Visual 4-1 Chapter 4 - The Master Schedule 4.1 Background and links to the S&OP 4.2 Master schedule horizon 4.3 Time fences 4.4 Sources of demand 4.5 Basic methodology 4.6 Impact of product environment 4.7 General approach to master schedule development 4.8 Available-to-promise logic 4.9 Planning options in an ATO environment 4.10 The two-level master schedule 4.11 Some notes on the master scheduling responsibility 4.12 Demand management overview 4.13 Elements of demand management

Visual 4-2 Introduction Developing and managing the master schedule It is the next step in production planning Assumes that S&OP has properly planned resources Contains more detail than the S&OP The time horizon is typically shorter than S&OP S&OP plans in terms of families Master schedule represents final, sellable items –is a major interface between prod’n and customer Service firms may not have one –master scheduled operating rooms???

Visual Background and Links to S&OP S&OP lines up the proper resources S&OP aggregates forecast demand –seldom includes actual input from customer orders –planning is not done on the final product level More planning is then needed to…

Visual Background and Links to S&OP Break down the aggregated plans –into buildable products Serve as a plan to include forecast and actual orders Serve as a source of info to develop capacity plans Serve as a vehicle to translate customer orders into effectively timed factory orders Serve as a tool to plan inventory levels –especially finished goods

Visual Background and Links to S&OP This planning activity is the master schedule It starts with a detailed product forecast Develops a set of rules for the consumption of the forecast Translates the requirements into actual orders The master schedule has more detail than S&OP The master schedule has a shorter time horizon The master schedule quantities or values should equal those developed in the S&OP

Visual 4-6 S&OP Relationship to MPS Product Group AJulyAugustSeptemberOctoberNovember Working Days/ Month Approved Production Plan from S&OP 22,00021,00023,00020,00019,000 MPS Week Product A11,000 Product A25001,0001,5002,000 Product A31, ,500 Product A42,0002,5002, Total5,000

Visual 4-7 Product Groups/Families Represent how the product or service is presented to the market Logical groupings based on similar sales and manufacturing requirements Should be meaningful in terms of volume of sales generated Ideally should be no more than 6-12 product groups per business unit Source: Wallace, Tom F. Sales and Operations Planning, A How-To Guide, T.F. Wallace & Co

Visual 4-8 Definition of a Master Schedule The anticipated build or buy schedule For specific products and services A set of planning numbers that drives detailed scheduling and planning MPS Master scheduling

Visual 4-9 Master Planning of Resources Model Demand Management Sales and Operations Planning Resource Planning Master Scheduling Rough-Cut Capacity Planning Business Planning Detailed Scheduling & Planning Master Planning of Resources

Visual 4-10 Planning for Production Sales Planning Production Planning Master Scheduling Detailed Planning & Scheduling CAPACITYPLANNINGCAPACITYPLANNING F O R E C A S T I N G & D E M A N D Business Planning Source: Wallace, Tom F. Sales and Operations Planning, A How-To Guide, T.F. Wallace & Co

Visual 4-11 Master Scheduling Sales and Operations Plan Master Schedule Master Production Schedule Rough Cut Capacity Planning Input: The approved Sales and Operations Plan Output: The approved Master Production Schedule

Visual 4-12 The Master Scheduling Process Develop preliminary master schedule Evaluate using RCCP Revise master schedule Re-evaluate using RCCP Production plan from S&OP Publish master schedule

Visual Master Schedule Horizon The master schedule must have a horizon that is equal to or longer than the cumulative lead time of the product or service being planned. First examine the bill of material –shows components required to assemble a product –shows the relationship between products –shows the quantity to build one product –contains lead times

Visual Master Schedule Horizon Cumulative lead time is the amount of time it takes to make a product from start to finish Figure 4.1

Visual 4-15 Bill of Materials Single Level Multilevel

Visual 4-16 Problem 4.1 Number of G’s needed? Which are purchased components?

