Introduction to Operations Management
Introduction to Operations Management BUS 370
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This 15 page Class Notes was uploaded by Rae Cole DDS on Friday October 23, 2015. The Class Notes belongs to BUS 370 at University of Idaho taught by Tracie Lee in Fall. Since its upload, it has received 9 views. For similar materials see /class/227909/bus-370-university-of-idaho in Business at University of Idaho.
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Date Created: 10/23/15
31 Master Scheduling University of Idaho College of Business and Economics Master Production Scheduling LeammngJectnes ldentify who provides information to and receives information from a master schedule Describe the purpose of a master schedule identify the inputs and outputs of master production schedules Complete a master schedule calculating Available to Promise and Projected Available Balance quot4 In this lesson we will discuss who is involved in the information ow into and out of a master schedule We will identify the purpose of a master schedule and the inputs and outputs Finally you will practice creating a master schedule Quantity and timing APP of orders to be Information to w 4 39 produced between and from leadtime and APP HR MRP time horizon Marketing Accounting Finance Scheduling IS Ops Mgmt Customers Suppliers Regulators Correct Product Capacity W A master schedule provides the timing and quantity of orders to be produced by a company For example Apple manufacturers iPods iPhones and iMacs They schedule production of these product lines using a master scheduling process Each product made by Apple will have its own master schedule for production The master schedule timeframe in most organizations is at least as long as the leadtime to produce a product Leadtim e from the perspective of operations management is the length of time it takes from ordering all the raw materials that go into a product through the receipt of the raw materials plus the time it takes to build the product until the finished product is ready to ship It makes sense then that a master production schedule would be a minimum length of the leadtime to produce a product it may even extend to the Aggregate Production Plan horizon in some companies Recall that aggregate plans are generally between 6 and 18 months A master schedule cannot be put together Without a flow of information to and from Marketing Accounting Finance Operations IS Suppliers and others For example marketing must confirm the size of the market demand sales and operations must put together the aggregate plan which drives the master schedule and suppliers must be able to support the schedule Why do we include customers in a list of key stakeholders who are part of the information flow Customers provide feedback through their decision to purchase or not to purchase products Product demand is a key input into the master schedule Customers also provide important postpurchase feedback which should be used in developing the master schedule For example have you ever purchased something that didn t work properly and returned it to the manufacturer or retailer If enough customers return products it is a signal to the firm that they have a quality issue39 either that there are product defects or that the product is not performing to the customer s satisfaction Either way a product issue will affect product demand and will therefore affect the master schedule MPS Objectives MPS helps supports organizational goals and objectives through Creating a build plan to support the aggregate plan Minimizing on hand inventory Calculating Available to Promise ATP An iterative process Integrates information from other functional areas 4 The objectives of the Master Production Schedule are to create a build plan to support the aggregate plan while minimizing on hand inventory When a Master Schedule is put together one of the outputs is Available to Promise 7 we will look at this in more detail in the next few slides but ATP is an important tool to determine what is available to sell to customers Putting together a master schedule is an iterative process requiring as already stated information from other areas than just operations It is a plan which must change to t reality MPS Inputs and Outputs Inputs Include Beginning Inventory Forecast Demand APP Customer Orders Outputs include What product How many MRp Xhen Ending Inventory for a specific period Available to Promise 4 Inputs into the master schedule include beginning inventory 7 for example we would reduce scheduled builds which support the aggregate plan by the amount of inventory already on hand Inputs also include forecasted demand which comes from the aggregate plan Finally customer orders must be taken into account If orders are for example larger than the aggregate plan s forecast and onhand inventory we may need to increase the master schedule if there is capacity available Outputs will include information such as what product to build how many units and when the orders are needed This data will ow into the Material Requirements Plan to drive part purchases Ending inventory will then become an input into the next iteration of the master plan 7 as beginning inventory MPS How Does It Happen Planned Production APP inventory etc Week flows into MP5 Can we support itquot If no Product If yes disaggregate I MPS Product 2 Product 3 Product 4 e Present Froze n This slide shows the process to create a Master Production Schedule We begin with the inputs into the MP8 and create a master schedule by product We ask the question can we support this plan If we do not have the materials capacity and resources to support it we must go through another round of planning to match supply and demand as closely as possible If we are able to support the plan we disaggregate the master schedule into individual products MPS How Does It Happen Continued rmn Bill of Materials BOM 1 Product structure tree Make to Stock l Make to Order l 4 4 l ll l l l Let s take a closer look at what goes into scheduling individual products First we must decide what to schedule in the master schedule The