1.1.3 Sales Master Scheduling and Sequencing 01APR2014

SCMH Section 1.1.
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Sales, Master Scheduling and
Sequencing Guidance Material
Revision Letter: A
Revision Date: 1-April-2014
www.iaqg.org/scmh Section 1.1.3
Table of contents
1 Introduction
1.1 Classification of production
1.1.1 Project
1.1.2 Lot / Batch / Intermittent
1.1.3 Line / Repetitive
1.1.4 Continuous
1.2 Strategies of production
1.3 Manufacturing Resources Planning (MRP2)
2 Master Planning
2.1 Demand management
2.2 Sales & Operations Planning and Resource Requirement
Planning
2.3 Master Production Scheduling and Rough Cut Capacity
Planning
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1. Introduction
Manufacturing is complex. Some firms manufacture a few different products whereas others
manufacture many products (or many families of products), and some products are built at high
production rate whereas some others are produced at low rate (or even one unit each). However,
each uses a variety of processes, machinery, equipment, labor skills and material. To be
profitable, a firm must organize all these resources to make the right goods at the right time at the
right quality and do so as economically as possible. To do that, it is essential to have a good
planning and control system to reconcile demand with supply (that means to ensure the
organization will always be able to deliver to its commitments and will not commit if it is not
capable). A good planning and control system must answer the following four questions:
-What are we going to make?
-What does it take to make it?
-What do we have?
-What do we need?
Manufacturing Resources Planning (MRP2) is a planning and control system with 5 major levels:
Strategic Business Plan; Sales and Operations Planning; Master Production Schedule; Material
Requirements Planning; Purchasing and Production Activity Control.
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Each level varies in purpose, time span, and level of detail. Characteristics are summarized in the
following table:
Master Planning encompasses Demand Management, Sales and Operations Planning and
Master Production Scheduling. But before focusing on the core content of this section, we have
to lay the foundations of Supply Chain Management and set terms back in context. Paragraph 1.1
is devoted to the classifications of production we can come across, paragraph 1.2 summarizes
the main strategies of production and paragraph 1.3 presents the Manufacturing Resources
Planning (MRP2) model widely used in industry.
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1.1. Classification of Production

There are many ways of organizing a production facility to manufacture the product needed. Some
factors that affect the organization are for example:
-The management approach to manufacturing,
-The volume of each product required,
-The question of high cost specialized products, or low cost high volume mass-produced
products,
-Is the product engineered to order or is it produced against a forecast?
There are four broad typologies of manufacturing process methods in common use: Project
manufacturing, Intermittent manufacturing, Repetitive manufacturing and Continuous process.
They can be classified according to the variety (or complexity) of the products and the volume
manufactured.
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1.1.1 Project
Project manufacturing includes the manufacture of one-off major capital equipment. Part of the
lead-time to supply the equipment includes the design time plus the purchasing lead-time for the
material and special equipment.
Initially the project is planned in broad terms to reserve capacity, but as the detailed design
becomes available so should it be specified into the planning system. A project team created
especially for the purpose controls these types of projects.
Firms using project manufacturing usually compete on the basis of product design capability and
quality.
Project production is characterized by complex sets of activities that must be performed in a
particular order within the given period and within the estimated expenditure. Each project has a
definite beginning and a definite end. Where the output of a project is a product, such products
are generally characterized by immobility during transformation. Often delays take place in the
completion of the projects. Such delays are generally very expensive due to escalation in the cost
of factors of production and incidents of penalties.
1.1.2 Lot / Batch / Intermittent
These three terms indicate a form of manufacturing in which the jobs pass through functional
departments in batches or lot.
Batch manufacturing involves the production of a part with a certain amount of repetition. Jigs and
fixtures may be used and the manufacturing process is defined as a series of operations. For
each operation the machine to be used is identified and the work to be carried out defined. The
batch is delivered to the machine, which is set up for the batch, and the full quantity is produced.
The machine is then used for batches of other products.
Each batch can have a totally different routing through the work centers and the work content will
differ for each batch. Shop floor reporting is required for this to work satisfactorily.
This typology of production is characterized by large work-in-progress and long manufacturing
lead-time. Delays may occur due to lack of materials or components, imbalanced workflow, design
changes, inaccurate parameters. To overcome work shortages and keep workers and machines
busy, more work is released to the shops which, in turns increases work-in-progress.
1.1.3 Line / Repetitive
Line or repetitive manufacture includes the production of high volumes of individual products
produced on an assembly or flow line. The key factors that distinguish this type of production are:
-The line has balanced work stations and works at a fixed rate,
-The sub-assemblies being produced in other shops are fed directly to the line and the two
production rates are linked together,
-There is a lower work-in-progress than in an intermittent manufacturing configuration.
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1.1.4 Continuous
The process happens for 24 hours a day, 7 days a week. The volumes are high and the routing
is fixed. The material is automatically supplied and transferred from one part of the process to
another.
The capacity is usually controlled using finite capacity planning and is restricted by the pipe or
vessel size.
Aeronautic and Space companies mainly belong to Project and Intermittent manufacturing
typologies.
1.2. Strategies of Production

