Chapter 6

MASTER PRODUCTION SCHEDULING (MPS)

6.1 The Master Schedule.
6.2 The MPS in the Planning Hierarchy
6.3 Strategies for Developing a Production Plan
6.4 The Master Production Schedule, Resources, and the Production Plan
6.5 The Preliminary MPS
6.6 The MPS Inputs and Outputs
6.7 The MPS and Time Fences
6.8 The MPS Figure or Quantity
6.9 The MPS and the Production Environment
6.10 The MPS and the Order Promising

Chapter Objectives

By the end of the chapter students should be in position to:

1. Define Master Schedule and MPS

2. Explain the role and objectives of the master production schedule (MPS)
3. Develop a master production schedule (MPS)
4. Describe time fence policies as applied to MPS
5. Explain MPS as applied to different production environments
6. Calculate the projected balance, MPS quantities, and available-to-promise quantities
(ATP)
7. Relate MPS and rough-cut capacity planning

6.1 The Master Schedule

The Master Schedule states the requirements for individual end items by date and by
quantity. A Master Production Schedule consists of a part number and a date, the end item
part number, and the date that end item part number will be available either in inventory or
shipped to the customer. That’s all that a Master Production Schedule is. It’s that simple. It
becomes complex when you’re trying to work with it, but it’s that simple in theory.

The master schedule states the requirements for individual end items by date and quantity. It
is limited by the production plan and must “disaggregate” the production plan.

Master planning seeks to plan and control the impact of independent demand on material
and capacity. The master schedule is a vital link between sales and production because it
makes possible valid order promises and it represents essentially a contract between sales and
production.

The objectives of the master schedule are to:

1. Maintain the desired level of customer service,

2. Make the best use of resources,
 3. Keep inventories at the desired level.

Inputs to the master production schedule include:

 The production plan

 The forecast
 Orders from customers
 Additional independent demand
 Inventory levels
 Capacity constraints

We have to have a production plan before we can have a Master Production Schedule. The
production plan is the aggregate; remember those bicycles, tricycles and wagons? We’re
going to build X total number of them, so we’re going to need five and a half tons of steel.
Once we know how much steel we have or will have, then we can break it down to 10,000
bicycles, 10,000 tricycles, and 20,000 wagons, but we can’t build more than that because
then we’re out of steel.

In other words, the Master Production Schedule is constrained by and supports the
production plan, and it disaggregates the production plan, i.e. it breaks the production plan
down to specific quantities of specific products. When we calculated the amount of steel
needed to produce bicycles, tricycles, and wagons, we just rolled everything together and
determined an aggregate amount. However, at the Master Production Schedule level, we
have to disaggregate, break that total back down into the units we’re going to produce. What
can we do with the Master Production Schedule if, during the year, bicycles become more
popular and wagons become less popular?

We can change it. We’ve got five and a half tons of steel and it’s up to us whether it becomes
bicycles or wagons. Even though we planned a year ahead what we were going to do, if the
market changes, we can change. But we have to change within the parameters of the
production plan, not beyond it.

6.2 The MPS in the Planning Hierarchy.

We now come to the Master Plan or the Master Production Schedule, as it is usually called.
You already know that you have to have a Master Production Schedule in order to make
MRP work. To begin with, Figure 6.1, which you’ve seen before, shows where the Master
Production Schedule fits into the planning hierarchy.
Figure 6.1: The Planning Hierarchy.

At each production / material plan level we must answer these questions:

 What are the demand priorities?

 What capacity is required?
 What capacity is available?

As we move down the hierarchy, the level of detail increases and the planning time
decreases. The Production Plan refers to setting the overall levels of manufacturing outputs.
Production planning is concerned with planning for each product group and with meeting
desired inventory levels. You might ask, “Aren’t we always trying to drive down inventory?”
We are, but we do need to manage the level of inventory, determine what resources are
needed, and compare that with available resources. Sometimes we may even have to bring in
more resources.

Typically, the production plan has a 12 month planning horizon, although some are shorter,
particularly if you have to account for fluctuation in seasonal demand. Production plans are
made for production families rather than for just one product. Management objectives must
also be considered.

