EXAMPLE 2: How to establish performance measures in the master production schedule.

Performance measurement is a must when using a Master Production Schedule (MPS). We review below the practical focus and critical steps that need to be taken to make MPS the success it should be.

Content:

1. Role of MPS Performance Measurement
2. Production Plan Measurement
3. MPS Measurement
4. Operations Measurement
5. Master Scheduler’s Job Responsibilities
6. Master Scheduling Job Objectives

A. Role of MPS Performance Measurement

Without performance measurement, the risk of MPS failure increases significantly. The MPS can become a “wish list,” resulting in the overstatement of requirements and capacity, and the formal MPS system will lose its credibility and support. Production personnel will revert to the informal system that relies on manual expedite lists rather than operating plans. The role of management will be to react to crisis after crisis.

MPS performance is measured by means of simple ratios designed to monitor the MPS in relation to other plans and interfacing systems. Below are listed the methods that are used to measure MPS performance in relation to:

• The production plan, which is the primary input to the MPS.
• The MPS itself.
• Material requirements planning (mrp), which is driven by the MPS.
• Interfacing subsystems (e.g., shop floor control) and files (e.g., bill of material, inventory).

Measurement tolerances and frequency

The tolerances and frequencies recommended here represent the range commonly accepted by production and inventory control practitioners

B. Production Plan Measurement

The production plan is the primary input to the MPS; it establishes levels of planned demand, production, and inventory that are the goals of the MPS. Monthly measurement of the MPS against the production plan indicates how well the MPS is supporting management’s profitability objectives.

1. Orders

The sales forecast (or sales plan) sets long-range demand for the production plan. Most forecasts, however, do not materialize as projected. The sales plan should be tracked against the actual units booked for the period projected so that the MPS can be adjusted to reflect changes in the marketplace. Order deviation from plan should be measured for each forecasted product line. Common practice indicates that actual orders received should be plus or minus five percent of the sales forecast, as calculated by the following formula:

The order entry system provides MPS short-range demand from incoming customer orders, stocking orders, and distribution requirements. The order rate is the materialization of the sales forecast and should be measured as is long-range demand.

2. Production

Although the production plan is based on the sales forecast, the two calculations of planned demand are not always equal because the production plan accounts for any changes (plus or minus) to planned finished inventory. The production plan should be measured against actual production, and deviations should be plus or minus five percent, calculated as follows:

Inventory

In addition, planned finished-goods inventory should be compared with actual levels. Deviations should be plus or minus five percent. The formula:

C. MPS Measurement

The MPS translates all plans and strategies into operating details. The MPS should be closely monitored to ensure that it is realistic. Weekly measurement is recommended. Direct MPS measurements center on delivery performance, lead times, schedule changes, and the number of scheduled units.

1. Delivery performance

One MPS objective is to provide the customer with a realistic promise data; a key measure of MPS success is customer order delivery performance. Although other factors affect delivery performance, realistic promise dates are a major reason for using an MPS and indicate how well the MPS is functioning. Delivery performance is measured by comparing the number of units shipped on time in a period to the total number of units shipped. Deviations of plus or minus five percent are commonly accepted and are calculated by the following formula:

When the master schedule unit is not the same as the finally assembled, shipped unit, the number of MPS units built on time is measured against the total number of MPS units built. This level of accuracy should be plus or minus five percent.

2. Lead time

Another measure of the MPS is the tracking of lead times. Lead time encompasses the total time required to produce a specific item, from material/product procurement through production and testing/inspection. Like delivery performance, lead time quotations are directly related to customer service objectives. Quoted lead times should be measured against actual lead times to test the validity of customer delivery promises and lead time quotations. The measure uses the ratio of the average quoted lead time to actual lead time; deviation should be plus or minus five percent, calculated as follows:

Data on promised delivery dates and lead times as well as actual ship and delivery dates should be regularly maintained to facilitate measurement. A random sample of MPS units should be selected and their delivery and lead time performance tracked. Each unit type should be related to the total number of MPS units to indicate its relative importance to total MPS performance. That is, poor delivery performance for a unit that represents 30 percent of the total is far more significant than is poor delivery performance for a unit that represents 5 percent of the total.

The MPS should also be tracked to identify late units; this measurement is used to project delivery performance. One approach is to measure the areas between the time fences or other significant boundaries for lateness. One way of measuring lateness could be in unit-weeks of lateness. If, for example, only three units were two weeks late in an area of the MPS to be measured, that area would have six unit-weeks of lateness. This lateness measure could also be attributed to various causes, such as material shortages, quality rejections, engineering lateness, or capacity overloads. Tracking unit lateness enables managers to determine the relative severity of the problem. The marketing department will have to decide whether delivery dates should be rescheduled.