Manufacturing environments can be classified thanks to the decoupling point approach.
The decoupling point defines the stage in the manufacturing value chain, where a particular
product is linked to a specific customer order. Different manufacturing environments such as
make-to-stock, assemble-to-order, make-to-order and engineer-to-order, relate to different
positions of the decoupling point. These may be considered as product delivery strategies, having
different implications for manufacturing objectives such as customer service, manufacturing
efficiency and inventory investment.
Lets take the example of a 4-common phases supply chain process where a company receives
components and raw material from suppliers, manufactures semi-finished, assembles sub-
assemblies and delivers. When calculating the position of the decoupling point in the chain, we
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may find it in the middle of one given phase. Then, to be on line with market expectations, the
company will build a certain type of inventory on the right side of the decoupling point, as
visualized in the figure:
Firms that serve their customers from finished goods inventory are known as make-to-stock
firms. Make-to-stock is a manufacturing strategy in which final products are made in advance of
any orders by the final consumer. From the customers perspective, these are off the shelf
products. Companies follow this strategy when the market dictates that their products be finished
and available for immediate purchase and use.
Firms that combine a number of options together to meet a customers specifications are called
assemble-to-order firms. In the assemble-to-order strategy, the company builds sub-assemblies
and assembles the end products only when a customer order has been received.
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Firms that make the customers product from raw material, parts and components are make-to-
order firms. In that configuration, product is designed but the company does not start
manufacturing until a customer order is received. Highly customized products are generally made
in this fashion.
An engineer-to-order firm will work with the customer to design the product, and then make it
from purchased materials, parts and components. This is the Engineer to order strategy. Engineer
to order products are by definition either unique or very complex and produced only in small
quantities. Special purpose machine tools, space shuttles are all engineer to order products. In
ETO companies, no product is engineered and/or manufactured until the company has at least a
letter of intent, a contract, or a customer order. At that point the design process can begin, after
which material is ordered and the product is produced and delivered to the customer.
Of course, many firms will serve a combination of these environments. The decoupling point may
differ between products and over time for a particular manufacturing firm.
1.3 Manufacturing Resources Planning (MRP2)

MRP2 is a Manufacturing Planning and Control System concerned with planning and controlling
all aspects of manufacturing, including managing materials, scheduling machines and people,
and coordinating suppliers and key customers.
Some definitions:
-Demand refers to the products that the organization is being asked to provide, expressed
in customer orders, sales forecasts, distribution center replenishment, interplant transfers,
-Supply refers to the resources available to meet that demand: materials, manpower,
machinery, suppliers and their capacity, testing, storage space, money.
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MRP2
Model
Step by step Step by step
planning Strategic capacity
Business
SBP drivesPlan S&OP constrains
S&OP SBP when
inconsistent Check feasibility
Demand Sales & through resources Resource (Requirement)
Management Operations
availability check
Planning
PlanningMPS constrains
S&OP
drives S&OP when
MPS inconsistent
Master Check feasibility
through resources Rough Cut Capacity
Production availability check
Planning
Schedule
Master Planning scopeMPS MRP constrains
drives MPS when
MRP inconsistent
Material Check feasibility
through resources Capacity Requirement
Requiremen availability check
Planning
t Planning
Production
Purchasing Control, monitor and I/O control
Activity report
Operations sequencing
Control
Note the feedback loops:

