Page 141 - Orlicky's Material Requirements Planning

120 PART 2 Concepts

With multilevel product structures, because of successive lead-time offsetting, there
is a partial loss of horizon at each lower level. The effective planning horizon at each level
is successively diminished as MRP progresses from one level to the next. One conse-
quence of very short horizons is the inability to apply some lot- sizing techniques effec-
tively because of lack of sufficient net requirements data. This is discussed in Chapter 8.
Another, more serious consequence is lack of data for capacity requirements planning.
Short horizons limit capacity requirements planning on the low-level, usually fabricated,
parts where it is most desirable. However, as is discussed in depth in Chapter 9, long
horizons result in plans with low validity because of greater potential changes in require-
ments, design details, and processing methods and more upsets. The resolution of this
dilemma also is covered in Chapter 9.

GROSS AND NET REQUIREMENTS
The concept of gross versus net requirements was reviewed briefly in Chapter 6. The
gross requirement for an inventory item equals the quan tity of demand for that item in
that time period. Its net requirement is arrived at by allocating the available inventory on
hand and on order to (i.e., subtracting from) the gross requirement in that time period.
The term gross requirement has a specific meaning in this context, how ever. It is the quan-
tity of the item that will have to be disbursed, that is, issued to support a parent order (or
orders), rather than the total quantity that will be consumed by the end product. These
two quantities may or may not be identical.
To illustrate, in the Chapter 6 example of truck X and component item D, 100 trucks are
to be produced, and each unit of the end product contains one unit of item D. The gross
requirement for D therefore could be said to equal 100. This figure, while meaningful in
product costing and so on, is quite meaningless for purposes of MRP, where the question is
not what quantity of a component will go out the door with the product but what (mini-
mum) quantity will have to be procured or manu factured (i.e., the net requirement) to allow
the product to be built and shipped in the quantity required. In the example mentioned, the
gross requirement for item D is computed to be 76 and the net requirement 30. The gross
requirement could have been 100, however, had there been no inventories (e.g., gears, gear-
boxes, and transmissions) at higher levels. In an MRP environment, the gross requirement is
equivalent to demand at item level rather than to demand at product or MPS level.
There may be multiple sources of demand, and therefore of gross requirements, for
a given component item. This also was brought out previously. An item may be subject
to dependent demand from several parent items that use it in common, and it also may
be subject to independent demand generated from sources external to the plant. These
gross requirements for the item are combined and summarized, by planning period, in
the gross requirements schedule, that is, the respective row of time buckets, as illustrat-
ed in Chapter 6. This is reproduced in Figure 7-2. Using these data to develop subsequent
examples, we must now introduce some inventory data so that net requirements can be
determined and time phased correctly.