Characteristics of the Production Plan

Production planning typically has the following characteristics:

  The time horizon may be more or less than 12 months, depending on the
manufacturing cycle.
 Demand is seasonal for many products, but not all. Seasonal demand is the worst-case
scenario.
 A plan is made for families or groups.
 Management will have a variety of objectives.

6.3 Strategies for Developing a Production Plan

There are three different types of philosophies for coming up with a production plan:

 Demand matching (chase strategy): Produce the amounts that are demanded at any
time.
 Level production: Continuously produce an amount equal to the average demand.
 In addition to the above pure strategies, a combination (hybrid) strategy may be used.

6.3.1 The Chase Production Strategy

Figure 6.2 shows the chase strategy. The dotted line is production and the solid line is sales.
As we sell we want to produce just enough to keep up with sales. So the more you sell, the
more you produce and if sales drop off, so does production.

The advantages of a chase strategy are: (1) you have a stable inventory, (2) you’re not
building up excess inventory, and (3) you vary production to meet sales requirements.

Now, this means that you have to have the ability to apply surge capacity; either or that you
have a lot of resources that are standing around waiting.

Figure 6.2 Chase (Demand Matching) strategy.

This strategy also has its disadvantages:

 As production increases, workers must be hired and trained. Extra shifts may be
needed and overtime may be necessary. These requirements all increase cost.
 As production decreases, people are laid off and morale suffers.
  When production starts to increase again, the best workers may have other jobs and
their skills will not be available.
 Manufacturing must have enough plant capacity to produce at the highest capacity
needed.

You have the cost of layoffs because you cannot keep all your people on board once sales
start dropping. So if you don’t have something else for them to do, you have to lay them off
temporarily. This is where a lot of temporary labor is coming in. You bring people in, they
work the job, and then you let them go. They’re temporaries, not permanent - full time
employees. As companies go into this kind of strategy, they start to use temporary labor. If
they didn’t, it would have a serious impact on employee morale when they started laying
people off.

Examples for a Chase Strategy Production Plan

With a chase strategy, we want to match our production plan to our forecast. There is
normally no inventory and therefore no inventory carrying cost, but there is a cost of
changing our production level. If it costs 20 dollars per unit to change our production plan,
and we’ve changed production plan by a total of 50 units, we’ve incurred a cost of 50 x $20 =
$1,000 for changing the production level. So following a chase strategy does cost something.
Now the $20 figure is arbitrary, just a dollar assignment, but if you’re going to run a
company and follow a strategy of changing your production plan to chase sales or chase the
forecast, it is going to cost you something. Your industrial engineers can actually determine
what it will cost you so that you’d know when chasing the sales plan will get you out of
bounds and you’d be better off to switch to a different plan. With the chase strategy there are
desired or no carrying costs, desired or no stock out costs. However hiring and firing costs
are common.
Example 1 Considering NIL begging and ending inventories

Workers
Quarter Demand Wanted Hired Fired
1 80,000 80 - 20
2 50,000 50 - 30
3 120,000 120 70 0
4 150,000 150 30 0

Begging Inventory -
Ending Inventory -
Hiring cost per worker (USD) 100
Firing cost per worker (USD) 500
Carrying Cost per unit per Quarter 0.5
Production per employee per quarter 1,000
Beginning work force 100

Net Demand 400,000

Number of Periods 4
Chase Production Yes
Number of employees wanted chase

Cost of strategy
Hiring cost 10,000
Firing cost 25,000
Carrying Cost -
Example 2 considering begging inventory

Workers
Net
Quarter Demand Demand Wanted Hired Fired
1 80,000 50,000 50 - 50
2 50,000 50,000 50 - -
3 120,000 120,000 120 70 -
4 150,000 150,000 150 30 -
100 50
Begging Inventory 30000
Ending Inventory -
Hiring cost per worker (USD) 100
Firing cost per worker (USD) 500
Carrying Cost per unit per Quarter 0.5
Production per employee per quarter 1,000
Beginning work force 100

