Page 228 - Orlicky's Material Requirements Planning

CHAPTER 11 Product Definition 207

which options are considered important enough to be reflected in model designations,
creating model codes is an arbitrary matter.
A multitude of model designations is an otherwise harmless thing (it looks good in
the sales catalog) except that all the models tend to get into the process of forecasting and
master scheduling. Separate figures then are shown for each model, resulting in lengthy
and cumbersome documents that are laborious to prepare, difficult to interpret, and even
more difficult to evaluate. Furthermore, since each model represents a certain combina-
tion of optional features, any forecast expressed in terms of models will tend to be gross-
ly inaccurate, necessitating constant revisions in the forecast and changes in the MPS.
It is difficult enough to forecast demand for any single option, but to forecast, with
any degree of dependability, what other options it will be combined with is virtually
impossible. In order to improve the quality of forecasting and to simplify the process of
master scheduling, the number of models within each product family should be reduced
(at least for internal purposes) to just a few and ideally to one. It is much more difficult
to forecast by model than by basic product and option. The basic product represents com-
ponents, if there are any, common to all the possible product buildups and serves to indi-
cate how many units of the product are expected to be sold and how many are scheduled
to be built.
This principle pertains only to forecasting, master scheduling, and planning for the
procurement, fabrication, and subassembly of components. For purposes of final assem-
bly scheduling, specific combinations of options must be specified for each unit to be
built. Reducing or abolishing product models for purposes of internal planning does not
mean that such model designations necessarily would have to be eliminated from price
lists and sales literature. To implement the principle of forecasting and planning by basic
product and option, the BOM used by the MRP system would have to be modularized
accordingly. The principles and techniques of modularization will be reviewed next.

MODULAR BILLS OF MATERIAL
A modular BOM is arranged in terms of product modules, that is, sets of component
items, each of which can be planned as a group. The process of modularizing consists of
breaking down the BOMs of highest-level items (products and end items) and rearrang-
ing them into modules. There are two somewhat different objectives in modularizing a
BOM, namely:
1. To disentangle combinations of optional product features
2. To segregate common from unique, or peculiar, parts

The first is required to facilitate forecasting or, in some cases, to make forecasting at
all possible under the MRP approach. The second is aimed at minimizing inventory
investment in components that are common to option alternatives, that is, that are used
in either optional choice. Demand for product options must be forecast, and this makes
it necessary to plan safety stock in which the common components may be duplicated.