Course : Production & Operation Analysis

Effective Period : September 2015

Push and Pull Production

Control System: MRP and JIT

Session 5-7
 The Master Schedule
INTRODUCTION
• Developing and managing the master schedule
• It is the next logical 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 is usually planned in terms of product families
• Master schedule represents final, sellable products
• the major interface between the production
system and the external customers
• Small firms or firms primarily offering a pure service,
don’t have a formal master schedule
Background and Links to The S&OP
• S&OP lines up the proper resources
• S&OP uses aggregate forecast data as demand
input
• S&OP serves a very important function in planning
for long range resource needs
• Usually no inputs from actual customer orders
• The planning isn’t typically done at the final product
level
• More planning is then needed to
Background and Links to The S&OP
1. Break down the aggregated plans into buildable
products
2. Serve as a plan that uses actual customer orders in
addition to forecast data
3. Serve as a source of information to develop
capacity and resource plans
4. Serve as a method to translate customer orders
into effectively timed production orders
5. Serve as an effective tool to plan inventory levels,
particularly at the finished goods level
Background and Links to The S&OP
• This planning activity is called the master schedule
• It starts with a detailed product forecast
• Develops a set of rules for the consumption of the
forecast
• Translates the actual and projected customer
orders into specific production orders
• The master schedule has more detail than S&OP
• The master schedule has a shorter time horizon
• The master schedule values should add up to the
values developed in the S&OP
 S&OP Relationship to MPS
Product Group A July August September October November
Working Days/ 22 21 23 20 19
Month
Approved 22,000 21,000 23,000 20,000 19,000
Production Plan
from S&OP

MPS Week 40 41 42 43
Product A1 1,000 1,000 1,000 1,000
Product A2 500 1,000 1,500 2,000
Product A3 1,500 500 500 1,500
Product A4 2,000 2,500 2,000 500
Total 5,000 5,000 5,000 5,000
 Master Scheduling
Input: The approved Sales and Operations Plan

Sales and
Operations Plan

Rough Cut
Master Schedule Capacity Planning

Master Production
Schedule
Output: The approved Master Production Schedule
 Master Schedule Horizon
• The master schedule needs to have a planning
horizon equal to or longer than the cumulative lead
time of the product or service being planned
• First examine the bill of material (product structure)
• shows components used to assemble a product
• shows not only the relationships between all components
but also shows quantities needed for each component
• contains lead times for purchase or production of each
component or assembly
• cumulative lead time is the amount of time it takes to
make a product from start to finish
Example BOM
Single level
Bearing

Multi level Inner Outer Hardware kit

Bearing

Inner Outer Hardware kit

Forging Fastener Ball Seal Grease

 Master Schedule Horizon
• As an example of cumulative lead time, take a product with a bill of
materials four levels deep. Finding the longest lead time for each
level. Now assume that it takes
1. 2 weeks to assemble product A from subassemblies B and C
2. 3 weeks to assemble subassembly B from components D and E
3. 4 weeks to assemble subassembly C from component F and
subassembly G
4. 5 weeks to produce subassembly G from component H
5. 3 weeks to obtain component D from a supplier
6. 2 weeks to obtain component E from a supplier
7. 4 weeks to obtain component F from a supplier
8. 7 weeks to obtain component H from a supplier
 Master Schedule Horizon
A (final product) Level 0

B C Level 1

D E F G Level 2

H Level 3
 Master Schedule Horizon
• Going level by level, we can see the longest lead time
for each level:
level longest lead time
0 (end product) 2 weeks
1 4 weeks
2 5 weeks
3 7 weeks
 Master Schedule Horizon
• The cumulative lead time of this product (A) is 18 weeks
(2+4+5+7)
• As an example, suppose we had no master schedule
• A customer ordered one of the products for delivery in
week 14
• We had no problem promising delivery, since the lead time
for making the end product A is only 2 weeks
• That will, in fact, be the case assuming adequate inventory
exists at the lower levels
• If we don’t have adequate inventory, follow what would
happen:
 Master Schedule Horizon
• Since the customer wants the product in week 14 and it takes 2 weeks to build, we
would need to start the end product production in week 12

• Since the level 1 subassembly (C) takes 4 weeks to build and we need it to build the
end product starting in week 12, we will need to start the production for
subassembly C in week 8

• Since the level 2 subassembly (G) takes 5 weeks to build and we need to have it
completed by week 8 to use it for the level 1 component, we will need to start its
production in week 3

