Aggregate Production Planning and the Master Production Schedule

AGGREGATE  PRODUCTION  PLANNING  AND  THE MASTER PRODUCTION  SCHEDULE

Aggregate planning is a high-level corporate planning activity. The aggregate production pian indicates production output levels for the major product lines of the company. The aggregate plan must be coordinated with the plans of the sales and marketing departments. Because the aggregate production plan includes products that are currently in production, it must also consider the present and future inventory levels of those products and their component parts. Because new products currently being developed will also be included in the aggregate plan. the marketing plans and promotions for current products and new products must be reconciled against the total capacity resources available to the company.

The production quantities of the major product lines listed in the aggregate plan must he converted into a very specific schedule of individual products, known as the master production schedule (MPS).lt is a list or the products to be manufactured, when they should be completed and delivered, and in what quantities. A hypothetical MPS for a narrow product set is presented in Figure 26.2(0), showing how it is derived from the conesponding aggregate plan in Figure 26.2(a). The master schedule must be based on an accurate estimate of demand and a realistic assessment of the company's production capacity.

Products  included in the MPS divide into three categories: (1) firm customer orders, (2) forecasted demand, and (3) spare parts. Proportions in each category vary for different companies, and in some cases one or more categories are omitted. Companies producing assembled products will generally have to handle all three types. In the case of customer orders for specific products, the company is usually obligated to delivery the item by a particular date that has been promised by the sales department. In the second category. production output quantities are based on statistical forecasting techniques applied to previous demand patterns, estimates by the sales staff. and other sources. For many companies, forecasted demand constitutes the largest portion of the master schedule. The third category consists of repair parts that will either be stocked in the company's service department or sent directly to the customer. Some companies exclude this third category from the master schedule since it does not represent end products.

The MPS is generally considered to be a medium-range plan since it must take into account The lead times to order raw materials and components, produce parts in the factory, and then assemble the end products. Depending on the product. the lead times can

range from several weeks 10 many months; in some cases. more than a year. The MPS is usually considered to he fixed in the near term. This means that changes arc not allowed within about a 6 week honzon because of the difficulty in adjusting production schedules within such a short period. However. schedule adjustments are allowed beyond 6 weeks to cope with changing demand patterns or the introduction of new products.Accordingly, we should note that the aggregate production plan is not the only input to the master schedule. Other inputs that may came the master schedule to depart from the aggregate plan include new customer orders and changes in sales forecast over the near term.