Fences
MPS
quantity
10
150
150
Demand
time
fence
K.8
supplement k .
The length of time fences should be reviewed periodically and adjusted as necessary.
Although freezing the MPS reduces manufacturing costs and makes life easier for those
responsible for scheduling components and materials, it tends to make the MPS less
responsive to changes in customer demand. The costs of not being able to satisfy customers who place unexpected orders for delivery within the demand time fence must be
weighed against the savings in production costs.
SUPPLEMENT HIGHLIGHTS
The master production schedule is a link between a firms
broad strategies and the tactical plans that enable the firm
to achieve its goals. The MPS provides essential information
for functional areas such as operations, marketing, and
finance.
MPS quantities are scheduled to avoid shortages. A conservative approach to estimating the on-hand inventory in future
periods is used: The estimated requirements for any period
are the greater of the actual orders booked for that period or
the forecast.
SOLVED PROBLEM 1
TUTOR
K.1
The order policy is to produce end item A in lots of 50 units. Using the data shown in Figure K.6 and the
FOQ lot-sizing rule, complete the projected on-hand inventory and MPS quantity rows. Then complete
the MPS start row by offsetting the MPS quantities for the final assembly lead time. Finally, compute
the available-to-promise inventory for item A. If in week 1, a customer requests a new order for 30 units
of item A, when is the earliest date the entire order could be shipped?
SOLUTION
Projected on-hand
On-hand
MPS quantity
Requirements
inventory at end inventory in
due in week 2
in week 2
of week 2
week 1
25 0 20 5 units
where requirements are the larger of the forecast or actual customer orders booked for shipment during
this period. No MPS quantity is required.
Without an MPS quantity in the third period, there will be a shortage of item A: 5 0 40 35.
Therefore, an MPS quantity equal to the lot size of 50 must be scheduled for completion in the third
period. Then the projected on-hand inventory for the third week will be 5 50 40 15.
Figure K.7 shows the projected on-hand inventories and MPS quantities from OM Explorer that
would result from completing the MPS calculations. The MPS start row is completed by simply shifting
a copy of the MPS quantity row to the left by one column to account for the one-week final assembly
lead time. Also shown are the available-to-promise quantities. In week 1, the ATP is
Available-toOn-hand
Orders booked up
MPS quantity
promise in quantity in
to week 3 when the
in week 1
week 1
week 1
next MPS arrives
5 50 (30 20) 5 units
K.9
Solved Problem
Item: A
Quantity
on Hand:
10
Forecast
20
10
40
10
30
20
40
20
Customer
orders
(booked)
30
20
Projected
on-hand
inventory
25
MPS quantity
50
MPS start
Available-topromise (ATP)
inventory
FIGURE K.6
Inputs
FIGURE K.7
K.10
supplement k .
Available-toOrders booked up
MPS quantity
promise in
to week 7 when the
in week 3
week 3
next MPS arrives
50 (5 8 0 2) 35 units
The other ATPs equal their respective MPS quantities because there are no booked orders for those
weeks. As for the new order for 30 units, the earliest it can be shipped is week 3 because the ATP for
week 1 is insufficient. If the customer accepts the delivery date of week 3, the ATP for week 1 will stay
at 5 units and the ATP for week 3 will be reduced to 5 units. This acceptance allows the firm the flexibility to immediately satisfy an order for 5 units or less, if one comes in. The customer orders booked for
week 3 would be increased to 35 to reflect the new orders shipping date.
DISCUSSION QUESTIONS
2. Consider the master flight schedule of a major airline, such
as Northwest Airlines. Discuss the ways such a schedule
is analogous to a master production schedule for a
manufacturer.
PROBLEMS
1.
2.
Item: A
Quantity
on Hand:
35
Forecast
20
18
28
28
23
30
33
38
Customer
orders
(booked)
15
17
14
Projected
on-hand
inventory
MPS quantity
MPS start
FIGURE K.8
Problems
Item: A
Quantity
on Hand:
75
February
Forecast
65
65
65
45
50
50
50
50
Customer
orders
(booked)
40
10
85
35
70
Projected
on-hand
inventory
MPS quantity
MPS start
FIGURE K.9
Item: A
Quantity
on Hand:
50
10
Forecast
10
15
20
30
40
60
80
120
120
120
Customer
orders
(booked)
12
11
Projected
on-hand
inventory
MPS quantity
MPS start
FIGURE K.10
K.11
K.12
3.
4.
supplement k .
QUANTITY
WEEK
DESIRED
1
2
3
4
500
400
300
300
4
5
1
7
ORDER
6.
Quantity
on Hand:
400
10
Forecast
550
300
400
450
300
350
200
300
450
400
Customer
orders
(booked)
300
350
250
250
200
150
100
100
100
100
Projected
on-hand
inventory
MPS quantity
MPS start
Available-topromise (ATP)
inventory
FIGURE K.11
500
Problems
8.
AMOUNT (UNITS)
WEEK REQUESTED
1
2
3
4
15
30
25
75
2
5
3
7
OM Explorer The forecasted requirements for an electric hand drill for the next six weeks are 15, 40, 10, 20, 50,
and 30 units. The marketing department has booked orders
totaling 20, 25, 10, and 20 units for delivery in the first (current), second, third, and fourth weeks. Currently, 30 hand
drills are in stock. The policy is to order in lots of 60 units.
Lead time is one week.
a. Develop the MPS record for the hand drills.
ORDER
Quantity
on Hand:
10
Forecast
40
40
40
40
30
30
50
50
Customer
orders
(booked)
60
45
30
35
10
MPS quantity
75
75
MPS start
75
Projected
on-hand
inventory
Available-topromise (ATP)
inventory
FIGURE K.12
K.13
K.14
supplement k .
SELECTED REFERENCE
Bruggeman, J. J., and S. Haythornthwaite. The Master Schedule.
APICSThe Performance Advantage (October 1991), pp. 4446.
Dougherty, J. R., and J. F. Proud. From Master Schedules to Finishing
Schedules in the 1990s. American Production and Inventory
Control Society 1990 Annual Conference Proceedings, pp. 368370.
Lunn, Terry, and Susan Neff. MRP: Integrating Material Requirements
Planning and Modern Business. Homewood, Ill.: Irwin Professional
Publication, 1992.