Manufacturing Resource Planning- MRP-II

Input from Higher Level Business Plan

CAPACITY PLAN
PLANNING MATERIAL PLAN (RESOURCE USE PLAN)
(PRODUCTION
HORIZON OUTPUT LEVEL)

Sales Planning
Master Plan
Long Term
Production Resource Requirement
Demand Planning Plan
Aggregate Planing
Management

Master Production Rough Cut Capacity

Scheduling (MPS) Planning (RCCP)
Medium Term
Material Requirement Capacity Requirement
Planning (mrp) Planning (CRP)

Execution Plan
Production Activity
Short Term Control/Shop Floor Ctrl

Hierarchy of Planning in MRP-II

 Agenda
 Define Master Production Schedule (MPS)

 Discuss Some Key Issues Managing MPS

MPS & competitive environments [MTS, ATO MTO]
Structuring of Bill of Materials (BOM)

Lead Time and Time fences

Creating Master Schedule

Maintaining MS- Accepting Customer Order,

Available to Promise
Rough Cut Capacity Planning
 Relationship between Aggregate Plan (Overall
Production Rate) and MPS (Product Mix)
- “family total quantity” of mattress in production plan is disaggregated to planned
production quantities of three models or “end items” in MPS for first 9 weeks

Month 1 2 3 4 5 6
Matress Production 1000 900 950 950 900 900

Aggregate Production Plan for

Mattress Family [Pseudo Part Name]

Week 1 2 3 4 5 6 7 8 9
Model-327 200 200 100 100
Model-528 200 100 100 250
Model-749 200 100 100 250
Total 200 200 200 200 200 200 200 250 250

Master Production Schedule (MPS) for

Mattress Models [Real Parts]
 Master Production Schedule (MPS)
 The Master Production Schedule- represents what
the company plans to produce expressed in
specific configurations, quantities, and dates.

 Master Production Schedule (MPS) is defined as

anticipated build schedule [e.g., products likely to
be build in anticipation] for those items assigned to
master scheduler. It drives material requirements
planning.
Final Assembly Schedule (FAS): FAS, sometimes referred to as
finishing schedule, is a schedule of end items to finish the product for
specific customer orders in a make to order (MTO) or assemble-to-
order (ATO) environment. FAS is required to complete the product
from the level where it is stocked (or master scheduled) to the end
item level.
Manufacturing Environments and MPS

•The competitive strategy of an organization may be

any of the following:
MTS: Make finished items to stock (sell from
finished goods inventory)
ATO: Assemble final products to order and make
components, subassemblies, and options to stock
MTO: Custom design and make-to-order

•It is not unusual for an organization to have

different strategies for different product lines and,
thus, use different MS approaches.
MPS in Make-to-Stock Environment
•Limited number of end items assembled from relatively large
number of components.
•The competitive strategy of make-to-stock emphasizes
immediate delivery of reasonably priced off-the-shelf standard
items. In this environment the MPS is the anticipated build
schedule of the items required to maintain the finished goods at
the desired level. Note that a FAS is not required in this case.

End Item/Product
MPS (separate FAS not reqd.)

Raw Material/Components
Product Structure Tree or Bill of Material
in MTS environment
THE BILL OF MATERIAL (BOM): An inclusive
definition of a final product includes a list of the items,
ingredients, or materials needed to assemble, mix, or
produce that end product. This list is called a bill of material.

Table

Top (1) Leg (4)

An end item (e.g., Table) bill of material (BOM) is used

in Make-to-Stock environment.
MPS in Assemble-to-Order
Environment
•In this environment, options, subassemblies and components are
either produced or purchased to stock. The competitive strategy is
to be able to supply a large variety of final product configurations
from standard components and subassemblies within a relatively
short lead time.
End Item/Product
•Example: automobile may FAS
be ordered with or without
air conditioning, an option. MPS Assemblies/options