• Since the level 3 component (H, a purchased part) has a 7 week lead time and we
need it in week 3 to use it to build the level 2 subassembly (G), we will need it to
order it 7 weeks before week 3
 Time Fences
1. The demand time fence
• The forecast data is ignored and only customer order quantities
are used to make master schedule computations
For example, if a demand time fence is set at week 2 for the
master schedule, the forecast data for weeks 1 and 2 are ignored
for calculation purposes, regardless of how they may or may not
agree with actual order data
• Schedule is considered “frozen”
• no changes to the schedule
• The demand time fence is the closest to the present time in the
schedule
 Time Fences
2. The planning time fence
• Is set equal to or slightly larger than the cumulative
lead time for the product.
• In our earlier example of product A with four
material levels, the planning time fence could be set
at the 18 week mark. Beyond the time fence (19
weeks and beyond), there is adequate time to react
to new orders, even if there will be a requirement to
order the purchased items in the bill of materials, so
the master production schedule values are very free
to be changed
 MPS Time Zones
Quantity

Demand

Forecasted demand

Customer orders

Time
Frozen Flexibl Free
Future
e
time
Demand Planning
time fence time fence
 Sources of Demand
• The master schedule is said to be a disaggregation
of the S&OP (breaking down S&OP product family
numbers into specific product numbers)
• The forecasting methods used for demand
forecasting are often different for the master
schedule when compared to the S&OP
• S&OP are long-range, often generated from
causal methods
• Master schedule are more often generated from
qualitative or time series methods
 Basic Methodology
The master schedule uses demand (customer orders and
forecast) in its development
• It considers
• inventory plans
• labor plans
• plans for phasing in new products
• Now at a different level of detail
• meeting the customers needs for delivery as established in
the S&OP
• balancing the preliminary master schedule numbers against
available capacity
• establishing inventory levels according to the S&OP
 Basic Methodology
Figure below shows a simple master schedule
• It should be noted that the entire planning tool is called a
master schedule, while the specific schedule production
quantities and times are called the master production schedule
(MPS)
• A sample master schedule
• On hand = 70
• Lot size = 80
 Basic Methodology
Period 1 2 3 4 5 6 7 8 9 10
Demand 40 50 45 50 50 50 50 50 50 50
Projected available 30 60 15 45 75 25 55 5 35 65
MPS 80 80 80 80 80 80

The calculations are quite simple in this example. Note that

we start with an on hand quantity of 70 units. The demand
in period 1 is 40 units, leaving us with 30 projected available
at the end of that period. In period 2 we will expect to make
80 units (from the MPS value) and have a demand of 50
units. The difference between those, 30 units, will be added
to the 30 units left after period 1 to give us a projected 60
units available in period 2.
 Impact of Product
Environment
• The master schedule may need to be developed and managed
very differently depending on the product environment
1. Make to Stock (MTS)
2. Assemble to Order (ATO)
3. Make to Order (MTO)
 Scheduling Decisions
make-to-stock
Design Supply Production Delivery
assemble-to-order
Design Supply
Production Delivery
make-to-order
Design Supply Production Delivery
engineer-to-order

Design Supply Production Delivery

 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 number of raw material components
• Order promising not done through MPS
• Orders filled directly from stock
 Impact of Product Environment
Assemble to order environment
• Customer has influence over final outcome
• automobiles, computers
• Many raw material components
• Final products not planned on the master schedule
• too many options
• Master schedule the options
• bicycles with different colors, seats, tires
 Impact of Product Environment
Make to order environment
• Customer has large influence on the design of the final product
or service
• Companies may use standard components
• are assembled differently
• Relatively few number of raw materials but a large number of
final products
• Typical of service organizations
• The master schedule reflects capacity and raw material needs
 General Approach to Master Schedule
Development
• MTO bakery
• If we were to forecast and master schedule every type of cake
combination that could be made, we would need thousands of master
schedules and associated forecasts, many for cakes that may never be
requested by customers. It would be far easier to develop forecasts
instead for the amount of raw materials (flour, sugar etc) that might
be needed for a given time period
• ATO bicycle
• 3 frames, 5 different speed options, 4 different types of seats, 3
different handle bar types, 6 different types of tires, 3 different types
of brakes, 4 pure options
• In this case, we would need to develop 12,960 forecasts and master
schedules for this one model of bicycle alone (3x5x4x3x6x3x4 =
12,960)
• Develop master schedules at the option level
• The master schedule is usually designed to operate at the level that has
the fewest items that need to be scheduled
 Projected Available Balance (PAB)
• The projected available balance (PAB) is the
projected inventory position in a particular time
period
• Projected Available Balance is computed in other
manner depending if it is computed for period
before DTF or after it
• Calculate PAB. PAB = previous available inventory
+ MPS – max(forecast, actual orders). Calculate
for every period in the planning horizon.
 Available to Promise Logic

