The master production schedule is the second input that goes into the MRP plan after the bills of material. The master production schedule (MPS) details how many end items will be produced in the given period of time. To develop a MPS, there are two steps:
- Calculate the projected on-hand inventory at the end.
- Determining the timing and size of production quantities.
Project on hand inventory at the end of this period =
On hand inventory in the last period + MPS quantity due this period – Projected requirements this period.
Rule: For the projected requirements for this period, we should use the larger quantity known between the forecast and customer orders booked. This helps in avoiding any stock-out situations.
Let us consider an example to understand the first step.
Item: Ladder back chair | ||
On hand: 55 | April | |
Week 1 | Week 2 | |
Forecast | 30 | |
Customer orders booked | 38 | |
MPS quantity | 0 | |
Project on hand quantity | ||
In the above example, the period is weekly. The manufacturer of this chair produces the chair in stock and needs to develop a master production schedule.
Item: Ladder back chair | ||
On hand: 55 | April | |
Week 1 | Week 2 | |
Forecast | 30 | |
Customer orders booked | 38 | |
MPS quantity | 0 | |
Project on hand quantity | 55 +0-38=17 | |
Let’s consider the “forecast for week 2” is 30, the customer orders booked is 27 and the MPS quantity is 0 as we are not aware of it.
Item: Ladder back chair | ||
On hand: 55 | April | |
Week 1 | Week 2 | |
Forecast | 30 | 30 |
Customer orders booked | 38 | 27 |
MPS quantity | 0 | |
Project on hand quantity | 55 +0-38=17 | 17 +0-30=-13 |
Here, demand is higher than supply, and we will not be able to cater to the entire demand. We will have an opportunity loss of 13 units. (The negative sign shows the loss.) And therefore, the MPS quantity needs to be provided in order to avoid such losses.
Now, following the same example, let us understand step 2 in detail. In this case, we are going to determine the timing and size of production quantities of specific products.
Item: Ladder back chair Order policy = 150 & Lead time = 1 week | ||||||||
On hand: 55 | April | May | ||||||
Week number | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
Forecast | 30 | 30 | 30 | 30 | 35 | 35 | 35 | 35 |
Customer orders booked | 38 | 27 | 24 | 8 | ||||
MPS quantity | ||||||||
Projected on hand quantity | ||||||||
MPS start of production | ||||||||
The projected on hand quantity is 17 as discussed in the previous example and the projected on hand quantity was (-13) and we don’t want any shortages this time. In this case, the order policy is 150 units i.e., it means that it is most optimal for the facility to produce 150 units. And the lead time is 1 week i.e.m if you want the material to be available in week 2 then it has to be produced in week 1.
Hence, calculating the matrix given in the table,
Item: Ladder back chair Order policy = 150 & Lead time = 1 week | ||||||||
On hand: 55 | April | May | ||||||
Week number | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
Forecast | 30 | 30 | 30 | 30 | 35 | 35 | 35 | 35 |
Customer orders booked | 38 | 27 | 24 | 8 | ||||
MPS quantity | 0 | 150 | 150 | |||||
Projected on hand quantity | 17 | 137 | 107 | 77 | 42 | 7 | 122 | 87 |
MPS start of production | 150 | 150 | ||||||
Fundamentals of available to promise.
While production continues to be done in a unit, as per the master production schedule, the marketing or sales teams need to continue to sell the items to the customers and get the orders booked. Now they can’t sell more than the quantity that is being manufactured. The MPS provides the sales team with information that is useful in negotiating delivery dates with the customer. So the quantity of end items that the sales team can promise to deliver on a specific date is known as “available to promise”.
Now let us consider the example of the ladder back chair which we have considered above.
Item: Ladder back chair Order policy = 150 & Lead time = 1 week | ||||||||
On hand: 55 | April | May | ||||||
Week number | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
Forecast | 30 | 30 | 30 | 30 | 35 | 35 | 35 | 35 |
Customer orders booked | 38 | 27 | 24 | 8 | ||||
MPS quantity | 0 | 150 | 150 | |||||
Projected on hand quantity | 17 | 137 | 107 | 77 | 42 | 7 | 122 | 87 |
MPS start of production | 150 | 150 | ||||||
Available to promise | ||||||||
ATP 1st week = Current inventory + MPS quantity to be received in 1 week – booked orders (excluding the week in which the next MPS quantity arrives)
Hence, ATP for the 1st week = 55 + 0 – 38 = 17
ATP 2nd week = MPS quantity received in week 2 – customer orders booked until the next MPS quantity = 150 – (27 + 24 + 8 + 0) = 91
Note:
- If you receive a customer order and it exceeds the ATP quantity in those time periods, the MPS must be changed before the customer orders can be booked.
- As the new customer orders are accepted, the ATP inventory is reduced to reflect the commitment of the firm to make that quantity available. However, the actual inventory remains unchanged until the order is removed from inventory and shipped to the customer.
Item: Ladder back chair Order policy = 150 & Lead time = 1 week | ||||||||
On hand: 55 | April | May | ||||||
Week number | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
Forecast | 30 | 30 | 30 | 30 | 35 | 35 | 35 | 35 |
Customer orders booked | 38 | 27 | 24 | 8 | ||||
MPS quantity | 0 | 150 | 150 | |||||
Projected on hand quantity | 17 | 137 | 107 | 77 | 42 | 7 | 122 | 87 |
MPS start of production | 150 | 150 | ||||||
Available to promise | 17 | 91 | 150 | |||||