Page 145 - Orlicky's Material Requirements Planning

124 PART 2 Concepts

FIGURE 7-8
Period
Net requirements Total
after safety-stock 1 2 3 4 5 6 7 8
deduction.
Gross Requirements 20 25 15 12 72
Scheduled Receipts 30 30
On Hand 23 23 3 33 8 8 –7 –19 –19 –19
Net Requirements 9 12 21

When safety stock is planned at the item level, the material requirements planning
logic attempts to conserve its quantity and to “protect” it from being used up so that this
quantity always might be on hand. To the extent that the system succeeds in thus safe-
guarding safety stock, it creates “dead” inventory that is carried along but never used—a
distinctly undesirable con dition. Item safety stock forces the MRP system to overstate
requirements, which in itself is undesirable. The system either tells the truth or does not.
An overstated requirement sometimes leads to distorted timing, when the safety stock
causes the net requirement to be pulled forward in time. Treatment of safety stock is usu-
ally considered as a current period demand causing the components to always be past due.
Overstated requirements and false timing (order due dates) tend to cause confusion,
unnecessary expense, and most important, loss of credibility by the MRP system. Factory
personnel will quickly discover wheth er or not they can rely on the integrity of informa-
tion being generated by the system. Shop supervisors using common sense almost cer-
tainly will disregard the due date indicated on a given shop order and delay its comple-
tion if they know that a quantity of the item is available in stock or that the order is sched-
uled for completion before actually needed. In time, vendors of purchased items will
learn that missing a due date has no serious conse quences, and they will tend to miss
more due dates thereafter.
Safety stock at the item level is part of the stock-replenishment concept and as such
has no legitimate place in an MRP system despite the fact that it easily can be incorpo-
rated into such a system. The primary purpose of safety stock is to compensate for fluc-
tuations in uncertain demand, that is, for fore cast error. In an MRP system, however,
demand for the individual component items is not being forecast and therefore is not sub-
ject to forecast error. Component-item demand is certain relative to the MPS.
This schedule may be based on a forecast of demand for products or end items.
Variability of demand is at the MPS level, not at the component-item level. Strategic
buffers are placed at the necessary leverage points to ensure that sufficient compression
of the reaction lead time is less than the customer tolerance time. In some cases, safety
stock, where required, therefore should be provided through the MPS; that is, it should
be planned in terms of end items. The MRP system, which explodes the contents of the
MPS into detailed component- item requirements, need not and should not duplicate
safety-stock inven tory at the component-item level. Any variability at the lower levels in
the BOMs is protected by the strategic buffers.