• One approach to master scheduling that can be very powerful in its

service to the firm is the available to promise (ATP)
• ATP allow the firm to very quickly and realistically promise delivery of
product to customers
• typically not used in the MTS environment
• not used as much in MTO environments
• very valuable to the ATO environment
• For any MPS quantity, how many items are not promised to specific
customer orders
• ATP calculations (discrete logic). For the first period, ATP = on hand +
MPS – sum of the orders until the next MPS. For each period when a
subsequent MPS occurs, ATP = MPS – sum of the orders until the
next MPS
• ATP calculations (cumulative logic). For the first period, ATP = on hand
+ MPS – sum of the orders until the next MPS. For each period when
a subsequent MPS occurs, ATP = previous ATP + MPS – sum of the
order until the next MPS
 Suppose we have a product with a 2 week lead
time and a lot size of 60 units. There is a 2
week demand time fence and a 12 week
planning time fence. Forecasts had been
developed and customer orders had been
Period 1 placed.
2 3 4 5 6 7 8 9 10 11 12
Forecast 22On25hand:
20 56
20 18 18 32 30 28 28 29 25
Customer orders 24 23 17 22 15 14 17 16 12 16 13 11

Proj. avail. bal 32 9 49 27 9 51 19 49 21 53 24 59

Avail. to promise

MPS 60 60 60 60 60

Before proceeding to explain the ATP, let’s make sure about the other numbers in
the master schedule:
• The first 2 weeks are within the DTF. That implies the forecast is ignored for
these first 2 weeks, and the PAB is computed from the customer orders only
• Between the DTF and the PTF (12 weeks) we calculate the PAB from the
 1. If the forecast number is larger, it implies there are still
potential customer orders that will be placed
2. If the customer order number is larger, it is obvious that
the forecast was too low, and we need to reflect what
the customers actually want
• The MPS was developed so that there would never be a
negative PAB. It is important to remember that a negative
PAB implies there is inadequate planned production to
meet the projected demand, a condition that most
companies prefer to avoid.
 Period 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 22 25 20 20 18 18 32 30 28 28 29 23
Customer orders 24 23 17 22 15 14 17 16 12 16 13 11

Proj. avail. bal 32 9 49 27 9 51 19 49 21 53 24 1

Avail. to promise 9 6 29 32 20

MPS 60 60 60 60

• One key issue should be noted in the example above. The ATP
logic is calculated only from customer orders, not from forecasts
at any time. The concept here is the calculation shows available
to promise to customers, not to forecasts.
 Basic Definitions
• MRP. (Materials Requirements Planning). MRP is the basic
process of translating a production schedule for an end
product (MPS or Master Production Schedule) to a set of
requirements for all of the subassemblies and parts
needed to make that item.

• JIT. Just-in-Time. Derived from the original Japanese

Kanban system developed at Toyota. JIT seeks to deliver
the right amount of product at the right time. The goal is
to reduce WIP (work-in-process) inventories to an absolute
minimum.
 Why Push and Pull?
• MRP is the classic push system. The MRP system computes
production schedules for all levels based on forecasts of
sales of end items. Once produced, subassemblies are
pushed to next level whether needed or not.

• JIT is the classic pull system. The basic mechanism is that

production at one level only happens when initiated by a
request at the higher level. That is, units are pulled
through the system by request.
 Comparison

These methods offer two completely different approaches to basic

production planning in a manufacturing environment. Each has
advantages over the other, but neither seems to be sufficient on its
own. Both have advantages and disadvantages, suggesting that
both methods could be useful in the same organization.

• Main Advantage of MRP over JIT: MRP takes forecasts for end
product demand into account. In an environment in which
substantial variation of sales are anticipated (and can be
forecasted accurately), MRP has a substantial advantage.

• Main Advantage of JIT over MRP: JIT reduces inventories to a

minimum. In addition to saving direct inventory carrying costs,
there are substantial side benefits, such as improvement in quality
and plant efficiency.
 MRP Basics

• The MRP system starts with the MPS or Master

Production Schedule. This is the forecast for the
sales of the end item over the planning horizon.
The data sources for determining the MPS
include:
– Firm customer orders
– Forecasts of future demand by item
– Safety stock requirements
– Seasonal variations
– Internal orders from other parts of the organization.
 Schematic of the
Productive System (Fig. 7.1)
 The Three Major Control
Phases of the Productive System
(Fig. 7.2)
 The Explosion Calculus

• The explosion calculus is a set of rules for converting

the master production schedule to a requirements
schedule for all subassemblies, components, and raw
materials necessary to produce the end item.
• There are two basic operations comprising the
explosion calculus:
• Time phasing. Requirements for lower level items
must be shifted backwards by the lead time
required to produce the items
• Multiplication. A multiplicative factor must be
applied when more than one subassembly is
required for each higher level item.
 Explosion Calculus

Rules for translating gross requirements at one level to production

schedule at that level and requirements at lower levels.