Net Demand 370,000

Number of Periods 4
Chase Production Yes
Number of employees wanted chase

Cost of strategy
Hiring cost 10,000
Firing cost 25,000
Carrying Cost -
Example 3 Considering positive begging inventory, ending inventory and carrying costs

Workers
Net
Quarter Demand Demand Wanted Hired Fired
1 80,000 50,000 50 - 50
2 50,000 50,000 50 - -
3 120,000 120,000 120 70 -
4 150,000 170,000 170 50 -
120 50
Begging Inventory 30,000
Ending Inventory 20,000
Hiring cost per worker (USD) 100
Firing cost per worker (USD) 500
Carrying Cost per unit per Quarter 0.5
Production per employee per quarter 1,000
Beginning work force 100

Net Demand 390,000

Number of Periods 4
Chase Production Yes
Number of employees wanted chase

Cost of strategy
Hiring cost 12,000
Firing cost 25,000
Carrying Cost 10,000
Example 4 Considering working days per quarter

Workings Days Workers

Net
Quarter Per Qtr Demand Demand Wanted Hired Fired
1 66 80,000 50,000 76 - 24
2 60 50,000 50,000 83 7 -
3 54 120,000 120,000 222 139 -
4 63 150,000 170,000 270 48 -
194 24
Begging Inventory 30,000
Ending Inventory 20,000
Hiring cost per worker (USD) 100
Firing cost per worker (USD) 500
Carrying Cost per unit per Quarter 0.5
Production per employee per day 10
Beginning work force 100

Net Demand 390,000

Number of Periods 4
Chase Production Yes
Number of employees wanted chase

Cost of strategy
Hiring cost 19,400
Firing cost 12,000
Carrying Cost 10,000

6.3.2 The Level Production Strategy

Figure 6.4 shows a level production strategy. As before, sales are the solid line. Sales go
along flat for while, and then they ramp up for awhile, and then begin to drop off again. Our
production, however, stays level the entire time. The production control manager loves this.
What about the financial people? They hate it; they’ll argue, “You’re building up inventory;
you’re costing us money.”

The disadvantage of a level strategy is that, in lean sales periods, we’re building up inventory
which we have to store until we need it; the advantage is we have a smooth, level production
that avoids the cost of continuously matching demand.

Figure 6.4: Level Production Strategy

The goal of this strategy is to continuously produce an amount equal to the average demand.

Examples for a Level Production Plan Strategy

We’ve dealt with forecasting in the previous unit; for now let’s say we’ve been given a
forecast and we’re asked to create a level production plan for it. In order to create this level
production plan we need three things: (1) a forecast for the planning period, (2) an opening
inventory, and (3) a desired ending inventory.

Refer now to Figure 6.5; the demand for the five periods shown totals 300. If we’re going to
have a level production plan, how many units do we need to build per time period in order to
average 300? Before we answer that question, we need to deal with the beginning and ending
inventories. At the beginning we had 50 units in stock. When we finish at the end of five
periods, we want to have only 40 units in stock. So we want that level to drop by 10 units,
which in this case is 20%.

Figure 6.5: Making a Level Production Plan

Case 1 (with beginning and end stock)

Case 2

Net Avg Cumm Level Cumm.

Period Demand Demand Demand / Period Production Production End stock
1 55 5 5 58 58 53
2 60 65 33 58 116 51
3 65 130 43 58 174 44
4 60 190 48 58 232 42
5 60 290 58 58 290 40

Opening Stock 50
Ending stock 40
Net Demand 290
No of Periods 5
Desired Level Production 58

So if we’re predicting sales of 300 units over the five periods and if our inventory is going to
drop by 10 units, how many units do we need to build over the five months? Two hundred
and ninety.

Dividing 290 by 5, how many do we need to build per month? Fifty-eight. So our production
plan is 58 all across the board.

Refer next to Figure 6.5. Once we put in 58 as our production, what’s our ending inventory in
the first time period? We started with 50, we build 58, that’s 108, and we sell 55, so we have
53 in stock. Following the same logic, we calculate the ending inventories shown in Figure
6.5, and at the end of period 5 we have an ending inventory of 40.