•MPS for the options,

accessories, and common
components as well as final
assembly schedule (FAS).
Raw Material/Components
MPS in Make-to-Order Environment
•Many items made from limited number of base materials based
on customer orders.
•In many situations the final design of an item is part of what is
purchased. The final product is usually a combination of standard
items and items custom designed to meet the special needs of the
customer
•Example, custom made boilers. Thus, there is one MPS for the
raw material and the standard items that are purchased, fabricated,
or built to stock and another MPS (FAS) for the custom
engineering, fabrication, and final assembly.
End Item/Product
FAS

MPS
Raw Material/Components
 Structuring of Bills of Material for
MPS in ATO/MTO environments
 Requires forecast of options as well as total
demand.
 MPS for options, accessories & common
components developed based on anticipated or
forecast demand.
 FAS for end item should be developed based on
booked orders.
 Modular Bill of Material, a planning bills of material
is used for this purpose
 Modular BOM
(A type of planning BOM)
Modular bills
-Product assembled from major
subassemblies & customer options
-Modular bill kept for each major
subassembly
-Simplifies forecasting & planning
X10 automobile example (in the next
slide)
Total: 3 x 8 x 3 x 8 x 4 = 2,304
configurations
Only: 3 + 8 + 3 + 8 + 4 = 26 modular bills
 Modular Bills of Material
-Disaggregate the “group total” to the module/option total based on historical
proportion factors shown in modular BOM
-Safety stocks for options to absorb variations in mix may be included as
desired
X-10 Automobile

Engine Exterior color Body

(1 of 3) Interior Interior color
(1 of 8) (1 of 3) (1 of 8) (1 of 4)

4-Cylinder (.40+.1) Bright red (.10) Leather (.20) Grey (.10) Sports coupe (.20)
6-Cylinder (.50) White linen (.10) Tweed (.40) Light blue (.10) Two-door (.20)
8-Cylinder (.10) Sulphur yellow (.10) Plush (.40) Rose (.10) Four-door (.30)
Neon orange (.10) Off-white (.20) Station wagon (.30)
Metallic blue (.10) Cool green (.10)
Emerald green (.10) Black (.20)
Jet black (.20) Brown (.10)
Champagne (.20) B/W checked (.10)
Planning Horizon of MPS
 The planning horizon is the amount of time the master schedule extends into
the future.
 A principle of planning is that a plan must cover a period at least equal to the
time required to accomplish it. This means that the MS planning horizon must
be at least as long as the lead time required to fabricate the MS items. This
includes production and procurement time as well as engineering time in a
custom design environment. This is normally set to cover a minimum of
cumulative lead time along the critical path of low-level components
 MPS Policies: Time Fences
 MPS is a link between operations (production) and sales.
Hence need to have some policies in maintaining MPS,
otherwise it may cause confusions.
 Many organizations divide the planning horizon into periods
with different controls on schedule changes. The closer a
period is to the present, the tighter are the controls on
schedule changes.
 Varying lead times, market conditions, and processing
flexibility make for different time fences. As the time for order
execution and manufacturing approaches, labor and material
are committed. A change in the schedule can be disruptive and
costly, and the costs must be compared with the benefits of the
change. Following time-fence-control guidelines, which reflect
realistic lead time constraints and competitive factors, will
result in an MPS that promotes manufacturing stability and
productivity while providing reasonable flexibility in meeting
marketing demands.
Example: Time Fences and Zones
Demand Time Fence (DTF): DTF is future master schedule period inside to
which changes to MPS are typically not accepted due to excessive cost caused by the
schedule disruption.
Planning Time Fence (PTF): PTF is future master schedule period inside to
which changes to MPS are evaluated to prevent costly schedule disruption. Outside PTF
planned can be freely changes by computer logic.
Creating the master schedule (MS)
 Must recognize all sources of the demand
 Sum of disaggregate figures should match
with aggregate figures of production, inventory
and forecast
 Disaggregation over time should be efficient
(i.e., optimize cost etc.)
 Avoid overloading or underloading the
production facility so that production capacity
is efficiently utilized and low production costs
result.
 Appropriate items must be included in MPS
considering environment MTS, ATO, MTO
 Techniques for Developing
an MS
 Cut and Fit Methods: Try out various
allocations of capacity to products in a
group until a satisfactory combination is
determined.
 Linear Programming: Can write LP model
to generate master plan considering all
constraints, factors and relevant costs.
An Example Master Schedule generated using Cut and Fit
Method: Given Demand Data & Aggregate Plan
Week Month
0 1 2 3 4 5 Total
Aggregate forecast 100 200 150 150 200 800
Production 150 150 150 150 150 750
Aggregate inventory 400 450 400 400 400 450
Item A
Forecast 60 120 90 90 120 480
Production (MPS)
Inventory 300
Item B
Forecast 40 80 60 60 80 320
Production (MPS)
Inventory 100
Total Production
Aggregate plan capacity
Deviation
Total Inventory
Aggregate plan inventory
Deviation
An Example Master Schedule generated using Cut and Fit
Method: Aggregated qty arbitrarily split to get MPS of A and B
Week Month
0 1 2 3 4 5 Total
Aggregate forecast 100 200 150 150 200 800
Production 150 150 150 150 150 750
Aggregate inventory 400 450 400 400 400 450
Item A
Forecast 60 120 90 90 120 480
Production (MPS) 150 150 150 450
Inventory 300
Item B
Forecast 40 80 60 60 80 320
Production (MPS) 150 150 300
Inventory 100
Total Production 150 150 150 150 150 750
Aggregate plan capacity
Deviation
Total Inventory
Aggregate plan inventory
Deviation
An Example Master Schedule generated using Cut and Fit
Method: Computation for assumed segregation
Week Month
0 1 2 3 4 5 Total
Aggregate forecast 100 200 150 150 200 800
Production 150 150 150 150 150 750
Aggregate inventory 400 450 400 400 400 450
Item A
Forecast 60 120 90 90 120 480
Production (MPS) 150 150 150 450
Inventory 300 390 420 480 390 270
Item B
Forecast 40 80 60 60 80 320
Production (MPS) 150 150 300
Inventory 100 60 -20 -80 10 80
Total Production 150 150 150 150 150
Aggregate plan capacity 150 150 150 150 150
Deviation 0 0 0 0 0
Total Inventory 400 450 420 480 400 350
Aggregate plan inventory 400 450 400 400 400 450
Deviation 0 -20 -80 0 +100
Customer Order Booking & MPS
 Interactions between demand management and MPS
is frequent.
 The projected available balance (PAB) and
 available-to-promise (ATP)
are two techniques used by the master scheduler to
project available inventory or capacity and to promise
future production against customer orders.

