Master Scheduling

Why we do need Master Scheduling?

Master Schedule is a set of planning numbers that drives the MRP. It represents build plan that includes all the individual product families, expressed in specific configurations, quantities and dates. It takes into account the forecast, SO&P's aggregate production plan, customer orders, projected available balances, Available-To-Promise, backlog, availability of material, the planned and maximum capacity, management policies and goals. We need master scheduling to plan and commit resources to meet customer demands, guiding against excess inventories and backlog. Basically it is balancing supply and demand by discrete time segments - daily and weekly. Most importantly, Master Scheduling ensures integration and implementation of the sales, manufacturing, finance, engineering, procurement, and logistics plans, that would promise product deliveries and continual profitability of the company's business. 

Time Segment
The number of periods is dependent upon the company's choice of planning horizon. Each period could represent a day or a week.

Item Forecast
This is a forecast number that identifies the independent demand for the master scheduled item. An example would be an item that can be sold by itself and sold directly to the customer.

Option Forecast
This is a forecast number that reflects the anticipated demand for an item that will be sold as part of some products. For example, an anticipated sale of a service spare part, or a motor for a chiller assembly would constitute a dependent demand.

Total Demand
It is the sum of Item Forecast, Option Forecast and Actual Demand. If, however, the forecast is not replaced with booked customer orders, then the Total Demand should exclude that forecast number which is in a process we called Forecast Consumption. However, it really depends on your company policy or the Forecast Consumption rules, whether a past due forecast or an unconsumed forecast be dropped or to roll forward. If the booked customer order was not part of the original forecast and it is treated as an Incremental Demand.

Master Schedule (MPS)
This is the row where supply orders (quantities and due dates) will be placed by the master scheduler and the MRP. Master Schedule supply orders consists of the MRP's Planned Order, Firm Planned Order, and Released Order (or Work Order).

Released Order (RO) or Scheduled Receipt (SR)
Other aliases are Work Order, Manufacturing Order, Production Order, or Purchase Order if it is a purchased item. Work Orders initiate the production process by authorizing material, labor, and equipment to be used to manufacture specific products. Released Orders are not exploded via MRP because they would double create lower-level allocations for materials, and would be treated similarly as the demand on the materials contained in the FPO's bill-of-material until that material is issued according to the build plan.

Firmed Planned Orders (FPO)
FPO is a supply order that the master scheduler places to take control away from MRP. It is a place-holder that allows the master scheduler to firm a computer's planned order in qty and time. ERP system is restricted from changing the FPO, but is the scheduler's responsibility to change it. Once the scheduler creates FPOs that balance supply to demand, MRP will not attempt to create additional supply orders because they won't be needed. FPOs with the bills-of-material are then exploded through MRP to plan materials and capacities.

Computer Planned Orders (CPO)
CPO is a supply order created by MRP system, not by master scheduler. It serves as a suggestion telling that a Firm Planned Order of an indicated size would be needed if demand and supply are to balance. The scheduler must convert the CPO into Firm Planned Order, or convert directly into a Released Order. MRP bases its creation of CPOs on Demand Need Dates, Projected Gross Requirements, Safety Stock, On-Hand Balances, predetermined Lot Sizes, and Lead Times to ensure that the release and production or purchase of material will meet the demand need date. CPO creation rules are controlled by Planning Time Fence.

Planning Time Fence (PTF)
It is a date-related boundary that allows MRP system to create CPOs with due dates after predefined dates, and not before. Within the planning time fence, the master scheduler take complete controls all the supply orders. By operating with in planning time fence, MRP system knows when it can or can not place a CPO.

Projected Available Balance (PAB)
It calculates what will be in inventory at a specific of time. If a company doesn't use Safety Stock, the perfect supply-demand balance will be a projected inventory balance of zero. That means a positive PAB for any period of time would suggest a potential surplus or excess stock condition. A negative PAB means the system is projecting a potential shortage. In the case of a potential surplus, MRP may recommend to move supply orders out, cancel some, or cancel all altogether. In the case of potential shortfall, MRP Exception Messages may ask to release new supply orders or move future supply orders in to cover the projected deficit.