Figure 6.6: Making a Level Production Plan, with zero ending stock

Avg Cumm
Net Demand / Cumm. End
Period Demand Demand Period Level Prod Production stock
1 55 5 5 50 50 45
2 60 65 33 50 100 35
3 65 130 43 50 150 20
4 60 190 48 50 200 10
5 60 250 50 50 250 0

Opening Stock 50
Ending stock 0
Net Demand 250
No of Periods 5
Level Production 50
Figure 6.7: Making a Level Production Plan, with ending inventory of 50.

Average
Net Demand Level Cumm End
Period Demand Demand / Period Prod Production stock
1 55 5 5 60 60 55
2 60 65 33 60 120 55
3 65 130 43 60 180 50
4 60 190 48 60 240 50
5 60 300 60 60 300 50

Opening Stock 50
Ending stock 50
Net Demand 300
No of Periods 5
Desired Production Level 60

Making a level production plan, with safety stock requirement

The MPS size is 30 units, LT is zero and safety stock level is 5 units.

Making a Level Production Plan, with stock out on some periods

Average
Net Demand Cumm End
Period Demand Demand / Period Level Prod Production stock
1 55 5 5 44 44 39
2 60 65 33 44 88 23
3 65 130 43 44 132 2
4 60 190 48 44 176 -14
5 60 250 50 44 220 -30

Opening Stock 50
Ending stock n/a
Net Demand 250
No of Periods 5
Desired Production Level 44 Subjective
Making a Level Production Plan, when considering number of production days per period.

Avg Cumm
Days / Net Demand / Level Cumm End
Period Period Demand Demand Day Production Production Stock

1 3 55 5 1.7 44 44 39
2 6 60 65 7.2 87 131 66
3 5 65 130 9.3 73 203 73
4 4 60 190 10.6 58 261 71
5 2 60 290 14.5 29 290 40

Opening Stock 50
Ending stock 40
Net Demand 290
No of (Days) 20
Approx Level Production / Day 15
Note:
Another element that could be given is the production rate per employee and then you are
required to determine the number of employees needed to achieve the planned level
production. Hiring and firing can only be done at the beginning of the first period.

The common cost elements in such problems are namely: Hiring costs, Firing costs, Carrying
costs, Stock out costs, etc.
Example of level production strategy involving other costs

Avg Cumm
Cumm Demand per Level Cumm End
Quarter Demand Demand Period Production Production Inventory
1 80,000 80,000 80,000 100000 100000 20,000
2 50,000 130,000 65,000 100000 200000 70,000
3 120,000 250,000 83,333 100000 300000 50,000
4 150,000 400,000 100,000 100000 400000 -

Beginning Inventory -
Ending Inventory -
Hiring cost per worker (USD) 100
Firing cost per worker (USD) 500
Carrying Cost per unit per Quarter 0.5
Production per employee per
quarter 1,000
Beginning work force 100

Net Demand 400,000

Number of Periods 4
Level Production 100,000
Number of employees wanted 100

Cost of strategy
Hiring cost 0
Firing cost 0
Carrying Cost 70,000

6.3.3 The Combination Production Strategy

The third production strategy is a combination strategy, shown in Figure 6.8. Companies that
produce frozen orange juice can labels follow such a strategy. When you think about it, a
frozen juice can is not really a can; rather it’s a rolled-up label which forms a can. They
simply put a top and a bottom on it.

Figure 6.8: Combination Strategy

For the combination strategy, we produce at close to or at full capacity for some part of the
cycle, and we produce at a lower rate or don’t produce at all for the rest of the cycle. This
makes use of our available capacity, and while we still get some inventory build-up and some
inventory carrying costs, it’s not as much as with a level strategy. In effect, we’re trying to
track our sales, but not as closely. The combination is what most companies usually wind up
with.

We have previously discussed the make-to-stock, make-to-order, and assemble-to-order

production companies. With the make-to-stock production plan, the goods go into and are
sold from inventory.