-At each level, plan must be checked against capacity to ensure its feasibility.
-The planning and control system works from the top down and has feedback from the
bottom up.
Planning and control processes exist at several levels: the most common are business planning,
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sales and operations planning, master scheduling, material requirements planning, production
activity control. Each level addresses different decision-making needs, covers a planning horizon,
and is stated in units appropriate for the level. The highest level addresses long-term needs, such
as the decision to build facilities. The lowest level addresses short-term needs, such as deciding
which of two waiting jobs should be run through an assembly process first.
Each level produces two types of plans. The first is for the delivery of that levels focus (left side
of the MRP2 model), and the second is for providing the capacity needed to support that delivery
(right side of the MRP2 model).
The 5 levels in the Manufacturing Resources Planning model are:
Strategic Business Planning
Business Planning acts as the brain of the system. As a function of top-level tactical and financial
plans of the company, it is the driver of all other activities. Business planning communicates
through both annual and monthly financial budgets that project revenues and expenses for all
major elements of the business. Being a top-level function, business planning is done by the
president and other executives of the company and their staffs.
Sales and Operations Planning (S&OP)
S&OP is an operational plan designed to execute the strategic objectives represented in the
business plan. Its generally expressed in financial as well as nonmonetary terms: units, tons,
hours S&OP is conducted within the broad framework of product families, rates, volumes, and
monthly / quarterly periods.
Sales and Operations Planning is an estimation of long term manufacturing needs.
It is established at an aggregated level of the product hierarchy, at product families level, and
considers:
-Sales forecasts and commercial ranges evolution (launching, end of life-cycle...),
-Resources needed (machines and human resources, long lead time raw materials, cash
flow and working capital needed),
S&OP is a real simulation tool that allows operational feasibility of the companys strategy by
verifying the adequacy between commercial objectives and manufacturing capacities and
financial resources.
It is a monthly process that takes into account the trends and is a reference for the various
activities (manufacturing, commercial, financial, human resources, purchasing).
Production planning determines the quantities of each product family on a planning horizon from
twelve to thirty months, the time bucket length is one month, and the production plan is reviewed
monthly.
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Master Production Schedule (MPS)

MPS leans on the following data to determine the manufacturing medium-term activity for end
items:
-The Sales and Operations Planning,
-The customers order portfolio,
-The available materials and resources.
The master scheduler must develop a plan that makes it possible, given the resources available
to the company, to meet the requirements articulated by the Sales and Operations Planning. This
plan takes the form of items, quantities and specific dates. But here the level of planning is not
within the broad context of product families, but of individual product family members; and here
the dates are not expressed in months or quarters, but in days and weeks. Furthermore, master
scheduling must meet those requirements with a plan (schedule) that makes optimal use of the
companys valued productive resources and time.
In MPS, the planning horizon usually covers three to six months with a time bucket length of one
week, and reviews are conducted weekly or biweekly.
The MPS must be considered as a contract between:
-Operations which promise to deliver the right product at the right time. This implies a
realistic commitment based upon the best knowledge of the existing and probable situation
and a check against the resources available,
-Marketing and sales that buy the production as soon as the products are available, even
if they dont need it at that time. But they know they may keep their promises to their
customers.
To summarize the interaction between the two levels S&OP and MPS: the Sales & Operations
Planning is a commitment to provide resources while the Master Production Scheduling is a
commitment to deliver the products.
Material Requirements Planning (MRP)
Material Requirements Planning MRP determines the quantities necessary to realize the Master
Production Schedule. It uses bill of materials and routings to calculate the quantity of components
needed and manage the short term capacity.
It uses the quantities in inventory, the work-in-process products and pending suppliers orders to
determine, by article and by period, the necessary purchasing and manufacturing orders to fulfill
the customers' orders.
Production Activity Control (PAC)
PAC is a scheduling and a follow up of the purchasing orders and the manufacturing orders. At
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that step, we execute what has been planned in the upper levels of the MRP2.
The global MRP2 model is now laid down. Paragraph 2 addresses specifically the Master
Planning activities.
Master planning refers to a group of business processes of the highest level of the MRP2 model.
Master planning includes demand management (forecasting and order servicing), sales and
operations planning (production and resource planning), and master production scheduling
(master schedule and rough-cut capacity plan).
2. Master Planning
Purposes of Master Planning are:
-To ensure integration and implementation of the business, sales, marketing, engineering,
finance, and manufacturing plans,
-To manage inventory and backlog to a position desired by the companys executive team,
-To promise product deliveries and feel confident about the ability to keep these promises,
-To plan and commit resources to satisfy customer demands,
-To drive detail material and capacity requirements,
-To create a foundation for accountability within the company to customers and to
suppliers.
2.1. Demand Management

