Page 148 - Orlicky's Material Requirements Planning

CHAPTER 7 Processing Logic 127

and milling heavy castings, etc.), a lead-time computation procedure can be devised that
takes lot size into account.
Planned lead time is sometimes artificially inflated by the inclusion of an element
called safety lead time or safety time. This element is inserted at the end of the normal lead
time for the purpose of completing an order in ad vance of its real date of need. Where
safety lead times are used, the MRP system, in offsetting for lead time, will plan both
order release and order completion for earlier dates than it would otherwise. Order due
dates will be advanced from dates of real need by the amount of safety lead time.
The concept of safety lead time is actually quite similar to that of safety stock. The
primary purpose of both is to compensate for the vagaries of item demand. The effect of
safety lead time is to create an inventory excess that then can be used to meet unantici-
pated demand. In practice, how ever, this inventory tends to remain in work-in-process,
and the extra time serves to facilitate expediting completion of the order by the date of
real need, that is, the date that would have been the order due date in the absence of safe-
ty lead time.

Timing and Size of Planned Orders
The ability to generate planned orders, that is, to plan for coverage of all future net
requirements, is one of the most significant characteristics of an MRP system. For every
inventory item with net requirements, the system de velops a planned-order schedule
consisting of quantities and timing of as many planned-order releases as may be required
to cover net requirements throughout the planning horizon. This schedule details inven-
tory order action that will have to be taken in the future.
Planned-order schedules constitute one of the most valuable outputs of an MRP sys-
tem despite the fact that the bulk of the planned-order data is not related to current order
action. The main value of planned orders lies in pro viding the basis for a correct deter-
mination of their component-item re quirements (a component gross requirement derives
directly from a parent planned order, as pointed out previously) in terms of both quanti-
ty and timing. Planned orders provide “visibility” into the future and form the basis for
various projections, including projected on-hand inventory, future pur chase negotiations
and commitments, and most important, production capacity require ments.
Once the net requirements for a given inventory item are determined and time-
phased, the timing of any covering planned order can be established in a straightforward
manner, as described earlier in this chapter. The an swer to the question of planned-order
quantity, however, is not equally clear-cut. At this point in the MRP process, one of a
number of possible ordering policies or ordering rules is applied. Thus the planned-order
quantities or lot sizes are a function of the lot-sizing rule specified for the item in ques-
tion. Different lot-sizing rules can—and usually do—apply to different items or item
classes within one MRP system.
A number of approaches to lot sizing in an environment of discrete period demands
are possible, and several new techniques (lot-sizing algorithms) have been developed