makeup of a product including all component parts subassemblies and raw materials is referred to as a bill of materials or BOM You cant 39 the BOM as a parts recipe for a product that the firm manufactures A type of BOM called the product structure tree is graphically illustrated on this slide lustrated in the MaketoStock BOM figure for an HP Laserlet printer Printers can b purchased off the shelf from many retailers like WalMart Staples Best Buy and from online sources for immediate shipping because the products have been built before the final customer 7 you 7 is ready to purchase it The BOM is made up of all the parts that go into each type of printer which is why a BOM may be compared to a recipe which requires certain ingredients to make the final product Some firms produce a few standardized end items from a large array of component parts as il e Other firms like Boein produce a wide variety of different end items based on a customer order in a Make to Or er environment For example Delta Alaska United and other airlines cannot go into Best Buy to purchase a plane 7 they must place an order for a plane to be built to their specifications These planes are configured b Boeing from subassemblies like engines wings and galleys These subassemblies are in turn produced from a wide variety of component parts and raw materials A good rule to follow in master scheduling is to schedule the level in a BOM with the fewest number of items So in the make to stock environment we usually schedule the end items while in the make to order environment we usually schedule major subassemblies Once the decision has been made about what level of the product to schedule the scheduler must decide how much of each item to produce each period over the planning horizon The scheduler must look at forecasted demand existin customer commitments and inventory levels to complete this activity The idea is to meet all customer needs with as little excess inventory as poss1 e MPS How Does it Happen Continued Planned Production Flows into MRP SL CRP Week Freezing the MPS Too much short term change can be disruptive Product I Timing depends on production lead times Frog Control order promises to customers via ATP Product Product 4 e Present Froze n Finally once the schedule has been completed it ows into the Materials Requirement Plan and Capacity Requirement Plan to ensure a match between build plan material and capacity availability The MP8 is then frozen for a period of time Freezing the MPS prevents too much short term change which can be disruptive to a build schedule The length of the frozen period depends on lead times for production For example if it takes 4 weeks from the time material is ordered until the nal product is built then the frozen period will be 4 weeks 7 including the current week Another reason to freeze the build plan is to control order promising to customers using a quantity referred to as available to promise This number represents items still available for sale to a firm s customers Promising more units than the ATP will result in some customers not receiving all or part of their orders Aggregate Plan Totals 2000 2000 2400 2400 2400 Apple Aggregate Plan 80 iPods 10 iPhones 10 iMACs i1 Let s consider the example of Apple The numbers on the following slides are purely for illustrative purposes and do not come from Apple An aggregate plan from Apple would include iPods iPhones and iMacs for example If Apple represents this as a single line item of total units it might look like the table in this slide by month over a 6 month horizon Further let s assume that 80 of the demand for Apple products is for iPods 10 for iPhones and 10 for iMacs Forecasted Demand for Apple s MPS Based on the Aggregate Plan February That brings us to a disaggregated aggregate plan for 12 weeks the length of our MPS horizon The red number will be current week and cannot be changed The blue color represents the frozen period which cannot be changed without management approval and expediting The green portion of the plan can be changed to balance supply and demand We are still aggregated at a product level Now that we ve got a master schedule which has been agreed at a product line aggregate level we will break it down to a product level MP5 for iPods ofiPod Nanos at end of December 100 Forecasted Demand Customer Orders Projected Customer MPSt Available Balance 340 586 220 216039 MP5 Available Cust0ner Orders until next scheduled build to Promise While the report format for a master schedule varies the table given on this slide is typical All numbers in this table are in hundred thousands For example 300 is actually 300000 This table represents the portion of iPod demand attributable to iPod Nanos There are now several versions of the Nano and Apple would actually create a schedule for each product but for illustrative purposes we will lump all Nano demand into one table In the next few slides we will walk through how to arrive at all the numbers in this table Right now let s talk about what each row in the table means The master schedule includes a line item for forecasted demand and also a line item that shows the actual customer orders in each time period Master schedules also include a line called either projected available balance or projected onhand inventory which is used to determine when a build must be scheduled to support forecasted demand or customer orders The projected available balance inventory position is calculated by subtracting the larger of customer orders or forecasted demand in each period from the projected available balance in the previous period We will go through this calculation on the next slide When there is not enough inventory to support demand ie the projected available balance would be negative a product build is scheduled This planned build is entered in the Master Production Schedule or MPS row In the table you can see that production is scheduled in weeks 1 3 5 7 9 10 and 12 Why is the number always 600 There is a note at the top ofthe slide that Apple produces in batches of 600 units Some companies have a set batch size which is always built Other companies build just