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03May

Inventory Management 101 – The Master Production Schedule (MPS) Explained

In previous articles, we introduced Bills of Materials (BOM) and Material Requirements Planning (MRP), two legs of the inventory planning tripod. The third is the Master Production Schedule (MPS). As the name implies the MPS decides what products are manufactured and when. The required raw materials are then identified by the finished goods BOM, the data from which is then integrated with current inventory data to create the MRP for raw materials procurement.

What is the Master Production Schedule?

Master Production Scheduling is the process that helps manufacturers plan which products and related quantities to produce during certain periods. MPS is proactive in that it drives the production process in terms of what is manufactured and what materials are procured.

The Master Production Schedule forms the basis of communication between sales and manufacturing. Using the MPS as a contract between sales and production means that sales can make valid order promises. the MPS is not a rigid plan. MPS is a dynamic plan and can be changed when there are changes in demand or capacity.

MPS is a Crucial Planning Function

As part of a fully integrated ERP system, MPS typically provides a crucial planning function, extracting actual supply and demand data, as well as forecasts, to deliver accurate and timely production plans that help manufacturers achieve their production objectives and minimize procurement costs. MPS also takes into account the manufacturing capacity of the plant in its calculations. Once production orders have been analyzed and approved, the MRP process is initiated and purchase orders can be generated. MPS also provides protection against shortages, unexpected scheduling snafus and inefficient allocation of resources.

What are the functions of Master Production Schedule?

The MPS strives to form a detailed plan that fulfils the following objectives:

  • Achieve desired customer service levels
  • Make the most efficient use of resources
  • Maintain a desirable level of inventory

The MPS in operations management must balance the demand identified by sales and marketing with the availability of resources.

Different Master Production Scheduling techniques

The MPS needs to plan for what will be manufactured at the most efficient level. If the MPS covers too many items, it will be difficult to put the plan into action, effectively. Whereas, if the plan is not detailed enough, the production will suffer. As a general rule, master scheduling should happen where the smallest number of product alternatives exists.

  • In make-to-stock environments, a limited number of items are assembled from a larger number of components, for example, video recorders or computers. The MPS should in this case be a schedule of finished goods items.
  • In a make-to-order environment, many different finished goods can be produced from a relatively small number of raw materials. A great example of this process would be how cars are manufactured. The subassemblies for many cars will be the same but the different models of cars manufactured differ in specific options such as color, stereo, sunroof, and electric windows. The MPS in a make-to-order environment is a schedule of the actual customer orders.
  • Assemble to order environments make use of raw materials to form basic components and complete subassemblies. These components and subassemblies make up a variety of finished products. The Master Production Schedule should therefore take place at the subassembly level.

The Master Production Schedule requires a slightly different focus for each of these options. In each case, it will base the schedule on the smallest number of product options, as illustrated below:

Supply-Demand Options and MPS Focus

What is the Relationship Between MPS and MRP

The Master Production Schedule (MPS) is the main driver of the Material Requirements Plan (MRP). Along with the bills of material, MPS can determine what components are needed from manufacturing and what components need to be purchased. The MPS is a priority plan for manufacturing.

While MPS and MRP have some similarities, including the ability to generate planned manufactured items and purchase and transfer orders, there are a few characteristics that set them apart. For example, unlike MRP, MPS tends to focus its planning capabilities on the production of finished goods, components or parts that generate the greatest profitability for the manufacturer and are therefore likely to constitute the lion’s share of the resources needed for production.

Another difference is that the MPS operates only within one level of an item’s BOM, while MRP can be utilized at every level. MRP focuses its planning capabilities more toward meeting demand for component parts or subassemblies, while MPS focuses more on establishing production plans to satisfy the actual demand for finished products, as well as to meet projected customer delivery dates.

MPS plans are typically based upon input such as actual sales orders, service orders, available resources, inventory levels and capacity constraints or forecasts. These forecasts give manufacturers the ability to anticipate product demand and the flexibility to adjust production plans based on seasonality, promotions and fluctuating demand for particular items and/or finished products. The output from MPS includes quantities of an item to be produced, due dates and quantities available to promise.

The Benefits of MPS

  • Ability to make adjustments to fluctuations in demand while minimizing waste
  • Prevents shortages and scheduling mishaps
  • Improves efficiency in the location of production resources
  • Provides more effective cost controls and more accurate estimates of material requirements and delivery dates
  • Reduces lead times throughout the year
  • Provides an effective communication conduit with the sales team for planning purposes

MPS Is at the Heart of a Manufacturing ERP System

MPS is the link between planning and manufacturing, being used as the basis for calculating the capacity and resources required to fulfill production plans. MPS lies at the heart of a manufacturing ERP system, and connects to multiple modules including Accounts Payable (AP), Accounts Receivable (AR), General Ledger (GL), Customer Relationship Management (CRM), Inventory, Purchasing, Lot Tracking and Human Resources (HR), just to name a few.

Common MPS Output Reports

Some of the standard reports created by a MPS include:

  • Available-to-Promise –Presents the available-to-promise quantities for each MPS line item. The report is time-phased, usually into weekly or monthly “buckets.”
  • Demand Tracking Report – Provides historical data on actual shipments and order bookings as compared to management forecasts.
  • Forecast Data Report – Summary of historical demand activity, which indicates the significance of errors between forecast and actual and provides a statistical summary.
  • Period Summary Forecast – Forecast by line item within a product group for each period through the future 12 periods, with summaries by period for the group and yearly for line items.
  • Item Demand and Forecast – Presents several years of historical data (user-specified) and the next 12 months of forecast demand for each item. Typical data elements can include YTD totals, total yearly demand and quarterly totals, with comparisons by percent between items and their total product group.
  • Build Schedule Report – Reports the build schedule for one or all assemblies.
  • Schedule vs. Actual Output – Reports the actual output compared with the scheduled output at a particular work center.
  • Where Used Report – Lists all parts/tools used at each work center/machine.

Inventory Management 101

The art of efficient inventory management is to maintain the minimal level of raw materials on hand to feed the production of the maximum quantity of finished goods at any point in time. The integrated Master Production Schedule (MPS), Materials Requirements Planning (MRP) and Bill of Materials is the engine that drives optimal inventory management.

If you want to learn more about Inventory Management Best Practices, watch our on-demand webinar on Implementing Inventory Management Best Practices.