Visual Traditional Single Level Bill of Material Level Packaged Product Label Bottle Cap Bulk Solution

Visual Packaged Product Label Bottle Cap Active Filler Bulk Solution Base Level Multi-Level Bill of Material

Visual Typical Planning Bill for a Hotel Hotel Room Smoking Preference Bed Preference View Preference Meal Preference Smoking Non-Smoking King Two Doubles One Double Ocean Lagoon Breakfast No Meals All Meals 20% 80% 40% 20% 60% 40% 35% 40% 25% 6-22

Visual Advantages of Planning Bills More accurate forecasting Reduced number of end items A more accurate scheduling and planning process Simplified order entry Permits two-level scheduling A more accurate method of product costing A more efficient and flexible data storage and maintenance system 6-30

Visual Master Schedule Horizon We must plan beyond the cumulative lead time –promise of 1 product in week 14 –what about other components?

Visual Master Schedule Horizon Without adequate inventory… start product in week 12 –2 week LT start subassembly C in week 8 –4 week lead time start subassembly G in week 3 –5 week lead time buy component H in week minus 4 cumulative lead time is...

Visual Time Fences One problem with using forecasts… –they are almost always wrong The master schedule uses time fences –they establish rules to manage the master schedule Demand time fence Planning time fence

Visual Time Fences Within the demand time fence... The forecast data is ignored Actual customer orders are used Schedule is considered “frozen” –no changes to the schedule impossible or impractical bake a loaf of bread and change the schedule during baking The demand time fence is the closest to the present time in the schedule

Visual Time Fences Within the planning time fence... Is set equal to or longer than the cumulative lead time of the product. –Beyond this time there is adequate time to react to changes additions, deletions modifications to product modifications to schedule Schedules are free or float with actual demand Between demand and planning the schedule is “flexible” or “slushy” –changes may be made but must be analyzed

Visual 4-26 Time Fences Demand Time Fence Sets the period of the master schedule where changes are seldom permitted Covers period of actual customer demand Usually set to cover the production and assembly time for a product or the delivery time for a service Planning Time Fence Sets the period within which changes to the master schedule must be made by the master scheduler Combination of actual demand plus forecasted demand Usually set to include material and components acquisition time

Visual 4-27 MPS Time Zones DEMAND TIME Frozen Flexible Free Customer Order Backlog Forecast Impact of change

Visual 4-28 Defining Time Fence Policies DEMAND Time Zones Frozen Flexible Free Demand Planning Emergency Changes Only Trade Off Changes Only Virtually Any Change Allowed Time Fences

Visual 4-29 Released Orders Computer Generated Planned Orders Creating Firm Planned Orders DEMAND TIME Frozen Flexible Free Firm Planned Orders

Visual Sources of Demand The master schedule is said to “disaggregate” the S&OP... Important that the numbers must agree with the S&OP numbers The forecasting methods are often different –S&OP are long-range, often using causal techniques –Master schedule is shorter and typically would use quantitative methods actual customer orders

Visual Basic Methodology The master schedule uses demand (orders and forecast) in its development It considers… –inventory plans –labor plans –new product introductions Now considers –meeting the customers needs per the S&OP –balancing demand v. capacity –establishing inventory levels per the S&OP

Visual Basic Methodology Figure 4.4 shows a simple master schedule. The actual schedule that includes specific quantities and models is the master production schedule or MPS review of schedule –on hand = 70 –lot size = 80 –dates are completion dates

Visual Impact of Product Environment The master schedule may need to be developed and managed very differently depending on the product environment... Make-to-Stock (MTS) Assemble-to-Order (ATO) Make-to-Order (MTO)

Visual Scheduling Decisions Assemble-to-Order Engineer-to-Order Design Supply Production Delivery Make-to-Order Design Supply Production Delivery Make-to-Stock Design Supply Production Delivery 6-18

Visual Impact of Product Environment Make-to-Stock environment... Customer has no influence on final design Master schedule serves as a final assembly schedule (FAS) Relatively few final products –significant raw materials or components Order promising not done through MPS –orders filled directly from stock

Visual Impact of Product Environment Assemble-to-Order environment... Customer has influence over final outcome –automobiles, computers Many raw materials and components Final products not scheduled on the master schedule –too many options Master schedule the options –bicycles with different colors, seats, tires

Visual Impact of Product Environment Make-to-Order environment... Customer has large influence over design Companies may use standard components –are assembled differently Typically few number of raw materials but a large number of final products Typical of service organizations This MPS reflects capacity and raw material needs

Visual General Approach to Development Forecast and master schedule MTO bakery –easier to develop forecast for raw materials plan to make 100 loaves of bread plan to make 100 cakes Forecast and master schedule ATO –12,960 forecasts and master scheduled bicycles for one bicycle types –develop schedule at option level forecast common assemblies –seats, wheels, frames order placed at FAS (final assy schedule)

Visual General Approach to Development Figure 4.5 master schedule development The master schedule is usually designed to operate at the level that has the fewest items that need to be scheduled.

