EXAMPLE 3: How to use time fences in managing the MPS.
In this article we practice approaches in the use of time fences in MPS. No doubt most of this is known to some in your group. We will cover most of these issues in the MPS policy and time fence procedure. I’ve attempted to answer some of the questions that might come up such as:
- What are time fences?
- How are time fences used?
- How are time fences located, defined and established?
- Why are time fences used?
- What are the consequences of abusing time fences?
- Overview of Time Fences
- Types of Time Fences
- Planning Zones
- Administration of Time Fences
A. Overview Of Time Fences
What are time fences?
Time fences are dividing lines on a planning horizon that allow manufacturers to maintain MPS items in zones that are governed by different sets of rules. A time fence is normally identified in the MPS system as a specific location on the planning horizon relative to “today”. The length of time between today and the time fences generally remains constant so that as items on the planning horizon, such as requirements and replenishments, move toward today, they also move toward and across the time fences. Consider the example in Figure 1. Any item place, say, in period 9 will move first into period 8, then into period 7, cross the time fence, and move into period 6. This causes an item to be located initially in zone 2 and finally in zone 1.
Time fences are usually located at different times for different product lines. Various types of products may even require different fence locations for specific items within a product grouping. It is important that flexibility be designed into the computer programs to allow the time fence location to vary from item to item or to be easily identified as the same for groups of MPS requirements.
How are time fences used?
Figure 1 illustrates that a time fence actually divides the planning horizon of the MPS into sections or zones. The types of requirements that are permitted within each zone must be identified and the rules for their use defined. Zone 2 might be defined as a mixture of forecast, customer orders and internal orders for MPS items. Zone 1 could be defined as containing only customer orders and internal orders. The time fence is used as a control or barrier to prevent the forecast requirements from moving automatically into zone 1.
B. Types Of Time Fences
Each fence gives the master production scheduler another tool to manage and control the individual items on the schedule. (stabilize requirements). Stability at the MPS level means that mrp will not generate an excessive number of exception messages. These fences are known as the planning time fence and the assembly lead-time time fence. Two additional types of time fences, the competitive lead- time time fence and the customer backlog time fence, provide a measure of flexibility in competitive marketing environments.
The simultaneous use of all four time fences for one item should be avoided. Normally, the planning time fence used in conjunction with one or, at most, two other fences will provide all the control needed to stabilize requirements for an item in the master schedule.
Planning time fence
The planning time fence locates a point on the planning horizon when an MPS item comes under the direct manual control of the master production scheduler. It defines the number of time periods in which the scheduler will have total responsibility for scheduling and rescheduling the item. As a general rule, this fence is placed at or near the end of the cumulative lead time for all the purchased and manufactured parts of an item. Figure 2 illustrates the cumulative lead item of product A, and the relative placement of the planning time fence for this product. Components must be ordered or already available when the item crosses over the planning time fence. This is the critical point in the planning horizon for that particular product.
Computer logic must work differently in each of two zones created by the planning time fence. In the zone from the fence extending into the future, automated mrp logic can be used in planning orders and exploding their requirements. However, in the zone from today to the planning time fence, the computer program should not move or plan orders automatically. Instead, a firm planned order should be manually entered in the first period beyond the fence. Of course, the master production scheduler should receive a message indicating the desired time period for the planned order, but at no time should this desired time period be allowed to automatically offset component requirements. Figure 3 illustrates this action for a hypothetical MPS part Z. Notice that requirements consisting of forecast and orders caused the planned available to go negative in period 5. The placement of a firm planned order for 20 pieces in period 7 will not cause problems at the lower levels of the BOM for part Z because sufficient lead time is available to secure these components. The master production scheduler can analyze the critical components in part Z and determine if it can be scheduled in period 5 without seriously delaying other orders. Perhaps purchase orders can be expedited or overtime arranged to obtain the needed critical components in time to meet the schedule. Only after this analysis is complete and it has been determined that the necessary components can reasonably be expected to be available should the replenishment be firmed and placed in period 5.
Assembly lead-time fence
An assembly lead-time time fence is the point in time when the product’s final configuration must be identified in the MPS, and the item assigned to either a customer or stock order. When the MPS item reaches this time fence, all components should have been purchased or made and should be available for assembly into a product that can be sold or placed inside the planning time fence at or near the final assembly time of an MPS item. It is the point when a final commitment of what will be made is required.
This time fence is primarily applicable to products whose final assembly time is one or more planning time periods in length; it becomes increasingly more important for products with longer assembly lead time. Normally, the assembly lead-time time fence is not used in process or flow type industries that have relatively short manufacturing cycles. An obvious exception would be in cases where the product must be “cooked” for extended periods of time. The assembly lead time is defined as the length of time to process a specified batch or quantity of an item. This allows some flexibility in scheduling of the batch quantity is selected properly and appropriate assembly lead times are selected for items whose single-quantity lead times are very short.
The logic of the MPS system is different after an item crosses this time fence; only actual demand is used in calculating the planned available balance. Figure 4 illustrates how the assembly lead-time fence changes the order planning logic used in Figure 3. Because the forecast was not considered in the calculation by the computer program, the planned available at the end of period 3 is now 13 compared to 4 in Figure 3. The replenishment identified in Figure 3 is not required and the schedule is stable through period 8. When the assembly lead-time fence is used, the planning horizon is divided into three zones, each with different rules for calculating the planned available and/or the generation and placement of planned orders. The detailed characteristics and control of each zone will be discussed later.
C. Planning Zones
Using planning time fences divides the planning horizon into three areas or zones.
