Master Production Scheduling: the process of taking an authorized production plan and disaggregating into

items manufactured, and then linking to customer orders already received.

Developing a Master Production Schedule

Step 1. Estimate the amount of inventory that will be on-hand after demand has been satisfied. This is called
Projected On-Hand Inventory and is calculated as follows:
It = It-1 + MPSt - max (Ft or COt)
Where: It = projected on-hand inventory balance at the end of week t
MPSt = MPS quantity due in week t
Ft = forecast of orders in week t
COt = customer orders booked for shipment in week t

Step 2. Calculate Master Production Schedule (MPS) quantities to maintain non-negative projected on-hand
inventory balance. Note that this decision has a time and size dimension. In our example we assume that
the lot size for our product is 100 units.

Week Week Week Week Week Week Week Week

1 2 3 4 5 6 7 8

Forecast 30 30 40 40 50 50 60 20

Customer Orders 45 20 12 10 0 0 0 0

Projected On-hand 50 5 75 35 95 45 95 35 15

MPS Quantity 100 100 100

Step 3. Calculate the quantity of end items that marketing can promise to deliver on specific due dates. This is
called the Available-to-Promise quantity and is calculated differently depending on week.

The first week ATP1 = I0 + MPS1 - CCO

Where: ATP1 = available to promise in the first week
I0 = current on-hand inventory
MPS1 = MPS quantity for the first week
CCO = cumulative customer orders up to the week in which the next MPS is scheduled
Subsequent weeks ATPt = MPSt - CCO
Where: ATPt = available to promise in week t
MPSt = MPS quantity in week t
CCO = cumulative customer orders up to the week in which the next MPS is scheduled
In all other weeks Available-to-Promise equals zero

Week Week Week Week Week Week Week Week

1 2 3 4 5 6 7 8

Forecast 30 30 40 40 50 50 60 20

Customer Orders 45 20 12 10 0 0 0 0

Projected On-hand 50 5 75 35 95 45 95 35 15

MPS Quantity 100 100 100

Available to Promise 5 68 90 100

Push-pull production control pg. 1

Material Requirements Planning (MRP)

Shortcomings of using independent demand inventory systems to manage materials used within a process:
1. Assumption of uniform, continuous demand rate is unrealistic
Lumpiness caused by lot sizing
Changes in demand (seasonality, cyclical and long term trends) are comprehended by the MPS
2. Inventory items are not independent but linked through the bill-of-materials.
3. Reorder point provides little or no forward visibility for planning and coordination.
Benefits of material requirements planning over reorder point systems
1. Reduce need for raw materials, work-in-process and finished goods inventory
2. Use labor and facilities more efficiently
3. Increase ability to provide on time delivery of products and spare parts
The principles of MRP
1. Derives demand for components, subassemblies, and raw materials fromend-items (or parents).
2. MRP offsets replenishment orders relative to the date they are needed.

The Material Requirements Planning Inventory Record

To illustrate development of MRP records, consider the MPS created previously. One hundred units of output were
required in weeks 2, 4 and 6. Further, assume that it requires one week to assemble the units once all the
subassemblies are produced. Therefore, all subassembly requirements must be met one week earlier.

MPS Week Week Week Week Week Week Week Week

1 2 3 4 5 6 7 8

Chairs 100 100 100

Production Week Week Week Week Week Week Week Week

Release 1 2 3 4 5 6 7 8

Chairs 100 100 100

The MRP records of the highest level subassemblies use this production release information to generate material
requirements.

Example Bill of Material for a Chair

Push-pull production control pg. 2

Item: 172 Description: Leg assembly
Lot size = 25 Week Week Week Week Week Week Week Week
Safety stock = 10 1 2 3 4 5 6 7 8
Lead time = 1 week

Gross requirements 100 0 100 0 100 0 0 0

Scheduled receipts 150 25 0 0 0 0 0 0

Projected on-hand 21 71 96 -4

Planned receipts 0 0

Planned order releases

Step 1: Calculate gross requirements as the total demand derived from all higher order inventory items. Since the
leg assembly is an end item, gross requirements are found in the production release statement.