Visual Available-to-Promise Logic Available-to-promise (ATP) allows a firm to quickly and realistically promise delivery of product to customers –typically not used in MTS environment –not used as much in the MTO environment –very valuable in the ATO environment For any MPS, the ATP is how many items are not promised to specific customer orders

Visual 4-41 The Projected Available Balance The projected available balance (PAB) is the projected inventory position in a particular time period. It is similar to a projected bank balance on a projected cash flow statement. Prior to the Demand After the Demand Time Fence : Time Fence: PAB = Prior period PAB PAB =Prior period PAB + MPS+ MPS - Customer orders- (> Forecast or Cust. orders)

Visual 4-42 Figure 4.6 ATP

Visual 4-43 Figure 4.6 ATP Solution

Visual 4.8 Available-to-Promise (ATP) Available-to-promise (ATP) is the uncommitted portion of the current inventory or future planned supply ATP is similar to the uncommitted amount of your current bank balance and future paychecks ATP (period 1) = On-hand balance + MPS – Sum of customer (1st period only) orders before next MPS ATP = MPS – Sum of customer orders before next MPS (all future periods that contain an MPS planned receipt) 6-16

Visual Available-to-Promise Forecasted sales Customer orders Projected avail. balance Available-to-promise Master production schedule Item: 78100Demand Time Fence: 3 Description: Commercial Generator UnitPlanning Time Fence: 8 Lot Size: 50 On Hand: 50 Lead Time: 2 periods Calculate the available-to-promise for periods 1– Period

Visual Forecasted Sales Customer Orders Projected Avail. Balance Available-to-Promise Master Production Schedule Item: 78100Demand Time Fence: 3 Description: Commercial Generator UnitPlanning Time Fence: 8 Lot Size: 50 On Hand: 50 Lead Time: 2 periods Available-to-Promise (Solution) Period a

Visual Available-to-Promise Logic Key points about ATP… It is calculated from customer orders, not from forecasts at any time –the idea is it shows the availability to promise a product to customers, not to forecasts ATP provides a valuable tool to communicate immediately and honestly with customers

Visual Planning Options in ATO Forecasts are done for the end items Master schedules are done for the components A special bill of material is used –Planning bill –super bill Figure 4.8 –overplanning mix hedge market hedge

Visual The Two-Level Master Schedule Figure 4.9 sample two-level master schedule

Visual Master Scheduling Responsibility Master Scheduler job is high visibility and very important The master schedule is a major link to the customer orders It should reflect policy issues tied to the S&OP such as Chase, Level, or Combination strategies The MPS reflects the completion of an order It must be realistic

Visual Master Scheduling Responsibility Lot sizes are established –a tradeoff between carrying costs and customer service –ordering just what is needed is lot-for-lot Safety stocks can be planned as an absolute number or a percentage of orders –avoid system nervousness firm planned orders –orders that are firm planned and no changes to the order are permitted the system may suggest a change

Visual Demand Management Overview Some demand is internal to the company –service requirements –new product prototypes –quality assurance testing –internal repairs –distribution requirements marketing and sales are flexible changing capacity changing human capacity suppliers, inventory, phased out designs

Visual Master Scheduling Responsibility Valuable for what-if scenarios –evaluate major changes to production volume or mix change requests MPS represents a major part of the planning system for a company –generates production orders –generates purchase orders –recommended to be operated by computer control

Visual 4-54 Planned Orders Firm Planned Orders Released Orders Production OrdersPurchase Orders Types of Supply Orders

Visual Elements of Demand Mgmt. Four major elements of demand: prediction communication influence prioritization and allocation

Visual Elements of Demand Mgmt. Prediction... forecasting customer demand –different methods may be used –track the forecast –lessen the impact of error communication influence lead time reduction production flexibility S&OP / Master Schedule policies safety stock

Visual Elements of Demand Mgmt. Prediction... Set safety stock levels –must be aligned with customer service levels set by S&OP –must be understood by all employees

Visual Elements of Demand Mgmt. Prediction... Track and compare actual v. planned –make adjustments and forecast more accurately