as many as they need to support the demand A master schedule also includes a row called Available to Promise ATP shows how many units are still available to sell to customers It is the difference between what sales forecasted to sell the Forecasted Demand row and what they actually have sold so far the Customer Orders row Remember that forecasted demand comes from the Aggregate Plan but this information originally came from the sales force which is forecasting demand for a company s products based on a knowledge of customers competitors the market and other factors that in uence demand When there is good communication and a high level of trust between operations and sales operations will schedule builds to support this forecasted demand even when customer orders in that same time period do not match For example note that in week 1 in January forecasted demand is 300 Customer orders are only 285 This means that customer orders are less than the forecasted demand in week 1 Operations builds products to support whichever of these two numbers is larger 7 in this case the forecasted demand The unsold units built to support the forecast will be shown in the Available to Promise line so that any sales person can access the information and know how many units are sti available to sell to customers Some online store sites actually show this same information to customers Have you ever gone to a website to purchase something and saw a note on the screen that says something like Only 5 more in stock 7 this is a type of Available to Promise for iPods ofiPod at end of December Forecasted Demand Customer Orders Projected Customer Orders MPSt Available Balance MPS Available to Promise Let s go through the calculations for this table First some textbooks may include a column called PD which stands for past due or may include a week 0 column We will include this information at the top of the table instead and will begin our table with a column for week 1 which is the start of the time horizon 7 the current week for our master schedule The other columns represent weeks or days or months depending upon the speci c rm We will use weekly time periods or buckets The current or past due inventory position is 100 units In week 1 our forecasted demand is 300 and customer orders are 28539 the larger of these is 300 Recall from the previous slide that in order to calculate projected available balance we use the larger of these two numbers 7 this will help us determine when a build needs to be scheduled We have 100 on hand we need to support demand for 300 so we are 200 short This would mean our projected available balance is a negative 200 When the projected available balance would be negative it s time to schedule a build Our Nano builds are scheduled in batches of 600 so we enter 600 in the week 1 MPS cell So what will our actual projected available balance be now that we have 100 units on hand we need to support demand for 300 which is the greater of forecasted demand and customer orders in week 1 and we will build 600 The calculation is 100 7 300 600 and it gives us an ending inventory position or projected available balance in period 1 of400 units Next we do the calculations for period 2 s Projected Available Balance and MPS rows We have 400 in projected inventory at the end of the last period The forecast is for 300 units and we have customer orders of only 250 units so we subtract the larger of these two numbers 300 units from the 400 units in projected available balance at the end of period 1 This gives us a new projected available balance in period 2 oflOO units In period 3 we determine that we will need to schedule a build of 600 units Why is that Because the 100 units in Projected Available Balance at the end of period 2 are not enough to support the larger of forecasted demand or customer orders in period 3 7 in this case the larger of those two categories is 300 units in forecasted demand 100 units 7 300 units 200 units We need to schedule a build in week 3 Our new projected available balance then will be 100 7 300 600 400 units Going into period 4 we need 300 units forecasted demand is larger than customer orders and we have 400 in PAB from the previous period Therefore we do not need to schedule a build We will have 100 units remaining in PAB a er inventory is pulled to support the forecasted demand Let s do one more week together then you will have an opportunity to ll in periods 6 through 12 on your own and check your work Period 5 has requirements of 300 units the larger of customer orders or forecasted demand The Projected Available Balance of 100 units on hand at the end of period 4 is not enough to meet this need so a build of600 units is scheduled in week 5 Our new projected available balance is 100 7 300 600 400 Try to complete the remaining periods for the PAB and MPS on your own Click to the next slide to see if you get the correct answer For now do not worry about Available to Promise 7 we ll ll that in last MP5 for iPods of iPod at end 100 Forecasted Demand Customer Orders Projected Customer MPSt Available V Balance 558639 725039 2150quot MP5 Available to Promise MPS builds of 600 are scheduled in weeks 1 3 5 7 9 10 and 12 projected available balance is either 400 or 100 until we get to week 9 and then it changes because our Forecasted Demand numbers are no longer set at 300 units per week Note that there are no customer orders in weeks 9 through 12 so the Forecasted Demand row is always the larger of the two rows Having 0 customer orders in weeks 912 doesn t mean that there is no demand for the product Customers just haven t placed orders yet Companies quote purchase leadtimes to their customers and for the most part customers wait until the last possible moment to place an order Consider for example someone who knows they will travel to Seattle in two months However they wait until closer to the trip to buy the plane ticket So the airline might be able to forecast that they will sell a certain number of seats on a ight from Lewiston to Seattle in 8 weeks time but they won t have a customer order until perhaps 3 weeks before the ight The same concept is true for iPod