If you visit any shopping mall, you’re going to find a lot of products from a make-to-stock
company; they’ll put their products on the shelves hoping you’ll buy them. A make-to-stock
production plan is used when your demand is constant and predictable, when only a few
product options exist, and when your delivery times are shorter than the time it takes to build
the item. If we intend to follow this type of production plan, we need to forecast by time
period over the planning horizon.

6.3.4 Subcontracting

Another approach to the use of the chase plan is subcontracting see Figure 6.9. If you can get
subcontractors to take the work from you, then you don’t have to carry the excess capacity
and you can maintain a level production plan. But what’s the disadvantage? The
disadvantage is in the cost of subcontracting. In almost every case the subcontractor is going
to charge more money than if you did it yourself. You have to balance out the excess cost of
subcontracting vs. the cost to ramp up and do all that work yourself, and then carry the
excess capacity the rest of the year.

Figure 6.9: Subcontracting

Another point — subcontractors may not be able to do the work that you do. They may not
be able to hold the quality or to meet the time requirements. So with subcontracting even
more than with a vendor, you’ve got to establish a partnership. Yet by the very nature of
subcontracting, it’s very difficult to establish a partnership with somebody when you know
up front that you may have to drop them at a moment’s notice.
6.4 The Master Production Schedule, Resources, and the Production Plan

The Master Schedule also tries to make the best use of resources. One of the ways it does this
is to keep the production flow as level as possible. The Master Schedule also tries to keep the
inventory at the desired level. Remember, desired does not mean necessarily zero, but it
probably does mean lower than what you now have.

Within most companies, if the Master Schedule were fixed so that the production floor knew,
one week in advance, what it was going to do, it would make the shop more efficient. In
many companies, we change it day to day. Monday we start out with a plan. Tuesday we
change the plan because something happened. If you take that off the shop floor and keep it
in the Master Schedule level, so that at least a week in advance you knew what was going to
happen, you would become much more efficient on the shop floor.

To build a Master Schedule, we have to have a production plan and we have to have a
forecast. We have to have orders from customers and we have to know additional
independent demand (that would be those spare parts we discussed earlier). We also have to
deal with capacity constraints. That’s where your production limits are. The fastest speed of a
convoy is the speed of its slowest ship. Out in the plant, the fastest you are going to produce
something will be determined by your bottleneck work center, wherever that is. If your
bottleneck work center is working full time, you can’t produce any faster.

Figure 6.10 shows the relationship of the Master Production Schedule to the production plan.
The current month is April; there are 20 work days in April, and the plan is to produce
20,000 something-or-others.

Now the Master Schedule (the lower block in the figure) takes the production plan for April,
and breaks it down into four weeks, producing 5,000 units per week. Within week 1, we’re
going to build 2,000 product X and 3,000 product Y. So we’re going to use all the capacity
for that week and produce that total. In the second week, we’re going to build 4,000 Xs and
1,000 Ys.

In that third week, we’re not going to build any Ys, we’re just going to build Xs. In week 4,
we’ll build 2,500 of each. We don’t know why the Master Production Schedule is as shown;
this is just an example of a plan and we’ll assume that somebody put this Master Production
Schedule together and had valid reasons for these quantities. The main point is that you see
how these numbers support the number in the production plan. That’s the relationship.

Figure 6.10: Relationship of the Master Production Schedule to the Production Plan
There are three steps to making a Master Production Schedule. We start by making a
preliminary MPS, Master Production Schedule. We then perform a rough cut capacity check
and, finally, we resolve any differences. So once we take a guess at what we’re going to
build, we examine it in the light of our capacity, and if we don’t have what we need to build
it, we adjust the schedule. The disaggregate and aggregated figures can be different due to
the following reasons: aggregate figure is the forecast while disaggregate figure the actual
production; there could be beginning inventory that off sets the actual quantities to be built
and sometimes the available capacity can be limited.

6.5 The Preliminary MPS

Refer now to Figure 6.11. Let’s complete the figure. Right now we have 40 units on hand and
we’re forecasting that we’re going to use 30 in period one. How many will that leave in
period one? Ten. We’re projecting that we’re going to use 30 in period 2, so how many will
that leave? Minus 20, or, as shown in the figure, (20).