Demand management is the function of recognizing and managing all forms of demand.
Integrating information from and about customers, whether they are internal or external, into the
manufacturing planning and control system, is a key concern for a firm. Demand management
includes activities that range from determining or estimating the demand from customers through
converting specific-customer orders into promised delivery dates, to helping balance demand with
supply.
Demand management is a gateway module in manufacturing planning and control, providing the
link to the marketplace, sister plants, warehouses, and other important "customers. As such, it is
in demand management that we gather information from and about the market doing things like
forecasting customer demand, entering orders, and determining specific products requirements.
Moreover, it is through this module that we communicate with our customers by promising delivery
dates, confirming order status, and communicating changes. Demand management is also
concerned with identifying all sources of demand for manufacturing capacity, including service-
part demands and intercompany requirements.
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Demand management is the key connection to the market in the front end of the Manufacturing
Planning and Control system.
Businesses are forced to look well ahead in order to plan their investments, launch new products,
and decide when to close or withdraw products and so on. The sales forecasting process is a
critical one for most businesses. Key decisions that are derived from a sales forecast include for
example employment levels required and investment in production capacity.
A forecast is an estimate of uncertain future events. Even though forecasts are almost always in
error, it is better to have the limited information provided by a forecast than to make decisions in
total ignorance about the future. Firms must anticipate future demand to best plan how to satisfy
it through on-hand inventory or available capacity. The production or procurement lead time often
requires production and ordering decisions to be made before demand occurs.
Forecasting requires that all factors surrounding the decision-making process are recorded.
Factors that affect forecasting include sales demand patterns, economic conditions, competitor
actions, market research, product mixes, and pricing.
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Example of forecasting process of a company that supplies mechanical parts for Aerospace
industry
Long term forecasts
1) Describe the programs the company works for
2) Update the rate for each family for the coming years
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3) Compare the most recent issue with the previous one and measure the forecast reliability
-Last rate given by the Customer (yearly and/or monthly)
-Previous known rate (yearly and/or monthly)
-Variation in % between consecutive issues
How to read the table?

This table shows forecasts and orders for a given product.
Current month is Dec-08.
The first column on the left side traces the history of previous forecasts and orders. It indicates
the orders and forecasts for a given month: for example, in Apr-08, there were forecasts for 4
parts for Aug-08 and 2 for Oct-08. In May-08, Apr-08 forecasts for Aug-08 have been transformed
into orders, but for Jul-08 other forecasts have been moved forward. You can read it in the last
columns: the total on an 18 months horizon has slightly changed (from 39 in April to 42 in May),
but the total months 1 to 9 has almost doubled (from 15 in April to 27 in May).
And you can also check the nervousness of the demand by comparing the cumulative quantity
month after month in the two last lines
Example of demand planning assessment

The forecasting process has to be assessed to ensure it supports adequately business planning,
sales and operations planning, and master scheduling. Here are 6 basic questions to assess your
demand management process. If you answer YES 3 or fewer times there are opportunities for
improvement in your organization.
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2.2. Sales and Operations Planning and Resources Requirement Planning