Example
Basic Equation:
Net Req. = Gross req. - Scheduled Receipts - projected on hand
inventory

Basic Algorithm
1. Compute time-phased requirements
2. Determine Planned Order Release (LS)
3. Compute ending inventory
4. Proceed to next level (if any)
 Explosion Calculus

Schedule for end item A:

Week 8 9 10 11 12 13 14 15 16 17
Gross Req 77 42 38 21 26 112 45 14 76 34
Sch Rpt 12 6 9
Inv 23
Net Req 42 42 32 12 26 112 45 14 76 34
Schedule for item B (1 unit/2 weeks)
Week 6 7 8 9 10 11 12 13 14 15
Gross 42 42 32 12 26 112 45 14 76 34
Schedule for item C (2 units/4 weeks)
Week 4 5 6 7 8 9 10 11 12 13
Gross 84 84 64 24 52 224 90 28 152 68
 The Product Structure Diagram
• The product structure diagram is a graphical
representation of the relationship between the various
levels of the productive system. It incorporates all of
the information necessary to implement the explosion
calculus. Figure 7-3 (next slide) depicts an end item
with two levels of subassemblies.
Typical Product Structure
Diagram (fig. 7-3)
Trumpet and Subassemblies (Fig. 7-4)
Product Structure Diagram
for Harmon Trumpet
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 Shortcomings of MRP

• Uncertainty. MRP ignores demand uncertainty, supply uncertainty, and

internal uncertainties that arise in the manufacturing process.
• Capacity Planning. Basic MRP does not take capacity constraints into
account.
• Rolling Horizons. MRP is treated as a static system with a fixed horizon
of n periods. The choice of n is arbitrary and can affect the results.
• Lead Times Dependent on Lot Sizes. In MRP lead times are assumed
fixed, but they clearly depend on the size of the lot required.
• Quality Problems. Defective items can destroy the linking of the levels in
an MRP system.
• Data Integrity. Real MRP systems are big (perhaps more than 20 levels
deep) and the integrity of the data can be a serious problem.
• Order Pegging. A single component may be used in multiple end items,
and each lot must then be pegged to the appropriate item.
 Introduction to JIT
• JIT (Just In Time) is an outgrowth of the Kanban system
developed by Toyota.
• Kanban refers to the posting board where the evolution of
the manufacturing process would be recorded.
• The Kanban system is a manual information system that
relies on various types of cards.
• It’s development is closely tied to the development of
SMED: Single Minute Exchange of Dies, that allowed
model changeovers to take place in minutes rather than
hours.
(The mechanics of a typical Kanban system are pictured in
Figure 7-8.)
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Kanban System for Two Production

Centers (Fig. 7-8)

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 Features of JIT Systems
Small Work-in-Process Inventories.

Advantages:
1. Decreases Inventory Costs
2. Improves Production Efficiency
3. Reveals quality problems (see Figure 7-10)
 
Disadvantages:
1. May result in increased worker idle time
2. May result in decreased throughput rate
 River/Inventory Analogy
Illustrating the Advantages of Just-in-
Time
 Features of JIT Systems
(continued)
Kanban Information Flow System
  Advantages:
1. Efficient tracking of lots
2. Inexpensive implementation of JIT
3. Achieves desired level of WIP
 
Disadvantages:
1. Slow to react to changes in demand
2. Ignores predicted demand patterns
Kanban Information System vs
Centralized Information System (MRP)
 Features of JIT Systems
(continued)
JIT Purchasing System
  Advantages:
1. Inventory reduction
2. Improved coordination
3. Better relationships with vendors
 
Disadvantages:
1. Decreased opportunity for multiple sourcing
2. Suppliers must react quickly
3. Potential for congestion
4. Suppliers must be reliable.
 Comparison of MRP and JIT

Major study comparing MRP and JIT in practice

reveals:

 JIT works best in “favorable” manufacturing

environments: little demand variability, reliable
vendors, and small set up times

 MRP (and ROP based on Chapter 5 methods)

worked well in favorable environments
(comparable to JIT) and better in unfavorable
environments.
Reference

• Steven Nahmias. (2009). Production and Operations

Analysis. 06. MGH. New York. ISBN: 978-007-126370-
2
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Production and Operations Analysis