Step 2: Scheduled receipts represent open orders for inventory items that have not yet been completed. Scheduled
receipts are normally purchased components that have been ordered but not yet received from a vendor or
for manufactured items in process.

Step 3: Projected on-hand inventory (or beginning inventory) is calculated as follows:

It = It-1 + SRt + PRt - GRt
Where: It = projected on-hand inventory at the end of week t
SRt = scheduled receipt due in week t
PRt = planned receipt in week t
GRt = gross requirements in week t

When projected on-hand drops below the desired safety stock, a new planned receipt is generated.

Step 4: A planned receipt is a new order to create (or purchase) inventory that has not been released to the shop or
a supplier. A planned receipt is originated when projected on-hand inventory drops below safety stock (or
0 if safety stock is not maintained) and should be of sufficient to raise projected on-hand inventory to at
least equal the safety stock.

Item: 172 Description: Leg assembly

Lot size = 25 Week Week Week Week Week Week Week Week
Safety stock = 10 1 2 3 4 5 6 7 8
Lead time = 1 week

Gross requirements 100 0 100 0 100 0 0 0

Scheduled receipts 150 25 0 0 0 0 0 0

Projected on-hand 21 71 96 21 21 21 21 21 21

Planned receipts 0 0 25 0 100 0 0 0

Planned order releases 0 25 0 100 0 0 0 0

Step 5: Finally, a planned order release signifies when an inventory order should be placed and is normally the
planned receipt offset by the item's leadtime.

Push-pull production control pg. 3

Complete the following MRP records

Item: 148 Description: Seat

Lot size = 5 Week Week Week Week Week Week Week Week
Safety stock = 5 1 2 3 4 5 6 7 8
Lead time = 2 weeks

Gross requirements

Scheduled receipts 40 25

Projected on-hand 39

Planned receipts

Planned order releases

Item: 047 Description: Back assembly

Lot size = 1 Week Week Week Week Week Week Week Week
Safety stock = 50 1 2 3 4 5 6 7 8
Lead time = 1 week

Gross requirements

Scheduled receipts 72

Projected on-hand 19

Planned receipts

Planned order releases

MRP records are not only formed for end items. All important components are tracked and planned in this way.
Non-end item gross requirements are calculated from higher level planned order releases. Fill out the following
MRP records.

Item: 64 Description: Leg

Lot size = 200 Week Week Week Week Week Week Week Week
Safety stock = 100 1 2 3 4 5 6 7 8
Lead time = 1 week

Gross requirements

Scheduled receipts 200

Projected on-hand 120

Planned receipts

Planned order releases

Push-pull production control pg. 4

Item: 71 Description: Brace
Lot size = 50 Week Week Week Week Week Week Week Week
Safety stock = 20 1 2 3 4 5 6 7 8
Lead time = 1 week

Gross requirements

Scheduled receipts 100

Projected on-hand 20

Planned receipts

Planned order releases

Item: Raw Material Description: Dowel 1"

Lot size = L4L Week Week Week Week Week Week Week Week
Safety stock = 100 1 2 3 4 5 6 7 8
Lead time = 1 week

Gross requirements

Scheduled receipts 300

Projected on-hand 100

Planned receipts

Planned order releases

Material Requirements Planning factors

1. Planning lead time: the estimated time it takes to get an item once it has been ordered
If estimates are too long: the costs associated with holding inventory increase
If estimates are too short: material shortages result
2. Lot sizing rules: determines the timing and size of orders
Static lot sizing rules (all produce inventory remnants)
Fixed order quantity (FO or FOQ)
Dynamic lot sizing rules (reduces remnants)
Periodic order quantity (POQ)
Lot for Lot (L4L)
Wagner-Whitin (WW)
3. Safety stock

Lot Sizing Example using EOQ

EOQ: Note: EOQ is a

2 AD 2 ⋅100 ⋅ 30
Q= = = 77 special case of
h 1
fixed order quantity.

t 1 2 3 4 5 6 7 8 9 10 Total
Dt 20 50 10 50 50 10 20 40 20 30 300
Qt 77 77 77 77 308
Setup 100 100 100 100 $400
Holding 57 7 74 24 51 41 21 58 38 $371
Total $771