PAB = (On-Hand Balance + Scheduled Receipt) - Projected Gross Requirements

Projected Gross Requirements
This is a row in the MRP matrix that represents demand for the master scheduled item in the MPS matrix (not from customer orders).

Available-To-Promise (ATP)
This is the uncommitted inventory balance, maintained in the master schedule to support customer order promising. ATP qty in the 1st period equals On-Hand Balance less the Actual Demand that are due and past due. ATP tell the sales manager and demand planner of the products that how many more can still be sold without modifying the current master schedule. In any period containing MPS scheduled receipts, ATP qty equals MPS less Actual Demand in this period and all subsequent periods before the next MPS Scheduled Receipt.

Action Exception Messages
An output report from MRP that identifies the need for and type of corrective action to be taken to address a current or potential problem. Examples are: to release orders, to firm planned orders, reschedule in, reschedule out, cancel orders.

Figure 15.1 Multi-Level Bill-of-Material showing the Master-Scheduled items and MRP-Level items

For illustration purpose, I pick a Level 3 BOM item, Control Box, which is controlled at MRP level. Figure 15.2 will then show you how the master scheduled Level 0 Final Assembly links to this Level 3 MRP item, and how MRP calculates and display the Projected Gross Requirements and Projected Available Balance. If you want to see all the calculations in Figure 15.2, 15.3 and 15.4, you can download this worksheet.

Figure 15.2 Linking Master Schedule to MRP, and showing how Safety Stock Level, Planning Time Fence, Demand Time Fence and Action Exception Messages integrating MPS

With the MPS and MRP matrix, it tells straightaway when supply and demand are in or out of balance. Here the Time Segments are in week, 10/9 being the current period, week 40. Some Master Schedules can extend up to 24 months. Notice that there is a past-due demand or unconsumed forecast of 1 unit, and for this exercise I let it rolls forward to current week. Several planning parameters are set for this MPS item - safety stock level 50 units, lot size 130 units, lead time 14 days.

Linking MPS to Material Requirements Planning

For illustration purpose to show how MPS and MRP are linked, I used the last 2 rows in MPS matrix to show the master schedule by Due Date and Start Date. There are 4 Scheduled Receipts of 130 units with due dates in end of week 41, 43, 46 & 47 to meet the anticipated demand. But there are still imbalances as you 'll soon see. For this example, let's continue with the supply orders for week 46 & 47 before the master scheduler makes changes.

The supply orders in week 41, 43, 46 & 47 of the master schedule are shown to trigger respective Projected Gross Requirements  for the same qty one period earlier in the MRP matrix (MPS quantities by Due Date and offset by planning lead time to the Start Date). Note that the Projected Gross Requirements row of the MRP matrix represents demand for the master scheduled item in the MPS row (Carriage Assy), not from the final customer. Taking the lead time into account, MRP places the demand requirement of 130 units in current week 40 of the MRP matrix for the Control Box Sub-Assembly in level 3 BOM. The same process repeats itself whenever a Supply Order appears on the MPS row of the Master Schedule.

MRP calculates the Projected Available Balance (PAB) in the same way as does the MPS system (see the next example down). The Planned Order Release row shows the equivalents of the Computer Planned Orders (CPO) that work in the MPS system. It is the row that MRP attempts to deal with any potential supply shortfalls that appear in the PAB row. For example, to avoid a PAB shortfall (-15) from developing in week 45, MRP will recommend a CPO in week 45, and therefore it must be released in week 43 (because lead time for Control Box Sub-Assy is 2 weeks). The same for a CPO to be released in week 44 due to a PAB deficit in week week 46. After checking that there are no material and capacity issues, the scheduler/ planner will convert the CPO into a Scheduled Receipt (Released Order, Work Order or Production Order) when week 43 becomes the current week (preferably the 1st work day of week 43). Once the CPO is converted into a scheduled receipt, it will be automatically be deleted during MRP next run.