Visual 4-59 Bill of Resources A bill of resources is a listing of the required amount of constraining resources needed to manufacture one unit of a selected item or family. These could include: –Labor –Materials or components –Facilities –Equipment –Research and development assets –Finances

Visual 4-60 Master Scheduling Policy Master scheduling policy –Describes organizational responsibilities –Defines approval cycle for the master schedule –Establishes time fences and change management procedures Establishes methods of forecast review –Establishes methods of forecast relief –Defines forecast review guidelines Defines master scheduling techniques –Order promising guidelines –Make-to-stock, make-to-order strategies

Visual 4-61 What Is an Effective Schedule? Production System Trade-Offs Inventory usage (costs) Customer delivery Manufacturing “efficiency” (schedule)

Visual 4-62 The Goals of Master Scheduling To balance supply and demand priorities To develop practical solutions to supply constraints To prioritize and allocate supply to customer demands To establish a strategy to avoid overloaded schedules and unbalanced conditions To create a schedule with attainable completion dates that satisfy customer needs

Visual 6-32 Master Scheduler Functions Understand the forecasting approach and its limitations Participate in the development of the sales and operations plan Manage the constraints of supply capacity Maintain a realistic master schedule Monitor consistency with the sales and operations plan Execute master schedule policies, such as time fences, safety stocks, subcontracting, and lot-sizing Identify, negotiate, and resolve conflicts

Visual 6-33 Master Scheduler Job Qualifications Experienced with products and customers A good communicator Good with numbers Cool under pressure Disciplined—maintains data accuracy Assertive—makes things happen A problem solver rather than a firefighter Creative—finds innovative ways to balance supply and demand Genuinely interested in products and customer service

Visual 4-65 Who Brings What to the Table? Marketing Product Definition Product Demand Capital Master Schedule Business Plan Workforce Availability Source: Launchbury, Keith J. Principles of Planning Omeric, Finance Materials Operations Human Resources Engineering Management Capacity

Visual 4-66 Symptoms of Poor Master Schedules Unreliable delivery promises Persistent past due orders Excess inventory Expediting selected orders Excessive schedule changes Upper management scheduling intervention Excessive overtime or idle time End of month shipping surge Lack of accountability

Visual 4-67 MPS Performance Measurements Customer service Inventory turns Schedule reliability Respect for time fences Excess and slow moving inventory Level of backlog Lead time reduction Cycle time reduction Credibility of promise information

Visual 4-68 Keeping the MPS Realistic Adapting the MPS to changing demand conditions Adapting the MPS to changing supply conditions Rescheduling Bottom-up replanning and pegging Testing for feasibility Regular review and revisions

Visual 4-69 Common Changes in Demand Customer schedule changes Rush orders Order cancellations Changes to specifications

Visual 4-70 Common Changes in Supply Nonconformance to schedule –Production downtime –Capacity availability –Over- or undersupply Nonconformance to specifications –Scrap –Effect of quality

Visual 4-71 Engineering Changes Mandatory or immediate Phased-in or optional Process –Set up a review board –Determine the procedure for instituting change –Set effective dates –Ensure change process deals with multiple items –Assess the cost and impact of the change –Maintain the status for each revision

Visual 4-72 Managing Change Is the change necessary? Is the change feasible? Are resources available? What are the costs and the risks?

Visual 4-73 The S&OP and the Master Schedule

Visual 4-74 Uses of the Master Schedule The anticipated build or buy schedule For independent demand items Projects inventory/backlog position Drives material and capacity plans Order promising Assigning priorities NOT a sales forecast!

Visual 4-75 The Inputs to the Master Schedule Production plan line from the sales and operations plan Detailed sales forecast Inventory position and targets Backlog position and targets Time fence policies Customer orders Interplant orders Service parts orders Distribution requirements Planning bills of material Production and supply position

Visual 4-76 The Outputs from the Master Schedule Master production schedule Master purchasing schedule Projected inventory position Projected backlog position Product availability information Valuable order promising information

Visual Possible Solutions Overloading Overtime Extra shifts Transfer people Reroute work Subcontract Hire temporary help Install more equipment Add additional capacity 7-23

Visual Possible Solutions Underloading Increase sales demand Use time for training Use time for maintenance Reduce shifts Transfer people Reroute work Reduce subcontracting Lay off temporary help Reduce capacity 7-24

Visual 4-79 Chapter 4 Homework Problem 5