 The PAB considers the availability of goods based on

consuming the forecast with actual orders. That is, in
distinct future periods, the PAB uses the forecast while
in the near future periods, customer orders are used as
a statement of demand.
Projected available balance (PAB)
PAB CALCULATIONS: It is based on a
concept called consumption of ‘forecast’ by
‘actual orders’.

 PRIOR TO DTF:
 PAB = PRIOR PERIOD PAB OR ON–HAND
INVENTORY + MPS – CUSTOMER ORDERS

 AFTER DTF:
 PAB = PRIOR PERIOD PAB + MPS –
MAX(CUSTOMER ORDERS, FORECAST)
PAB: Calculations
Lead Time:1 Lot Size: 300 DTF: 2
ON Hand:140 PTF: 4
Week 1 2 3 4 5 6
FORECAST 100 100 100 100 100 100
ORDERS 110 80 50 20 0 0
PAB 30 -50
MPS
ATP

[140-110] [30-80]
PAB: Calculations
Lead Time:1 Lot Size: 300 DTF: 2
ON Hand:140 PTF: 4
Week 1 2 3 4 5 6
FORECAST 100 100 100 100 100 100
ORDERS 110 80 50 20 0 0
PAB 30 250 150 50 -50
MPS 300

[30+300-80]
PAB: Calculations
Lead Time:1 Lot Size: 300 DTF: 2
ON Hand:140 PTF: 4
Week 1 2 3 4 5 6
FORECAST 100 100 100 100 100 100
ORDERS 110 80 50 20 0 0
PAB 30 250 150 50 250 150
MPS 300 300

[30+300-80] [250-100]
Available to Promise (ATP)
 Available to promise (ATP) is found to determine if future customer
orders can fit within the existing master schedule. A tool for sales
people. The ATP uses customer orders alone as a basis of its
computation. We will consider three methods of calculations of
ATP figures.
ATP (discrete)
 Cumulative ATP (without lookahead)
Cumulative ATP (with lookahead)
ATP = ON-HAND INVENTORY (APPLICABLE ONLY FOR PERIOD 1) +
MPS – (TOTAL ORDERS BOOKED UNTIL NEXT MPS).