We know that we can’t go negative in inventory, but this is a preliminary Master Production
Schedule right now, so the minus figures are OK. The projected available for the remaining
periods, all negative, are shown in the figure. This gives us the information from a Master
Scheduling viewpoint as to what we need to build.
Figure 6.11; Lot size = 50 units

Now the information we have is that the lot size is 50 units, so we’re going to build in lots of
50. Now for our Master Production Schedule, when do we need to have the first 50 units
come into stock? Week 2, because there we first went negative. So in the lower part of the
projected available balance, if we bring 50 into stock, how many do we have remaining in
stock? Thirty. In period 3, we’re already at a negative 50. Once we bring 50 in period 2,
we’ve satisfied the negative 20 and we still have 30 in stock, which satisfies the 30 needed in
period 3 so we have zero available.

Then if we bring in another 50 in period 4, we’re back to having 20 in stock. We bring in

another 50 in time period 5, which means we have 40 in stock. So after we take out the 30 in
period 6, we still have 10 in stock.

Working through this calculation, our Master Schedule says that we need to bring into
inventory 50 units each in time periods 2, 4, and 5.

6.6 The MPS Inputs and Outputs

MPS inputs

1. Beginning inventory: This is the stock available at the start of the planning horizon.
2. Demand forecast: the anticipated future demand for the specified end item. Forecast
quantities are small in nearer periods and grows bigger as we progress in the future.
3. Customer orders / booked orders: the orders that are already confirmed by customers
with a commitment to purchase. Booked order quantities are larger in the near future
and become smaller as we progress into the future.
4. The other inputs include the planning horizon, the lead time, and MPS order quantity.

MPS Outputs

1. Projected available balance: this the quantity that remains on hand at the end of a
given period after considering all the needed requirements (opening stock, demand
forecast or booked order, MPS receipt / release).
2. Available to promise: the quantity that remains uncommitted to any customer and
available to any new customer.
3. MPS order release and receipt: the order quantity that has to be released and received
to avoid negative projected balance and constrained by the aggregate plan (available
capacity and lead time).

The MPS matrix

This is the table that combines both inputs and outputs of MPS and is as shown below. To be
considered are the MPS order quantity (Q) and lead time (LT) and planning horizon.
Period 1 2 3 4 5 6
Forecast
Orders
Projected Available Balance
Master Production Schedule
Available to Promise
Planned Order Releases
6.7 The MPS and Time Fences

The planning horizon is divided into sections using time fences. Time Fences are periods of
time with each period having some specified level of opportunity for the customer to make
changes.

At period (week 8) there is the demand fence and within the demand fence no changes are
permitted in the master production schedule. Changes are only initiated and approved by the
Chief Executive Officer. The MPS is to be frozen.

Beyond the planning fence (week 15), any changes (within the restrictions set by the
production plan) are permitted. The MPS is liquid. Specific changes are allowed within
product groups as long as parts are available.

Between the demand and planning fence, small changes are permitted as long as no new
setups are incurred. The MPS is slushy. Significant variation allowed as long as overall
capacity requirements remain at the same levels

6.8 The MPS Figure or Quantity

There are a few observations to be noted against the MPS figure or quantity and include the
following:

 Drives MRP process with a schedule of finished products

 Quantities represent production not demand
 Quantities may consist of a combination of customer orders and demand forecasts
 Quantities represent what needs to be produced, not what can be produced because
inventory at hand is a cost
 Quantities represent end items that may or may not be finished products refer to
manufacturing environments

6.9 The MPS and the Production Environment

The MPS is considered in all the production environments as shown in the figure below.

MPS with Make to Stock (MTS) Production Environment

MTS produces in batches, Production starts before demand is known precisely. MTS
minimizes customer delivery times at the expense of holding finished-goods inventory.

MPS is performed at the end-item level, produced in batches and carrying finished goods
inventories for most if not all end-items.

MTS is characterized by small number of end-items, and large number of raw-material items.
Quantities on the schedule are based on manufacturing economics, the forecasted demand
and desired safety stock levels.