Push-pull production control pg. 5

Wagner-Whitin (WW) Lot Sizing Procedure
This procedure produces an optimal (cost minimizing) result under the EOQ assumptions with the assumption of
constant demand relaxed.
The WW procedure is based on the observation that the optimal policy will not carry inventory remnants but will
order in a dynamic fashion to generate the most favorable tradeoff between ordering cost and holding cost.
For the previous EOQ problem
Step 1: Calculate the period 1 cost of ordering in period 1
Step 2: Calculate the period 1 & 2 cost of ordering in period 1 for period 1 & 2
Calculate the period 1 & 2 cost of ordering in period 1 & 2
Is it cheaper to order in period 2? If no, go to step 3.
Step 3: Calculate the period 1,2 & 3 cost of ordering in period 1 for period 1, 2 & 3
Calculate the period 1,2 & 3 cost of ordering in period 1 & 2
Calculate the period 1,2 & 3 cost of ordering in period 1 & 3
Is it cheaper to order in period 2 or 3? If no, go to step 4.
Step 4: Calculate the period 1,2,3 & 4 cost of ordering in period 1 for period 1, 2, 3 & 4
Calculate the period 1,2,3 & 4 cost of ordering in period 1 & 2
Calculate the period 1,2,3 & 4 cost of ordering in period 1 & 3
Calculate the period 1,2,3 & 4 cost of ordering in period 1 & 4
Is it cheaper to order in period 2, 3 or 4? If no, go to step 5. etc.

Wagner-Whitin solution Last Period Planning Horizon (t)

to EOQ problem with Production 1 2 3 4 5 6 7 8 9 10
1 100 150 170 320
2 200 210 310
3 250 300
4 270 320 340 400 560
5 370 380 420 540
6 420 440 520
7 440 480 520 610
8 500 520 580
9 580 610
10 620
Zt 100 150 170 270 320 340 400 480 520 580
jt 1 1 1 4 4 4 4 7 7 or 8 8

Part Period Balancing (PPB) Lot Sizing Procedure

Attempts to provide a close to optimal solution in fewer steps by making the short term carrying costs equal to the
short term order costs. Assume for this example that the ratio of order to holding = 200

1 2 3 4 5 6 7 8 9 10
GR 41 44 84 42 84 86 7 18 49 30
SR
PoH 120 79 35 126 84 0 74 67 49 0 0
PR 175 160 30
POR 175 160 30
86 units => 0 part periods
49 units => 0 part periods
93 units => 7 part periods
91 units => 42 part periods
111 units => 43 part periods
175 units => 210 part periods
160 units => 190 part periods
190 units => 310 part periods

Push-pull production control pg. 6

Reducing MRP Nervousness Reduce Causes of Plan Changes:
• Stabilize MPS (e.g., frozen zones and time fences)
• Reduce unplanned demands by incorporating spare parts forecasts into
gross requirements
• Use discipline in following MRP plan for releases
• Control changes in safety stocks or leadtimes
Alter Lot-Sizing Procedures:
• Fixed order quantities at top level
• Lot for lot at intermediate levels
• Fixed order intervals at bottom level
Use Firm Planned Orders:
• Planned orders that do not automatically change when conditions change
• Managerial action required to change a FPO

Rough Cut Capacity Planning • Quick check on capacity of key resources

• Use Bill of Resource (BOR) for each item in MPS

• Generates usage of resources by exploding MPS against BOR (offset by

leadtimes)

• Infeasibilities addressed by altering MPS or adding capacity (e.g.,

overtime)

Capacity Requirements Planning • Uses routing data (work centers and times) for all items

• Explodes orders against routing information

• Generates usage profile of all work centers

• Identifies overload conditions

• More detailed than RCCP

• No provision for fixing problems

• Leadtimes remain fixed despite queueing

Production Activity Control • Sometimes called “shop floor control”

• Provides routing/standard time information

• Sets planned start times

• Can be used for prioritizing/expediting

• Can perform input-output control (compare planned with actual

throughput)

• Modern term is MES (Manufacturing Execution System), which

represents functions between Planning and Control.

