Demand Planning and Master based Planning

Demand Planning: The objective of this function is to create a demand plan, based on historical sales data. The demand plan resulting from this function is the starting point for Supply Planning. The demand plan contains forecasted demand for an item, using standard forecasting methods. If the past data is inappropriate or insufficient, the forecast is entered manually.

As a rule, the demand plan is gradually filled in (consumed) by actual customer orders. Dependent demand (resulting from the explosion of requirements for manufactured or distributed items) are also be used to consume the demand plan.

Procedure for demand planning - as explained in the following diagram:

Demand Planning Procedure

As may be seen from the above, there are three options to generate the demand for an item/range of items.

  1. To enter forecast manually or enter additional demand
  2. To generate demand and inventory plan, using demand planning & forecasting algorithms
  3. To maintain special demand by item

Master Based Planning

Next step of demand planning is Master-based planning which is largely comparable to traditional Master Production Scheduling functionality. Master based planning is a time-phased planning concept where demand, supply, and inventory for an item are maintained over a planning horizon which is divided into time buckets or plan periods. The length of these plan periods can vary. Periods with a fixed length throughout the planning horizon can be used, but it is also possible to use shorter periods (for example, days or weeks) for the immediate future and longer periods (for example, months) for longer-term planning. The time-phased demand, supply, and inventory information for an item is generated through master based planning:.

  1. Inventory planning: the inventory plan indicates how much inventory is intended to have at the end of a plan period. The desired inventory levels during a plan period are based on linear interpolation. This means that an increase of planned inventory level from one plan period to the next does not result in a production overload at the start of each plan period, but the inventory can be built up gradually during the plan period.

  2. Demand planning: for each plan period, a demand plan indicates how much is expected to be sold. Moreover, the actual demand is retrieved from the execution level.

  3. Supply planning: to meet the (forecast and actual) demand, and to reach the intended inventory levels, a supply plan is generated.

For the supply plan, three sources of supply are used: production, purchase, and distribution (from another warehouse location in the same company or from a related company).

Master planning algorithms: For master-based production planning, two different planning algorithms are available:

  1. Infinite planning - Where, it is assumed that there are no serious constraints on the availability of components and capacity. Therefore, no constraints are taken into account

  2. Workload control (WLC) - Where material and/or capacity constraints do play a role. Based on the idea that the workload on the shop floor significantly affects the order lead time, this method aims at controlling and leveling the amount of workload.

Some Important Terminology of Master Based Planning Functionality

Time Fence: The date until which an item’s supply plan and planned orders are frozen. The time fence is expressed as a number of working days from the date the simulation is carried out. The time fence is meant to prevent:

  • Disturbance of orders that have already started (at the shop-floor level).
  • Generation of planned orders with start dates in the past (that is, orders that are late).

Planning Horizon: Time period for which Enterprise Planning maintains planning data for an item. The planning horizon is expressed as a number of working days from the date the simulation for future demand is carried out. Enterprise Planning does not generate supply plans or planned orders beyond an item’s planning horizon.

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Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.