Nano orders WalMart a large customer for Apple may forecast demand for Nanos far ahead of time but will wait to place an order until they are at the leadtime agreed between Apple and WalMart Now let s take a look at Available to Promise MP5 for iPods of iPod at end 100 Forecasted Demand Customer Orders Projected Available W Balance 340 586 220 gt460 MP5 1600 6002 600 Avaname rCustomer Orders until next scheduled build to Promise Available to Promise is typically calculated after the rest of the table is filled in This is because we only calculate Available to Promise in weeks when we have a build scheduled so we have to fill in the table in order to know when to calculate ATP Remember that Available to Promise shows sales people what is still available to sell to customers Why can t we use Projected Available Balance for this instead Because Projected Available Balance is based on the larger of customer orders or forecasted demand 1f forecasted demand is larger than actual customer orders then the Projected Available Balance number is artificially low right Operations assumed that these units would be sold when they scheduled a build But how many units have really been sold and how many units are still sitting in the warehouse available to be sold This is what we use Available to Promise to figure out The first week of Available to Promise is calculated differently than all other weeks We use the On Hand Inventory number from the previous week in that calculation 1n week 1 the on hand inventory is 100 units To this we add the scheduled build of 600 units in week 1 Note that the rest of the formula says we subtract customer orders until next scheduled build We don t have an MPS number in week 2 so we subtract customer orders for weeks 1 and 2 285 and 250 from the 100 units in inventory the 600 units we scheduled to build 100600285250 165 That is our Available to Promise covering weeks 1 and 2 The next time we calculate Available to Promise ATP is week 3 Remember we only calculate it where we have a build scheduled So in week 3 we have a build of 600 The formula now is MPS 7 Customer orders until next scheduled build We only used on hand inventory for the week 1 calculation Given that we will build 600 units in week 3 but not in week 4 we take this 600 units and subtract the week 3 and 4 customer orders of 240 and 230 600240230130 So in weeks 3 and 4 we have 130 units Available to Promise If we haven t sold the 165 ATP we calculated in week 1 we actually have 165 130 units or a total of 295 units ATP Next we calculate ATP for week 5 since that is our next MPS build 600225215160 Week 7 s ATP is 600 215200185 Now we come to weeks in which we do not have any customer orders but we do have builds scheduled So in week 9 our formula is 6000 the customer order for week 9 600 There is a build in week 10 but not in week 11 so we calculate ATP in week 10 to cover weeks 10 and 11 60000600 Finally week 12 has a build of 600 and 0 customer orders so it s ATP is also 6000600 Now that we ve calculated ATP for this particular Master Schedule table let s talk about how we use ATP in practice MP5 for iPods ghand Inventony of iPods at end of December 100 39 pple produces in batches of600 units Forecasted Demand Customer Projected Available MPS Available I 4 to Promise 600 600 This is the completed table for the iPod Nano master schedule The master schedule reported production of 600 units in periods 1 3 5 7 9 10 and 12 We also had 100 units of inventory on hand 1fyou add the numbers in the MPS row the 100 on hand at the start of week 1 over the course of the 12 week planning horizon there are 4300 units available to support requirements Total customer orders over the 12 week period are equal to 1860 units Thatmeans we still have 43001860 2440 units available for sale over the 12 week planning horizon Add up the units we calculated in the weekly buckets in the Available to Promise row and you ll get the 2440 units That means over the 12 weeks we need to sell an additional 2440 units above what is already sold to customers in order to use up all the units we have in inventory or we plan to build Be careful though The 2440 units are not all available in period 1 Given a hypothetical example where a customer called up and asked if we could ship 100 units in week 1 we could say yes because we have 165 unsold units in stock If this did happen in fact we would update the MPS table to show Customer Orders increased from 285 to 285100 385 and we would change Projected Available Balance because now Customer Orders are larger than Forecasted Demand So our new Projected Available Balance would be 100600385315 We would also change our Available to Promise from 165 to 65 Other cells in the table would also need to be recalculated As new orders are received the master schedule is updated so that the sales force has an accurate count of the remaining units available to promise Consider the following scenario Suppose a customer requests 200 units to be delivered in period 2 There are only 165 units available to promise in weeks 1 and 2 Our build schedule is frozen through week 8 unless we get management permission to change the build schedule We would also have to contact suppliers and request their help in expedited delivery of raw materials The first choice would be to instead ask if the customer could accept 165 units in week 2 and the remaining 35 units at the start of week 3 when we have an available to promise of 130 units If the customer pushes back then it is time to contact management about supporting the customer s request After all sales means revenue and companies want to sell when and however many the customer wants to buy Consider a different scenario instead A customer calls and asks for 200 units to be delivered in period 3 We can meet this request since between weeks 1 and 3 there are 295 165130 units in ATP While computers can easily do the calculations required for a master schedule you can see from these scenarios that the most important use of the data is interpreting the output to make decisions in how best to satisfy customers
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