Page 272 - Orlicky's Material Requirements Planning

CHAPTER 13 More Than an Inventory Control System 251

The critical ratio approach is ingenious because the technique establishes relative pri-
orities accurately, and with frequent recomputation, the priorities of work on all open shop
orders could be kept up to date and valid if there were gradual stock depletion at a steady
rate, which assumption is implicit in the technique. In the case of dependent-demand items,
however, depletion tends to be “lumpy,” which renders ratio A meaningless.
The critical ratio technique just described is geared strictly to an order point, and it
therefore fails to the extent that order point fails in an environment of discontinuous,
nonuniform item demand. Nevertheless, critical ratio has made a contribution to the state
of the art of inventory and production management. This contribution consists not of the
practicality of application but of highlighting the fact of vertically dependent priorities.
In the case of assembled products, there may or may not be a vertical priority
dependence, but there is always a horizontal dependence. A component is not really
needed when a co-component is not available for the assembly of their common parent
item. This principle can best be illustrated in an example (Figure 13-1).
The orders for the three manufactured components have different lead times but an
identical due date, which coincides with the scheduled assembly of parent item X. If the
order for component item A, for instance, is scrapped at a date too late for on-schedule
recovery, parent item X, in fact, will not be assembled on the date planned. The real pri-
ority of orders B and C therefore has dropped because they will not be needed on the
original order due date.
The MRP system is oblivious of this fact, of course, because the indicated require-
ments for items B and C have not changed. They have not changed because the parent
planned order (for item X) has not been rescheduled, and the MPS has not changed. The
system therefore will continue the original due dates, which, while technically correct, are
in fact false. It is the responsibility of the system user to reestablish priority integrity.
This can be done by rescheduling the parent planned order (using the so-called firm
planned-order techniques described in Chapter 14) and by letting the MRP system replan
requirements and dates of need for the component orders in question. If the parent
planned order cannot be rescheduled (by compressing its planned lead time) without
also rescheduling its parent’s planned order(s) and other related planned orders on high-

FIGURE 13-1 Item A
Horizontal priority
dependence. Lead Time Item X

Item B

Item C

Due Date