Lower-level BOM requirements (so is this level 3 item, Control Box) are maintained when MRP runs through the multi-levels BOM and creates allocation for each lower-level item required to support the scheduled receipt (level 0, Carriage Assy). The Projected Gross Requirements (demand), Projected Available Balance (supply), and Planned Order Release (supply) are calculated by MRP system; only the Scheduled Receipts are maintained by the master scheduler.

In situation when the PAB goes negative and then returns to positive, MRP recognizes that a timing problem exists (that is, there is enough supply orders, but just some of them are scheduled too late). In another situation when the PAB goes negative and stays negative, MRP recognizes that a volume problem exists and will recommend additional supply orders. Each time that MRP is run, this kind of analysis and calculation take place in the system and Exception Messages Reports are generated for scheduler/planers to take action. So in such calculation analysis, MRP would not recommend that the Computer Planned Order be released until we enter into week 43.

Calculating Projected Available Balance

For the master-scheduled item, 135 is the Beginning On-Hand Balance. 135 plus the Supply Orders or Scheduled Receipt in the MPS row (equals 0) in current week, minus the Total Demand (70+1) in current week, that gives the Ending Projected Available Balance (64) for current week. The projected available balance for week 40 through 47 are calculated the same way. There is a potential shortfall of 20 units to meet the expected demand (75) at end of week 45. But as you read down, you will understand how MRP and master scheduler attempt to resolve these supply-demand imbalances.

Calculating Available-To-Promise

The first step is to take what is master-scheduled and subtract the commitments (orders booked but not yet shipped). Because forecast is not a commitment, it is generally dropped in the ATP calculation. Working from right to left from week 47 in Figure 15.2, 130 are master scheduled, and 0 are committed (no actual demand), so ATP is 130 (130 - 0 =130). Using the same calculation, ATP in week 46 is 130, week 43 is 97, and so on.

The Green row shows non-cumulative ATP qty, and the Orange row shows cumulative ATP. To calculate a cumulative ATP or carry over the values, simply add the ATP from each period working left to right. Why do I do that? For example, if a customer calls and asks you how many Carriage Assy you can give him by week 47. At a glance on the ATP row, the answer is 497.

Because of the projected on-hand shortfall of -20 in week 45, and expected it to also fall below the safety stock level in week 46, the master scheduler has moved the 2 supply orders of 130 lot size up a week earlier to week 45 and week 46, to overcome the supply shortfall. Figure 15.3 shows you, after MRP recalculates, that ATP in week 46 and 47 was now made available a week earlier. Week 45's ATP shows 125 because of the Actual Demand of 5 (130 – 5). The positive projected available balance in week 45 now shows no more supply deficit.

Figure 15.4 shows that the company has secured a huge booking and actual demand for week 45 has increased from 5 to 137 units. Since 130 units are master scheduled in week 45 and 137 have been committed, the resulting ATP is  – 7 (130–137). Negative values in ATP are substituted with zero, and ATP in week 45 will become zero (the total master schedule in week 45 is consumed). To protect the entire commitment of the 132 units increase in demand, MRP will look at week 44 which has 237 ATP qty, while at the same MRP also suggests through Exception Message, to create supply order of an additional lot size in order to cover the the negative projected on-hand balance (-22) in week 45. By taking 7 out of the ATP 237 units for week 45 coverage, ATP would remain 230 in week 44. By working back into time, from week 45 to current week 40, the scheduler/demand planner can use ATP to protect customer orders promises without committing current inventory any earlier than necessary.

Checking that there are enough material and no capacity constraints, the master scheduler acts on the Exception Message to create an additional Firm Planned Order of 130 units into week 45. As shown in Figure 15.5, the Scheduled Receipt becomes 260 in week 45, and there are now no more projected on-hand shortfall as well as none falls below the Safety Stock Level in all the 8 weeks.

Managing Safety Stock Level

In SAP, you enter the desired safety stock values, and system flags any situation in which the projected on-hand balance falls below the safety stock level. In the MPS matrix, safety stock level is maintained at 50 per period.  At a quick glance in Figure 15.2 tells you that in week 45 & 46, the projected available balance is expected to fall below the safety stock level or turns negative (40 and -20). The expected available balance of -20 in week 45 [55 + MPS (equal 0) - Total Demand (75)] happened because there is no schedule receipt in week 45.