3. Scheduled changes

Another internal measurement of the MPS is the tracking of schedule changes against the time fence policies. Time fences identify manufacturing cycle milestones at which specified MPS changes are permitted. Time fences are tailored to individual situations to allow enough time to perform each task necessary to ship the product. No unit should be scheduled for rescheduled beyond any time fence without recognizing it as a deliberate exception. To maintain a stable MPS, exceptions should be minimized; exception units should represent less than five percent of the total number of units in the time fence, calculated as follows:

4. Production plan units

The MPS desegregates production plan goals into key components, models, and options. To determine whether the MPS is performing according to the production plan, the number of units scheduled in an MPS period is compared to the number of units the production plan specifies for that period. An acceptable level of performance is 98 percent or better accuracy, that is, a variation of plus or minus two percent, calculated as follows:

5. MPS units

In each planned product category, the MPS should be tracked, with actual units measured against planned units for the same period. This measurement enables timely planning adjustments to unit levels. An acceptable performance level for this measurement is plus or minus five percent, performance being measured as follows:

D. Operations Measurement

In a closed loop manufacturing resource planning (MRP) system, the master production scheduling subsystem directs the operations of several downstream subsystems: MRP, inventory, capacity requirements planning, purchasing, and shop floor control.

E. Master Scheduler’s Job Responsibilities

In most companies, one person (or very few people) fills the role of master scheduler, and the position can be full or part time depending on company size. In the case of XYZ Manufacturing you are the full time MPS manager. The master scheduler typically reports to the materials, manufacturing, or production control manager. Alternative lines of responsibility are also feasible. I believe the Master Scheduler at XYZ should report to the president.

The master scheduler’s primary job responsibility is the creation and revision of the MPS. Changing market conditions can necessitate continual MPS revisions so that the MPS and downstream plans remain up to date and everyone in the organization is working with the same set of priorities. For each master scheduling cycle, the master scheduler repeats the following steps:

1. Monitor and measure shop progress in meeting the current MPS (with or without computer support).

2. Analyze past schedules and actual completions as well as changes to the business plan, production plan, and/or sales forecast. Then, determine MPS changes to accommodate the other changes and variances. The computer can support this analysis by tracking such variations, but the master scheduler must often perform additional analyses on which to base final decisions or recommendations.

3. Identify occasional problems stemming from changes in the business, schedule variances, equipment, people, and/or material.

4. Devise and analyze alternative MPSs. Drawing heavily on the master scheduler’s knowledge of the business, its products, and operations, the creative task of generating and analyzing alternative plans and schedules is one of the most challenging aspects of the master scheduler’s job.

5. From the analysis of alternatives and discussion with management, formulate and document recommendations for changing the MPS. The master scheduler must determine what alternatives are acceptable to marketing, manufacturing, and production control management. The master scheduler’s negotiations with key managers and the ability to gain their informal acceptance of alternatives are crucial to securing final approval and achievement of the MPS. At this stage, the master scheduler should prepare to justify the recommendations to management.

6. Using the computer system, revise the MPS. Usually the request for management approval follows MPS revision but precedes issue of the revised MPS to the shop or its use to drive mrp.

7. Present recommendations and alternatives to management. Such presentations are usually informal but must be well organized and supported with discussion of tradeoffs for each alternative.

8. Assist management in evaluating the recommendations. If management chooses a different alternative, the master scheduler must accept the decision and revise the MPS appropriately.

9. Release the revised schedule through established channels. In some cases, the master scheduler establishes and maintains these channels.

10.Respond to questions and problems relating to MPS interpretation and use. As the “expert” on the subject, the master scheduler provides consistent interpretation of the MPS for all other company functions.

F. Master Scheduling Job Objectives

What are reasonable expectations for a master scheduler? The objectives of the position are distinct from its responsibilities; in general terms, the former are to:

• Meet the demands of the marketplace and/or the business plan.
• Keep the MPS within the limits of the shop’s capacity to produce.
• Maximize shop effectiveness and stabilize the work load in coordination with management’s staffing plan.
• Minimize inventory by planning optimal production rates that are consistent with reasonable work loads.
• Minimize schedule changes to avoid confusing shop priorities and increasing inventory.

These objectives serve as a basis for both candidate selection and performance evaluation of a practicing master scheduler.

Performance evaluation criteria

The preceding objectives underlie performance measurement criteria. To evaluate an individual’s actual performance, management must establish detailed measures that fit the specific context of the company and its products. Although specific criteria cannot be prescribed, the following objectives are recommended as the basis for developing fair and measurable performance criteria for a master scheduler.

• Complete MPS revisions on time-The master scheduler’s performance should be measured on meeting the schedule for MPS preparation, approval, and in case of revisions.
• Revise MPS within plant capacity-The master scheduler is also responsible for creating an achievable master schedule and should be measured on his or her success. One possible measurement is the rough cut capacity plan that is produced by many master production scheduling systems.
• Revise the MPS within the requirements of the business plan, production plan, or sales forecast-If the objectives are to be reasonable, it may be necessary to exempt orders newly added to the business plan when the lead time is less than normal.
• Reschedule past-due orders-When the shop fails to meet a schedule, the master scheduler is responsible for rescheduling past-due work and adjusting the MPS to compensate for the change.
• Develop an MPS that is approved by all appropriate functions-Recognizing that acceptance of the MPS is difficult to measure, management should include this criterion among performance measures, because solid support is essential to achieving the MPS.
• Develop an MPS that minimizes mrp exception messages and past-due orders-This criterion should be specifically detailed because the master scheduler typically cannot control many kinds of exceptions.