Push-pull production control pg. 7

Carolina Company Follow-up

How much did placing decoupling inventory before assembly help system performance?

Would you classify the Carolina Company project as an example of a “push” or “pull“ production control
environment?

Would MRP be an appropriate system for inventory control?

Would MRP be an appropriate system for production scheduling and production control?

As we discuss JIT, ConWIP and TOC, consider how you would implement a JIT, ConWip or TOC system at
Carolina? How would you expect them to perform?

Just-In-Time (JIT) Production Systems

Origins of JIT rooted in the necessity of competing with enormous production capability that was being run with a
plan-then-freeze production system. The Toyota Production System: compete on flexibility - small lots / many
models.

Pillars:
1. just-in-time, and
• Zero Defects: To avoid delays due to defects. (Quality at the source)
2. autonomation, or automation with a human touch • Zero (Excess) Lot Size: To avoid “waiting inventory” delays. (Usually
stated as a lot size of one.)

Practices: • Zero Setups: To minimize setup delay and facilitate small lot sizes.
• setup reduction (SMED) • Zero Breakdowns: To avoid stopping tightly coupled line.
• worker training
• vendor relations • Zero (Excess) Handling: To promote flow of parts.
• quality control • Zero Lead Time: To ensure rapid replenishment of parts (very close to
• foolproofing (baka-yoke) the core of the zero inventories objective).
• many others
• Zero Surging: Necessary in system without WIP buffers.

Implementing JIT

The disaggregation problem solved by production smoothing - relatively constant mix and volume. Thus the system tends to
be fairly inflexible. A major managerial challenge is to promote flexibility.

1. Capacity Buffers

2. Setup Reduction

3. Cross Training

4. Plant Layout

Step 1: Awareness - The goal of a JIT

production system is to completely
eliminate waste in all its forms.
a. The assumption of traditional lot production: products will be sold one way or another; the objective is to
minimize changeovers.

Push-pull production control pg. 8

 b. The assumption of JIT is that we cannot sell everything we make. Thus, we must produce salable goods
(low cost, high quality, etc...) quickly.
c. Operation = Motion (Waste) + Work (Added Value)
Motion alone is a waste that adds cost. It includes activities such as:counting things, moving boxes,
transporting goods, preparation time, waiting, producing defects, over production, handling materials,
switching things on.
d. Inventory decouples individual operations and thereby creates waste (non-value-added motion) to buffer
the operations against the effect of a different form of waste (long setups, poor material handling
procedures, production of defects, etc.)
e. For real improvement, we must ask "why" when we encounter any form of waste.
Why does inventory occur, why must we transport goods ...

Step 2: Workplace Improvement - The five S's

a. Seiri: Proper arrangement (sort through and sort out, identify what you need, discard what you do not )
b. Seiton: Orderliness (assign a separate location for all essential items)
c. Seiso: Cleanliness (keep the workplace spotless at all times)
d. Seiketsu: Cleanup (maintain equipment and tools)
e. Shitsuke: Discipline (stick to the rules scrupulously)

Step 3: Flow Manufacturing - Produce one piece at a time

a. Place the machines in process sequence
b. Design a cellular (U-shaped) layout
c. Make one piece at a time in the cell
d. Crosstrain workers to handle multiple processes
e. Produce according to the cycle time
f. Have the operators work standing up and walking
g. Use slower, dedicated machines that are smaller and less expensive

Step 4: Leveled Production - Make the same quantity of an item every day
a. Calculate cycle time based on daily volumes
b. Detail the order and number of items being made on the line
c. Shorten changeover times between the items
d. Create a smooth flow
e. Deliver information and parts to the line several times a day

Step 5: Improve and Standardize Operations - Produce quality products safely and inexpensively
a. Efficient arrangements of people, products and machines
b. Standardize cycle time
c. Standardize work sequence (standard operations bulletins, standard route sheets, work method manuals)
d. Standardize stock-on-hand

