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Chapter 4
been given the purchase order and is in the process of fulfilling it. There is a two-week
lead time for oats, so for oats to be available in Week 1 and Week 2 of the year, oats orders
must be placed in the last two weeks of the previous year.
The next row, Planned receipts, shows when planned orders will arrive. The Planned
receipts row is directly related to the Planned orders row at the bottom of the record.
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A planned order is one that has not been placed with the supplier but will need to be
placed to prevent Production from running out of materials. Because there is a two-week
lead time for oat orders, the quantities in the planned orders row will be available for
production in two weeks, which is indicated by an entry in the Planned receipts row.
The arrows in Figure 4-17 show the relationship between planned orders and planned
receipts. For example, the materials requirements planning calculation suggests that an
order for 88,000 pounds of oats should be placed in Week 1 so it will arrive in Week 3. To
say it differently: the planned order for 88,000 pounds of oats in Week 1 will not be
available for use until Week 3, which is shown by the planned receipt of 88,000 pounds in
Week 3. There is only one order, but it shows up in two places on the MRP record.
The next row in Figure 4-17 is the On hand row. The first number in this row
(29,650) is the inventory of oats on hand at the beginning of Week 1. The On hand
number in the Week 1 column (15,800) is a projection of the inventory that will be on
hand at the end of Week 1 (and therefore at the beginning of Week 2)—accounting for the
beginning inventory, gross requirements, and planned and scheduled receipts. In the case
of Week 1, the initial inventory of 29,650 pounds, plus the 44,000 pounds of scheduled
receipts, minus the 57,850 gross requirement, leaves 15,800 pounds of oats available at
the start of Week 2.
The last row is the Planned orders row. This is the quantity that the MRP calculation
recommends ordering, and it is the output from the MRP process that purchasing uses to
determine what to order to produce the product, and when to order it.
Many times, a planner will need to intervene to tell the system to adjust the planned
order. For example, notice that the on-hand quantity of oats in Week 2 is only 1,950
pounds. In the best case scenario, assume the line is producing the NRG-B bar (as that bar
uses less oats). At 250 pounds per batch, 1,950 pounds of oats would be enough oats for
7 full batches. The production line can produce 6 batches an hour, so 7 batches of dough
would only support the production line for 70 minutes. If the scheduled order does not
arrive early enough on the first day of Week 2, the production line could be shut down.
When the purchase order scheduled to arrive in Week 1 was ready to be placed (two
weeks prior to the beginning of Week 1), the planner should have evaluated that order,
considering the low inventory level projected for the beginning of Week 2. The planner
might have decided to place an order for two hopper-truck loads of oats, instead of the
planned order for one load. Or he could have ensured that the scheduled receipt shown in
Week 2 would actually be delivered at the end of Week 1.
Planning factors such as lead times are just estimates, so planners must evaluate the
planned orders suggested by the materials requirements planning calculation before
allowing the program to automatically turn them into purchase orders.

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