Page 77 - Orlicky's Material Requirements Planning

58 PART 2 Concepts

letter D stands for demand and P for production. Each record extends six periods into
the future.
Because forgings will be needed every time a lot of one or the other of the various
wrenches is to be produced, it is possible to construe the demand on the respective forg-
ings by combining the wrench production lot quantities in the corresponding time peri-
ods. The forgings are produced in lot quantities of their own, and the demand for the
common component material is derived in the same fashion. For simplicity’s sake, the
unit of measure for the steel is assumed to be equivalent to one forging.
Demand for the finished wrenches in the example is shown to be perfectly steady
and level, which is hardly realistic but was chosen to highlight the fact that even with con-
tinuous and uniform demand for end products, demand for components will tend to be
discontinuous and jagged. Lumpiness of demand is, of course, relative to the period cho-
sen. By increasing the size of the period (from a week to a month, from a month to a quar-
ter, etc.), demand measurements will show more continuity and uniformity. However, in
today’s climate, where lead times are being shortened and customers are more demand-
ing, planning in larger time buckets just to improve uniformity is highly unrealistic.
As a matter of fact, in our example, even the demand for item Z, the steel, can be
completely “stabilized” by increasing the size of the period 50-fold. Thus, if the period in
the example represents one week, demand will turn out to be a perfectly uniform 850
units per each 50-week cycle. Such stabilization, however, has been achieved with the
proverbial “mirrors,” and the information is not very useful because the period spanned
by the measurement is simply too large. It is the short-range lumpiness of demand that
is significant because manufacturing inventory and production must be planned and
controlled from day to day and from week to week.
In the example of Figure 4-3, successive period demands for item Z are 75-0-25-50-
0-25. Note what may not be readily apparent, namely, that the average demand for item
Z equals 17 per period. One unit of steel is consumed in the production of each wrench,
and in each period, the total demand for the four wrenches is 1 6 3 7. The wrench-
es can be forecast easily, but period demand for steel does not lend itself to statistical fore-
casting at all.

Material Requirements Planning

MRP is the preferred technique to use when one item is a component of another and thus
subject to dependent demand. The MRP approach does not rely on a forecast of depen-
dent item demand and thus avoids the problems touched on in the preceding discussion.
Its techniques are expressly designed for dealing with dependent, discontinuous,
nonuniform demand, which is characteristic of manufacturing environments. It is for -
ward-looking, not history-driven, like order point. MRP develops a valid inventory plan
that can be replanned to keep it up to date. MRP is not without its own problems, of
course. These will be understood better after the mechanics of MRP and its related tech-
niques, covered in the balance of Part 2, are known.