The Sales and Operations Plan is a formal plan created by the senior management. The main
inputs are the forecast, the strategic business plan, the financial plan, and the resources available.
S&OP is a set of companywide planning and decision-making processes designed to balance the
supply of the products or services with the demand for them, and to link day-to-day operations
with business goals, operational planning, and financial planning. There are four important
aspects of the process. First, the process goes beyond functional units. Second, in addition to
planning, it is a decision-making process as it may include deciding on discontinuing facilities or
acquiring new ones. Third, it aims to balance demand and supply sides of the business by
discussing sales and production plans collaboratively. Fourth, it is to implement the company
strategy by placing a link between strategic planning and operations.
Sales and operations planning is a monthly meeting. The purpose is to create and maintain two
basics plans for managing the business in the medium and long term. The first is the sales plan,
which is the agreed volume of sales that will occur in the future periods. The second is the
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production plan, which is the agreed volume of production required to support the sales plan.
The planning horizon must go as far out into the future as required for changes to be made to the
resources to enable the sales plan to be met. The plan is created using family groups of products.
These are not sales families, but manufacturing families.
And the key point is to transform commercial signals information into industrial need for capacity.
One of the uses of the production plan is indeed to compare what the plan requires in terms of
resources, versus what is currently available plus what is planned to be available in future periods.
Resource planning calculates the resources required by taking the quantities per time period per
product family and multiplying them by the contents of the load profile. Each load profile identifies
the key resources and quantities needed for one of that family. This is calculated for each family
group. The total requirements are added for each resource per time period. The total can then be
compared to that which is stated to be available in the work center or resource file. The result is
a comparison report that indicates the amount of resource required against that available.
Another key point when implementing a Sales & Operations Planning process is to establish
industrial families. Commercial families have to be transformed into industrial ones.
Lets take the example of a company that manufactures cold-drawn mechanical parts. There are
4 work centers: heat treatment, cold-drawing, surface treatment, cutting and 3 products belong to
2 different commercial families (AM01 and CC02).
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Each product has its own routing (i.e. bill of operations)

And at the end we have 2 bills of resources: in fact, even if product 1 and product 3 belong to 2
different commercial families and have different bills of operations, industrially speaking, they use
the same bill of resources.
The next step consists in calculating, through allocation keys, how the commercial families
consume the bill of resources.
Then we break down the forecast among the bills of resources, according to the allocation keys.
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And we compare required capacity vs. available capacity
We have then a factual analysis to anticipate overloaded situations:

-Invest in new equipment,
-Hire and train people,
-Sub contract,
-Anticipate operations,
-Negotiate with Customer.
The plan is created in months and quarters. Typically the first periods are in months and the
remainder is in quarter and is used to compare the resources available to those required by the
plan. Resources Requirement Planning is used to check if resources required to meet the
production plan are available.
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Example of Sales and Operations Planning meeting agenda

1) Overall market trend, backlog and forecast status (canvassing in-progress and probability
attached to them)
2) Production of the previous month vs. forecast
3) Current deliveries of the previous month vs. planned deliveries
4) Customer service level
5) New product introduction
6) Review each family and each set of decisions regarding needed capacity and available
capacity.
7) Recap of decisions
Ideally, the CEO should be the S&OP process owner. Even if the CEO does not attend the
executive S&OP meeting, as sometimes occurs in very large companies, the CEO should be
supportive and insistent that the process be maintained and executed well, since it can have a
strong effect on achieving business objectives.
Example of S&OP meeting tool
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Example of Sales & Operations Planning process assessment

This short 6 question assessment checks to see if the S&OP process aligns the entire organization
to support the business strategy and helps to resolve problems when there is imbalance between
market demands and available resources. If you answer YES 3 or fewer times there are
opportunities for improvement in your organization.
2.3. Master Scheduling and Rough Cut Capacity Planning

Master Scheduling is a business process designed to balance demand and supply at the detailed,
mix level. Master Scheduling is primarily a decision-making process, performed by the Master
Scheduler.
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The output for this process is the Master Production Schedule, which is the anticipated build
schedule for specific products and customer orders. The master schedule must take into account
the forecast, the production plan, and other important considerations such as backlog, availability
of material, availability of capacity, and management policies and goals. The MPS is the key to
MRP2 success because everything else within the system is working to meet this plan. The MPS
is where marketing and sales meet manufacturing with the master scheduler as the linkman. The
concept is that order entry and customer promises are made from information on the MPS, and
manufacturings task is to meet the schedule, which results in satisfied customers.
Input: Sales and Operations Planning (S&OP)
As we have seen in the previous paragraph, one of the primary outputs from S&OP is the
Production Plan. This represents the levels of production, both internally and outsourced,
authorized by top management and designed to meet the forecast and inventory targets. The
Production Plan represents the marching orders for the Master Scheduler. S/he must ensure
that the sum of the individual items in the Master Schedule equals the Production Plan, within a
few percentage points, plus or minus. It is a way to close the loop between the Strategic Business
Plan and the companys weekly and daily activities.
Input: forecasting and demand management
Demand is a primary input to Master Scheduling. It is expressed in a variety of forms: customer
orders, quotes to customers, sales forecasts, distribution center replenishment, samples, intra
company demand. The Master Schedule must have visibility into all demands or some items will
probably not be built on time. This will often create a difficult situation, with scrambling, expediting,
disruptions to production and/or purchasing, and disappointed customers.
Input: capacity planning
The objective of Master Scheduling is to balance demand and supply at the mix level, and it is
Capacity Planning that addresses the supply side of the picture. It entails translating schedules
for products into workload in order to identify future problems. Capacity Planning serves as a
check to determine whether the schedule is feasible, that is to say enough capacity to do it in the
time available.
Lets say that the shop floor has the capacity to produce 1000 standards hours of workload per
week. But the Master Schedule is generating a workload of 2000 hours for week 4. Thus it cannot
be produced unless some changes are made. Possibilities include:
-Increase the capacity of the shop floor to 2000 standard hours of workload per week,
-Assign some of the work in week 4 to another resource or possibly a sub-contractor,
-Change the Master Schedule so that some of the production schedule for Week 4 is made
in a different week.
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Outputs from Master Scheduling

