Page 105 - Orlicky's Material Requirements Planning

84 PART 2 Concepts

the on-hand and on-order quantities). The classic inventory status equation was formu-
lated and publicized as follows:
A + B – C = X

where A = quantity on hand
B = quantity on order
C = quantity required
X = quantity available (for future requirements)
Thus the status of an inventory item might appear like this:

On hand: 30 or 30
On order: 50 25
Required: 65 65
Available: 15 –10

The quantity required would be derived from customer orders, a fore cast, or a cal-
culation of dependent demand. The quantity available had to be calculated. Negative
availability signified lack of coverage and a need to place a new order. The inventory sys-
tem now could better answer the ques tions of what and how much. What remained
unanswered under this approach was the crucial question of when. When is the quanti-
ty on order due to come in, and is it a single order or are there more than one? When will
the demand actually have to be satisfied, and will it be at one time or is the requirement
a summary figure concealing several demands spaced in time? When will the stock run
out? When should the replenishment order be completed? When should it be released?
The system was unable to answer these questions, and the inventory planner had to
depend on his or her own esti mates and guesses, on rules of thumb, or on physical man-
ifestations of need (“We can ship only 30 against this order for 65”).
Time phasing means capturing or developing the information on timing so as to
provide answers to all the foregoing questions. The price of time phasing is the added
cost of processing and storage of the time-phased data. The value of the additional infor-
mation thus made available, however, nor mally more than offsets the price paid for it.
For instance, if the data in the preceding example were time-phased, the status of the
item, by week, might appear as shown in Figure 5-1.
Answers are now provided in the figure to every single “when” question raised pre-
viously. There is one open order for 25, due to be received in the fifth week. There are
three separate demands for quantities of 20, 35, and 10, which will occur in the second,
fourth, and tenth weeks, respectively. The replenishment order need not be completed

FIGURE 5-1 Period
On hand: 30 1 2 3 4 5 6 7 8 9 10
Time phasing.
Open orders due: 0 0 0 0 25
Quantities required: 0 20 0 35 0 0 0 0 0 10
Available: 30 10 10 –25 0 0 0 0 0 –10