Objectives to keep in mind at each step:

Visual Control - Make it possible for everyone to see whether the situation is right or wrong
a. Andon: line-stop alarm lights
b. Kanban: tools used to prevent over production
c. Signboards: informs people of production rate and reasons for a line stop
d. Defective parts are displayed in the factory

Manpower Reduction - Produce goods with a minimum number of workers (reduction in workers not reduction in labor)
a. Make equipment easy to move
b. Gather isolated machines into one area
c. Standardize operations so everyone can perform the job
d. Crosstraining and job rotation
e. Assign workers based on production quantity (not a fixed number)

Push-pull production control pg. 9

The production scheduling problem (often) solved by managing Kanbans

One-Card Kanban Two-Card Kanban

Outbound Outbound Inbound Outbound Move stock to

stockpoint Completed parts with cards stockpoint stockpoint stockpoint inbound stock point.
enter outbound stockpoint.

Move card
authorizes
pickup of parts.

When stock is Remove move

Production When stock is removed, place card and place
Production production card in hold box.
cards removed, place card authorizes Production in hold box. Move Production
production card start of work. cards cards card authorizes
in hold box. start of work.

Advantages of Pull Systems

1. Tend to lower unit costs

2. Tend to improve quality
3. Tend to improve customer service
4. Tend to increase flexibility

It has been argued that most of the advantages of Pull systems relate to the impact of reducing work in process inventory.
Some managers have moved to Constant Work-in-Process (CONWIP) systems to capture the advantages of WIP control
without all the disadvantages of Kanban.

Modeling:
Push and Pull Line Schematics
MRP looks like an open queuing network Pure Push (M RP)
Stock Stock
Point ... Point
CONWIP looks like a closed queuing network
Pure Pull (Kanban)
Kanban looks like a closed queuing network with blocking Stock
Point ... Stock
Point

…
CONW IP
Stock Stock
Point ... Point

Authorization Signals Full Containers

Others suggest that many systems require a push component and a pull component (in the same system).

Example - Custom Taco Production Line Example - Quick Taco Production Line

Push/Pull Interface Push/Pull Interface

Pull Push
Pull Push

Refrigerator Cooking Assembly Packaging Sales

Refrigerator Cooking Assembly Packaging Sales

Warming Customer
Customer Table

Push-pull production control pg. 10

Theory of Constraints / Synchronous Manufacturing / Drum Buffer Rope

Some points by Eli Goldratt

A. There is and can only be one goal for a manufacturing firm. The goal is to make money now and into the future.

B. Evaluating manufacturing actions requires a global or system-wide perspective. There are three important
operational measures that are very useful. These measures are intrinsic to every manufacturing firm and once
calculated their impact on the bottom line can be determined.
1. Throughput = the quantity of money generated by the firm through sales over a specified period of time.
2. Inventory = The quantity of money invested in materials that a firm intends to sell.
3. Operating Expense = Money spent to convert inventory into throughput

C. Inappropriate levels of inventory impact a firm's ability to gain a competitive edge in the marketplace.

D. Obstacles to running an effective operation (with low levels of inventory) include dependent events and statistical
fluctuations.

E. An effective technique of managing a set of productive resources is Synchronized Manufacturing in which

managers learn to operate the entire plant as a single synchronized system.

F. A bottleneck resource is any resource whose capacity is equal to or less than the demand placed on it. Four
principles of bottleneck resources include:
1. The marginal value of time at a bottleneck resource is equal to the throughput rate of the products
processed by the bottleneck.
2. The marginal value of time at a non-bottleneck resource is negligible.
3. The level of utilization of a non-bottleneck resource is controlled by other constraints within the system.
4. The actual product flow through the plant is controlled by the most severe bottleneck.

G. The recommended approach to improving performance:

1. Identify the constraints in the system
2. Determine how to exploit the constraints to improve performance of the system
3. Subordinate all parts of the manufacturing system to the support of step two.
4. Carry out the steps necessary to improve the performance of the system.
5. If, in the previous step, a constraint has been broken or a new constraint develops, go back to step one.

