Page 179 - Orlicky's Material Requirements Planning

158 PART 2 Concepts

When the planned orders are eventually released, the full quantity, including the
scrap allowance, should be shown as on order. This quantity then would be reduced as
and if scrap transactions are posted to the record. The practice of including scrap-
allowance quantities in the item’s gross requirements (in order to display the projected
on-hand quantities as they are expected to be after scrap) is unsound because it distorts
the fundamental relationship of parent planned-order quantity to the component item’s
gross requirements quantity. Furthermore, whether scrap actually will occur is uncertain.
Until it does occur, the MRP system should project the item’s status as though it will not
occur.
Another constraint that can be imposed on the lot-sizing algorithm is the require-
ment that a given item be ordered in multiples of some number. This may be dictated by
considerations of process (e.g., so many pieces constitute a Blanchard grinder load or so
many bars of steel are fed to a bar lathe simultaneously), packaging (e.g., 12 pieces in a
carton), and so on. The lot size yielded by the lot-sizing algorithm is, in these cases,
increased to the nearest multiple specified.
Raw material cutting factors represent another adjustment to lot size that it is desir-
able to make in certain instances. The lot-sizing algorithm, unaware of the form in which
raw material (from which the item in question will be made) comes, may generate a
quantity that would create problems in cutting this material. For example, if a certain size
of sheet metal is cut into nine pieces in the manufacture of a given inventory item, a lot
size of 30 will result in either an odd size of raw material being left over or, more likely,
the shear operator cutting the four sheets into 36 pieces. This then will become the actu-
al quantity on order, as opposed to the 30 on order shown by the system.
In cases where more than one type of adjustment is to be made to the order quanti-
ty for a given item, the several adjustments are made consecutively in a logical sequence.
For example, if the lot-sizing technique yields a quantity of, say, 173, which is equivalent
to five periods’ requirements, and the item is subject to a three-period ceiling, scrap
allowance, and cutting constraint (20 pieces per unit of raw material), the “raw” quanti-
ty of 173 would be adjusted as follows:
Raw order quantity: 173
Reduce to three periods’ requirements: 121
Add scrap allowance: 11
Total: 132
Increase to nearest multiple of 20: 8
Adjusted order quantity: 140

Scrap allowances, multiples, and cutting factors tend to create an inventory excess.
This excess, however, is subsequently applied by the MRP system against later gross
requirements. At any point in time, there exists a slight inventory excess, but it does not
accumulate.