Page 146 - Orlicky's Material Requirements Planning

CHAPTER 7 Processing Logic 125

Be aware that when safety stock is planned through the MPS, it has the added
impact of planning additional components in matched sets, allowing the safety-stock
quantities of end items actually to be built. This will increase overall inventory invest-
ment. The preceding arguments regarding the proper place of safety stock can be
summed up by stating that safety stock is applied properly only to inventory items sub-
ject to independent demand when the actively synchronized replenishment (ASR) lead
time is greater than the customer tolerance time. The resupply (completion) of manufac-
tured items need not be erratic because performance to schedule is controllable, particu-
larly in an MRP environment. Establishment of a replenishment buffer for component
items can compress the recovery time dramatically when volatility is experienced. This is
covered in Part 4.

COVERAGE OF NET REQUIREMENTS
The quantities and timing of net requirements for a given inventory item can be thought
of as indicating impending shortages caused by lack of cov erage. Assuming an adequate
planning horizon, an MRP system detects such shortages sufficiently in advance to allow
their coverage to be planned in an orderly manner. An MRP system detects future poten-
tial shortages and plans their coverage so that actual shortages will not occur.

Planned Orders
In an MRP system, net requirements are covered by planned orders, that is, new orders for
the respective items scheduled for release in the future. Depending on the planning hori-
zon, the level of the item in the product structure, and the applicable lot-sizing rule, an
item with net requirements will have one or more planned orders indicated. The timing
of the first (earliest) planned order is governed by the timing of the first net requirement.
The order quantity must equal or exceed the net requirement. If this quantity exceeds the
net requirement, the timing of the next (second) planned order may be affected. A
planned order may cover net requirements occurring in one or more planning periods.
To generate a planned order correctly, the system must determine the following:
1. The timing of required order completion (due date)
2. The timing of order release
3. The order quantity

The timing of order completion derives, of course, from the timing of the net
requirement being covered. As mentioned previously, the timing of the planned-order
release is arrived at by offsetting for lead time, that is, by subtracting the value of the lead
time (expressed in shop calendar units) from the shop calendar date of order completion.
The individual-item lead times used by the MRP system in deter mining planned-
order releases are, by necessity, estimates in most cases. The lead-time value of the four
periods used in the preceding example represents the amount of time that could be