The objectives of DBR revolve around speeding the flow of material throughout a plant.

DBR requires that managers understand:

1. The fundamental difference between constrained and unconstrained resources
2. The interaction among current management policies and practices and the
type of resources and products produced by the plant.

Types of process relationships that define product flow in DBR

1. The gateway process

Point of entry for raw material, purchased parts and information.

2. The manufacturing process

A step through which material and information pass. Three sub-
relationships include flow-through points, divergent points and assembly
points.

3. The final process

The final step in the process not including shipment to a customer

Push-pull production control pg. 11

Three Classifications of Processes
Analysis of Plants Using the VAT Classification System
BASIC V Plants
ELEMENTS
Dominant Single product at one stage
Product Flow transformed into several at
Characteristics next stage
Industrial Steel production
Examples Furniture manufacturing
Large number of end items
compared to number of raw
materials
Products produced basically
General the same way
Characteristics
Equipment capital intensive
and specialized
Divergence points provide
Traditional
opportunities for
Problems
misallocation of material
Identify the physical
constraint (usually 1)
Use stock buffers for
anticipated demand and
DBR Applied
time buffers to protect from
disruptions
Control resources to
support product flow
A Plants
Two or more parts assembled
to yield one parent
Jet Engine manufacturers
Machine-tool firms
Large number of
manufactured parts into a
small number of end items
Components are unique to
specific end items
Component part routings are
highly dissimilar
General purpose tools
Little opportunity to
misallocate materials but may
misallocate resources
Identify the physical
constraint (usually many)
Use time buffers before any
CCR and assembly points
Control gateways and
assembly points to support
flow
Push-pull production control pg. 12
T Plants
Small number of components
form a large number of end
items
Personal Computers
Appliance assemblers
Common component
assembled into final product
Components common to
many end items
Component routings very
different
Misallocation of material at
assembly point
Often the plant does not
have a physical constraint
Manage as two separate
plants: a make-to-order
assembly plant and a make to
stock fabrication plant
Control material flow to
support both plants
V - Plants: each divergence point represents an opportunity for the misallocation of material

Bottlenecks cause:
1. Misallocation of material and over production prior to bottleneck creates large inventory in front of
bottleneck
2. Misallocation beyond bottleneck results in wrong finished goods inventory and increased load on the
bottleneck
Major concerns facing managers
1. Large finished goods inventories
2. Poor customer service
3. Demand appears to change constantly
4. Others complain about lack of manufacturing responsiveness
5. Interdepartmental conflicts in manufacturing
Traditional responses
1. Carrying finished goods has not contributed to better customer service - thus try to improve forecasting
ability
2. Because of inefficiencies seen in the plant - try to reduce direct labor content
3. Try to improve quality

A - Plants: each convergence point represents an opportunity for the misallocation of resources
1. Misallocation of resources often caused by products processed in excessively large batches
2. Wave-like material flow often results in low resource utilization
3. When material arrives - overtime is required to process.
4. Often material is released early to maintain labor efficiencies
Major concerns facing managers
1. Assembly is continually complaining about shortages
2. Excessive unplanned overtime
3. Unsatisfactory resource utilization
4. Wandering bottlenecks
5. Entire operation seems out of control
Traditional responses
1. Improve the efficiency of the operation
2. Control use of overtime
3. Focus engineering efforts on reducing the unit cost of production

T - Plants: assembly points represent divergence in product flow (not convergence like A plants) each assembly point
represents an opportunity for the misallocation of material (stealing)

Major concerns facing managers

1. Large finished goods and component part inventories
2. Poor due date performance
3. Excessive fabrication lead times
4. Unsatisfactory resource utilization in fabrication
5. Fab and assembly treated as separate plants

Traditional responses
1. Improve deliveries off the shelf by developing better forecasting techniques.
2. Improve deliveries off the shelf by improving inventory planning and control
3. Reduce costs by improving efficiencies

Push-pull production control pg. 13