-The Master Schedule is the source of customer order promising and thus there is a strong
connection between it and the Demand Management function. The inventory levels, future
production, and existing commitments to customers contained in the Master Schedule
show the people in customer order entry the feasibility of promising incoming orders for
specific products, quantities and ship dates
-Material Requirements Planning. The start dates for producing products, as specified in
the Master Schedule, become need dates for the components and raw materials required
to make the products. MRP calculates when items will be needed and how many.
-Financial planning. Master Scheduling uses data in units. It is possible to translate these
numbers into financial terms, to be used for financial planning. This can yield dollarized
projections of future shipments, finished goods inventory levels, production volumes.
Priority-capacity balancing at MPS level

Rough-cut capacity planning converts the MPS into requirements for critical resources in order to
check whether sufficient resources are available to support the MPS. Critical resources include
labor, machinery, and critical parts.
RCCP works on the principle that the company output is the result of work that goes through the
bottlenecks (critical resources). To do this, the master schedule quantities are run against the
capacity requirements of the bottlenecks. The RCCP objectives are:
-To provide a feasibility check of the MPS,
-To give early warning of bottlenecks and how big a problem those bottlenecks are,
-To project the future utilization of the critical work centers,
-To provide the means to manage correctly the work in process to prevent major buildups.
Critical resources are not only machines or direct labor one; they may also be resources that
support the manufacturing process such as:
-Process engineering skills,
-People and specific control devices involved in First Article Inspection process,
-Quality organization involved in accepting non-conforming items by concessions,
-Suppliers that have a specific know-how.
These resources belong to business just like workers or machines or tools. Their availability must
be taken into account as any other resource.
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Example of Master Production Scheduling process assessment
The 6 question assessment checks if the MPS process is managed in order to ensure a balance
of stability and responsiveness. If you answer YES 3 or fewer times, there are opportunities for
improvement in your organization.
-End of Document-
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1.1.3 Sales Master Scheduling and Sequencing 01APR2014

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1.1.3 Sales Master Scheduling and Sequencing 01APR2014

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SCMH Section 1.1.

1.1 Classification of production

1.1.2 Lot / Batch / Intermittent

1.1.3 Line / Repetitive

1.2 Strategies of production

1.3 Manufacturing Resources Planning (MRP2)

2.1 Demand management

2.2 Sales & Operations Planning and Resource Requirement

2.3 Master Production Scheduling and Rough Cut Capacity

1.1. Classification of Production

1.2. Strategies of Production

1.3 Manufacturing Resources Planning (MRP2)

Note the feedback loops:

Master Production Schedule (MPS)

2.1. Demand Management

How to read the table?

Example of demand planning assessment

2.2. Sales and Operations Planning and Resources Requirement Planning

Each product has its own routing (i.e. bill of operations)

And we compare required capacity vs. available capacity

We have then a factual analysis to anticipate overloaded situations:

Example of Sales and Operations Planning meeting agenda

Example of S&OP meeting tool

Example of Sales & Operations Planning process assessment

2.3. Master Scheduling and Rough Cut Capacity Planning

Outputs from Master Scheduling

Priority-capacity balancing at MPS level

Example of Master Production Scheduling process assessment

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