In the MTS production environment, an end item bill of material (BOM) is used. Items may
be produced either on a mass production (continuous or repetitive) line or in batch
production.
MPS with Make to Order (MTO) Production Environment

In the MTO production environment, there is no finished-goods inventory, and builds each
customer order as needed.

MPS is order driven, as defined by end-item based on customer order and consists of firm
delivery dates.

Customer orders are backlogged; production of common parts often starts before a complete
product definition or BOM has been defined.

MPS with Assemble to Order (ATO) Production Environment

Large number of end-items are assembled from a relatively small set of standard
subassemblies, or modules. An example sited here is the automobile industry.

MPS governs production of modules (forecast driven). Final Assembly Schedule (FAS) at
the end-item level (order driven). There are two forms of lead times, for consumer orders
only FAS lead time relevant.

(Each final
product contains
four major sub-
assemblies and
a detail part)

There are 2 different

Variations for A2
There are 3 different
Variations for A4

There are 5 different

There are 4 different There are 4 different
Variations for C1
Variations for A1 Variations for A3

The number of alternative final product configurations = 4x2x4x3x5 = 480 (Competetive

strategy of large variety of final product).
The number of different items to stock = 4+2+4+3+5 = 18 (Relatively small number of
component items to stock).

6.10 The MPS and the Order Promising

The second step of master production scheduling is to calculate the units of product which
are available to promise to new customers. Order promising is assuring the customer that
their order will be shipped on a certain date; and ensures that marketing only sells what
operations has planned on making.

Calculating the Available to Promise (ATP) Quantities

ATP represents how many units of current inventory and planned production are not
committed to existing customer orders.

The Available to Promise Units can only be promised out of

 Beginning inventory (upcoming period only); period 1 and

 Production scheduled to be completed; any other period with MPS.

ATP is calculated only for these periods and follows the following computation.

 ATP (period 1) = beginning stock + MPS (in period 1) – summation of all booked
orders till next MPS period.

ATP (another period with MPS) = MPS (in that period) – summation of all booked orders till
next MPS period. Beginning inventory is assumed to be zero because every item produced
is consumed by the market.

Example of ATP calculation

64 June July
1 2 3 4 5 6 7 8
Forecast 30 30 30 30 40 40 40 40
Customer Orders (committed) 33 20 10 4 2
Projected on hand inventory 31 1 41 11 41 1 31 61
MPS 70 70 70 70
ATP 11 56 68 70 70
Period 1 2 3 4 5 6
Forecast 50 50 50 50 50 50
Orders 60 10
Projected Available Balance 70 10 60 10 60 10 60
Available to Promise 10 90 100 100
Master Production Schedule 100 100 100
Planned Order Releases 100 100 100

Updating the ATP

As additional orders are booked, they would be entered into the schedule. ATP would be
updated to reflect new booked orders.

Marketing can use updated ATP amounts to provide realistic delivery dates to customers.

Changing a master production schedule can be disruptive. Particularly changes in the

immediate periods of the schedule

Master Production Schedule is developed for a period of say 12 weeks against an aggregate
plan that is developed for say 1 year. MPS is updated say every 2 weeks, it is on a rolling
basis.

The ATP quantity can be used to accept new customer orders (order promising). The size of
the largest order that can be accepted for delivery in a period say period (t) without changing
the MPS is equal to total summation of all ATP quantities before and up to that period.

Period 1 2 3 4 5 6
Forecast 50 50 50 50 50 50
Orders 60 10
Projected Available Balance 70 10 60 10 60 10 60
Available to Promise 10 90 100 100
Master Production Schedule 100 100 100
Planned Order Releases 100 100 100
Period (t) ATP
1 20
2 10+90=100
3 10+90+0=100
4 10+90+0+100= 200
5 10+90+0+100+0= 200
6 10+90+0+100+0+100=300

New orders being received are taken care by the immediate ATP quantities to the left. The
assignment continues further to the left till the new order is fully satisfied. However care
must be taken so that the projected balances do not become negative else the MPS quantity or
timing has to be adjusted accordingly. Sometimes customers are requested to be served
earlier or later than expected. Resolving the MPS problem needs a lot of trial and error.