Production Capacity or Inventory

Available to promise
Firm customer
orders (consuming
forecast/capacity)

Time
ATP: Calculations: Discrete (D)
Lead Time:1 Lot Size: 300 DTF: 2
ON Hand:140 PTF: 4
Week 1 2 3 4 5 6
FORECAST 100 100 100 100 100 100
ORDERS 110 80 50 20 0 0
PAB 140 30 250 150 50 250 150
MPS 300 300
ATP: Discrete 30 150 300
[140-110] [300-(80+50+20)] [300-(0+0)]
The time horizon is divided into discrete periods (e.g., 3
parts here) with each having a single material supply source.
Cumulative ATP without lookahead
•All supplies are cumulated till the period under consideration to
which total order booked are subtracted.
•Without look ahead does not take into consideration those future
periods till next supply when there is no production and orders are
booked, hence overestimates.
Week
0 1 2 3 4 5
Item A
Forecast 60 120 90 90 120
Customer Orders 60 55 50 40 30
Inventory 30 120 150 60 120 0
Production (MPS) 150 150 150
ATP(discrete) 120 45
ATP(cumulative without lookahead) 120 215 165 275 245

[(30+150+150)-(60+55)=215]
Cumulative ATP with lookahead
•All supplies are cumulated till the period under consideration to
which total order booked till this period as well as in future periods
before next supply becomes available are subtracted.

Week
0 1 2 3 4 5
Item A
Forecast 60 120 90 90 120
Customer Orders 60 55 50 40 30
Inventory 30 120 150 60 120 0
Production (MPS) 150 150 150
ATP(discrete) 120 45
ATP(cumulative without lookahead) 120 215 165 275 245
ATP (cumulative with lookahead) 120 165 165 245 245

[(30+150+150)-(60+55+60)=165]
Rough-Cut Capacity Planning
 As orders are slotted in the MPS, the effects on the
production work centers are checked

 Rough cut capacity planning (RCCP) identifies

underloading or overloading of capacity on a few critical
resources.

 There are several approaches, such as, Bill of

Resources approach and overall factors.

 Bill of Resource: This gives the number of hours

required at each critical resource to build a particular end
item.
Example: Rough-Cut Capacity Planning
Suppose, work center WC21 is a critical resource. There are two
end items A and B are master scheduled. The bill of resources for
A and B for work center WC21 may appear like the following.
Work Center Part A Part B
WC21 2.5 h 2.0 h
The following is the MPS:
Week 1 2 3 4 5 6 7 8
Part A 10 10 10 10 20 20 20 10
Part B 5 25 5 15 10 25 15 10
Then RCCP calculations will appear as follows.
Week 1 2 3 4 5 6 7 8 Total
Part A (hours) 25 25 25 50 50 50 50 25 300
Part B (hours) 10 50 10 30 20 50 30 10 210
Total (hours) 35 75 35 80 70 100 80 35 510
Available 65 65 65 65 65 65 65 65 520
Over(+)/under(-) 30 -10 30 -15 -5 -35 -15 30 10
Example: Rough-Cut Capacity
Planning
 If we had considered only the sum (as in aggregate
planning), we would have concluded that there is
sufficient capacity (520 hours) versus a requirement
of 510 hours. However, after performing RCCP we
see that several periods have insufficient capacity
while others have an excess.

 Planner’s options to make MPS feasible: (1) adjust

the MPS by changing due dates; or (2) adjust
capacity by adding or taking away resources, using
overtime, or subcontracting of the work .
 RCCP can be very rough sometime. A more refined
approach capacity requirement planning (CRP) is
done during material requirement planning (MRP)
phase of planning.
Thank You