Page 271 - Orlicky's Material Requirements Planning

250 PART 3 Managing with the MRP System

ity scheme lacks integrity, shop people soon discover this and revert to the traditional
expediting/shortage-list approach. This is tantamount to collapse of the priority system.

Dependent Priority

The integrity of priorities derives from the MPS, and there are basically two ways in which
this integrity may be compromised. The MPS may contain end items that are either not
actually needed at the time indicated or cannot be produced as scheduled for lack of mate-
rial or components (lack of capacity results in lack of components). The effect of this
becomes evident when the concept of dependent priority is considered. This concept per-
tains to the real priority (What is really needed when?) as opposed to the formal priority
(What priority did the system assign to the order?), which may not necessarily be the same.
The concept of priority dependence recognizes that the real priority of an order
depends on the availability, or lack of availability, of some other inventory item(s) at the
time of order completion. For example, the supply of product A, which is shipped from
stock, is forecast to run out in week X. The due date of an order for component item B is
week X – 1, allowing time to assemble a quantity of product A and replenish its stock in
week X. If sales lag and the product is still in ample supply as the component order nears
completion, the real priority of the order is lower than its due date indicates.
This can be thought of as vertical priority dependence because the real priority in this
case is a function of availability of an item (or items) on a higher level in the product
structure. This concept was introduced in 1964 by means of a new technique for the
1
dynamic updating of operation priorities called critical ratio. This technique (as original-
ly formulated) does not rely on due dates and establishes relative priorities by comput-
ing the value of the critical ratio for the next operation to be performed on every open
shop order as follows:
Ratio A quantity on hand/order point For example, 50/100 0.50
Ratio B lead time for balance of work/total lead time For example, 14/25 0.56
Critical ratio ratio A/ratio B 0.50/0.56 0.89
Ratio A, the disparity between the order-point quantity and the quantity of stock on
hand, is used as a measure of need. Ratio B, the disparity between the amount of time
that was scheduled to be available for operations not yet completed and the total planned
lead time, is used as a measure of response to that need. Ratio A represents the percent-
age of stock depletion; ratio B, the percentage of work completion.
A critical ratio value of 1.00 signifies that work on the order has kept pace with the
rate of stock depletion—the order is “on schedule.” A value lower than 1.00 indicates that
the pace of work completion lags behind the rate of demand (the order is “behind sched-
ule”), and a value higher than 1.00 indicates the opposite (“the order is ahead of sched-
ule”). The lower the value of the critical ratio, the higher is the priority of the job.

1 A. O. Putnam, “How to Prevent Stockouts,” American Machinist 108(4), 1964.