Optimizing Production with MTS Level Production Planning
In modern manufacturing and supply chain management, effective production planning is essential for operational efficiency and customer satisfaction. One effective strategy within this domain is Make to Stock (MTS) level production planning. This approach helps companies maintain consistent production rates and manage inventory efficiently. This article explores the MTS level production plan through a practical example, demonstrating key concepts and calculations.
Understanding MTS Level Production Planning
Make to Stock (MTS) is a strategy where products are manufactured based on forecasted demand and stored in inventory before actual orders are received. The goal is to align production rates with anticipated demand while maintaining appropriate inventory levels. Level production, a key element of this approach, involves smoothing production across multiple periods to avoid demand variability.
Practical Example: MTS Level Production Plan
Consider the following scenario for a five-period production plan:
Given Information:
Step-by-Step Analysis:
1. Calculate Total Forecast Demand
The total forecast demand over the five periods is calculated as follows:
Total?Forecast?Demand=55+60+65+60+60=300?units
2. Determine Total Production Required
To meet the forecast demand and achieve the desired ending inventory, compute the total production needed:
Total?Production?Needed=
Total?Forecast?Demand + Desired?Ending?Inventory?Opening?Inventory
Total?Production?Needed=300+40?50=290?units
3. Level Production Across Periods
Distribute the total production evenly across all periods:
Production?per?Period=Total?Production?Needed/Number?of?Periods
Production?per?Period=290/5=58?units
4. Calculate Ending Inventory for Period 1
The ending inventory for Period 1 is calculated as:
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Ending?Inventory?(Period?1)=Opening?Inventory +Production?Forecast?Demand
Ending?Inventory?(Period?1)=50+58?55=53?units
Continuation of Calculations:
For subsequent periods, similar calculations ensure inventory levels align with production and demand. Maintaining a production rate of 58 units per period helps manage inventory and meet customer needs without significant fluctuations.
Ending?Inventory?(Period?1)=50+58?55=53?units
Ending?Inventory?(Period?2)=53+58?60=51?units
Ending?Inventory?(Period?3)=51+58?65=44?units
Ending?Inventory?(Period?4)=44+58?60=42?units
Ending?Inventory?(Period?5)=42+58?60=40?units
Benefits of MTS Level Production Planning
1. Consistency and Efficiency: Level production stabilizes manufacturing processes, reducing operational variability and potentially lowering costs.
2. Reduced Stockouts and Backorders: Aligning production with forecasted demand and maintaining buffer inventory minimizes the risk of stockouts and backorders, enhancing customer satisfaction.
3. Improved Inventory Management: Steady production rates facilitate better inventory control, reducing excess stock and carrying costs.
Conclusion
MTS level production planning provides a structured approach to balancing production rates and inventory levels in response to forecasted demand. By leveling production and calculating production needs accurately, companies can achieve operational efficiency, reduce variability, and manage inventory effectively. This approach is especially valuable in environments with stable and predictable demand patterns.