But why no? The master scheduler has placed a Planning Time Fence at end of week 45. By doing this, the master scheduler can control all the supply orders up through week 45, while MRP can only add or make changes beyond week 45. With a cumulative lead time of 6 weeks, the master scheduler wants these periods "locked up", and not subject to some insensible changes recommended by MRP to balance out a deficiency in some other period without a more careful human analysis. Therefore, MRP can only place a Computer Planned Order (CPO) of 130 in week 46, but not in week 45. However, MRP outputs the Exception Message Report to the scheduler to shift the week 46's CPO of 130 into week 45, and convert it into Firm Planned Order (FPO). This is indicated by the arrowed box in Figure 15.2. Using the same logic, MRP also indicates in the Exception Message to move the week 47's CPO of 130 to week 46 because the week 46's projected available balance (40) falls below safety stock level. These shifts would keep the projected available balance above 50 in all the 8 weeks as shown in Figure 15.3.

Company has booked an increase in demand for week 45 by an additional 132 units (137–5) as shown in Figure 15.4. This cause the projected available balance for week 45 through 47 to fall below the Target Safety Stock Level (-22, 38 and -32). As MRP is restricted from creating a supply order in week 45 (inside the planning time fence) to address the PAB supply deficit of -22, so MRP suggests through Exception Message to the scheduler to create an FPO or Released Order of 130 as indicated by the arrowed box. There was no material and capacity issues, the master scheduler created and released an Firm Planned Order of 130 units into week 45. MRP recalculated, the Scheduled Receipt in MPS row now becomes 260 units in week 45 as shown in Figure 15.5, and the MPS matrix shows there are no more projected available balance that falls below the Safety Stock Level in all the 8 weeks.

Managing Planning Time Fence (PTF)

In Figure 15.2, PTF was being placed at end of week 45. The purpose of placing this planning time fence is to restrict MRP from automatically adding Computer Planned Orders (CPO) within that specified time zone. Only Released Orders and Firm Planned Orders can be created within PTF's close-in periods, and the master scheduler controls this. MRP thus can only settle for placing enough CPOs into week 46, to create a positive Projected Available Balance, and informs the scheduler by means of Exception Message that a negative expected on-hand balance exists inside the planning time fence. The master scheduler must take action if the supply deficit in week 45 (expected on-hand shortfall of -20) is to be avoided. This supply deficit would increase by 70 per week through the planning horizon if no additional Firm Planned Orders (FPO) were placed (supply shortfall of -90 in week 46, -160 in week 47).

Before the scheduler converts the CPO of 130 in week 46 into a Firm Planned Order, or directly into a Released Order with a due date in week 45, these things must be checked first -- ensure there are enough material and capacity to produce these 130 units in time, question the validity of the 70 units forecast, and who need to authorize to make this change.

Managing Demand Time Fence (DTF)

A DTF is being placed at the end of week 42. Inside the DTF, demand will consist only of Actual Demand (committed customer orders with promised dates); forecast will be ignored between the current week 40 and the DTF. Outside the DTF, the Total Demand will then equal actual demand + forecasts (depends on forecast consumption technique used). For example, in Figure 15.2 you can see the projected available balance for week 42 and 43 are calculated differently using this DTF logic. DTF is strictly a mechanical means used to lock demand within the specified near  periods with only booked orders (forecast should already more-or-less have turned into booked orders in current + next 2 weeks). Any changes to the master schedule with the DTF need formal approval from authorities higher than the master scheduler. Additional customer orders can still be promised inside the DTF if there enough ATP quantities. Beyond the DTF, the master scheduler can make changes to MPS, within the existing  rescheduling rules.

Figure 15.3 Improving Projected Available Balance and ATP after shifting in Supply Orders

Figure 15.4 Recalculating Projected Available Balance and ATP after Increase in Demand 

Figure 15.5 Recalculating Projected Available Balance and ATP after shifting in incremental  Supply Order
 

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