Planning Zone 1
The final assembly or fabrication of a product occurs during this period, by this time, the final configuration should have been selected and assigned to each item on the MPS in zone 1. Schedule changes must be made by the master production scheduler, because the item is in a portion of the planning horizon and therefore under manual control. When this practice is followed, the modules are removed from the schedule and the end item added.
When an MPS item moves into zone 1, other factors must be considered in the scheduling process. Rescheduling items in this zone should be done only after very careful analysis. A good policy is to reschedule only with the authority of top management. An attempt to reschedule the item for later may cause inventory value to increase because all required components have been ordered and received, unless the orders are overdue. Only the cost of final assembly labour can be avoided if the MPS item is canceled or rescheduled for a future date.
Another common temptation is the desire to increase the quantity of a production lot in zone 1. This also requires careful analysis by the master production scheduler to determine that sufficient material is available, the available capacity should be examined to determine whether manufactured parts can be completed in time.
Items in zone 1 of the MPS should be considered as “frozen” or at the very least “slushy” in nature. They must not be moved to a different time period or be increased in quantity unless executive management considers the impact and approves. Then, and only then, should the master production scheduler make the appropriate change.
Planning zone 2
MPS items in zone 2 should consist of only firm planned orders. All planned orders will have been examined by the master production scheduler at the time they are ready to cross the planning time fence to determine that the due date and quantity are reasonable and can be met before they are placed in zone 2. However, it should be noted that these firm planned orders will replenish forecast, customer orders, or internal orders.
A number of basic characteristics must be understood when the scheduler moves an order over the planning time fence into this zone. The mrp system will be reasonably tolerant to isolated minor changes in the MPS in zone 2. However, tolerance diminishes very quickly if dates or quantities are changed on several MPS items. The next mrp run will cause computer-planned orders for lower- level items to fluctuate. This fluctuation ripples down through all levels in the BOM, and an excessive number of exception messages is generated. The net effect is the rescheduling of many lower-level items and a symptom known as “nervousness.” Unless some stability is maintained in the MPS, planners of lower-level components will be unable to keep up with the recommended reschedules.
As an MPS item moves from the planning time fence through zone 2 toward the assembly lead-time time fence, both purchase orders and production orders are released to satisfy the computer-planned order recommendations from mrp. Component items at all levels of the BOM are either in inventory or in the process of being manufactured or purchased. The total inventory value is increasing rapidly as an MPS item approaches the assembly lead-time time fence. Any change to the schedule is almost certain to invalidate some component schedules and cause an increase in inventory. This is especially a problem when unplanned demands are entered in the MPS inside the planning time fence without proper analysis.
An MPS that is overloaded will also cause excess inventory to be produced, components or capacity will not be available for the final assembly process. In either case the unassembled components become excess inventory. At the other extreme, under planning can create another serious problem for customer-service levels, because materials will not be available to produce products for customer order demands. Unplanned demands will also be extremely difficult or even impossible to meet.
Changes to MPS items in zone 2 can also have disastrous effects on priorities and schedules for components. If the quantity of an MPS item is increased or a due date moved up, at least some planned orders will be recommended for release with less than normal lead time. Expediting these orders can cause other needed items to be delayed, and priorities can be easily destroyed.
With careful planning and management, zone 2 can provide some scheduling flexibility. Perhaps its most important characteristic is that it is lead-time sensitive. Changes to the MPS in zone 2 should only be made after careful review and approval by top manufacturing management.
Planning zone 3
MPS items in zone 3 are normally computer-planned orders, which cover a mixture of demands such as forecast, customer orders, and internal orders. The only major restriction is available plant capacity. If this restriction is not observed, priorities will inevitably be destroyed in a formal planning system. Lead times present almost no problem in zone 3. Due dates may be moved anywhere within this zone and components and raw materials secured in normal lead time. Excess inventory can be easily avoided because computer-planned orders generated for components have not been released. These orders are beyond their standard lead times; schedule changes will either cause their due dates to change or, in some cases, their requirements to disappear completely. The computer can be given complete control of changes in zone 3.
D. Administration Of Time Fences
An easy analogy can be drawn between the MPS and a traffic signal at a busy street intersection. The planning zones are the red, yellow, and green lights of the signal. Time fences are the timing devices that determine which light is displayed and how long it remains illuminated. Zone 3 is green, and changes of MPS items can freely be made with little or no impact, providing capacity constraints are observed. Zone 2 is yellow and caution must be observed if changes are to be made in the schedule. Manufacturing management must approve these changes. Zone 1 is red and changes should only be made with the approval and direction of top management.
The effective administration of time fences requires the functional cooperation of all areas of management. Representatives from finance, marketing, manufacturing, material planning and purchasing must meet with the master production scheduler to establish the initial location of each time fence. The rules governing its use must also be established by this group. Periodic reviews of these fence locations for each product or product line should also be conducted to ensure that they continue to provide the control to effectively manage the MPS.
The following checklist can be used as a guide in establishing the types of time fences discussed in this article:
1. Determine at what level of the BOM the item or product must be incorporated in the master production schedule.2. Define any special logic required to handle item requirements as they move over this fence when the master production schedule shifts at the end of a time period or if planned orders are generated during the netting calculations of MRP.
3. Modify or write necessary computer programs defined in item 2.
4. Prepare user documentation to explain how the time fence should be used.
5. Identify and enter the assembly or competitive lead time or customer order backlog time for each part. For all items, identify and enter the cumulative lead time.
6. Code the part record to indicate the appropriate time fence logic to be applied to that item. The system should also provide a default record to be set when all products are to use this fence.
7. The specific time fence is now ready for use.
Total commitment by the departments listed above to the observed and use of the time fences is absolutely necessary. Without this commitment, the fences will not be effective in preventing mrp nervousness and providing adequate flexibility in the MPS.