Page 85 - Orlicky's Material Requirements Planning

CHAPTER 4 Inventory in a Manufacturing Environment 65

factors in consideration of the overall business objectives and operating rules. This is
accomplished by the people who have experience and intuition in the environment. In
complex environments, technology must be leveraged to perform the necessary compu-
tations, including analyzing the product structure, qualified cumulative lead times, and
shared components across the integrated BOM. The importance of carefully considering
inventory positioning cannot be underestimated. Without the right strategic positioning,
no inventory system can perform to its potential.
Properly positioned inventory is truly an asset, and as with any other asset, the com-
pany must expect and demand a return on that asset. This begins with sound planning
and ends with tight control. MRP is the core of modern integrated planning and control
systems. It can be the key to leveraging the inventory investment for the highest return.
As an example of buffer positioning, first consider a simple environment, a compa-
ny that produces two products—Part 300 and Part 400. Figure 4-5 shows the BOM for
these parts. Note that both end items use a common manufactured subcomponent
labeled “Part 200.”
Adjacent to each part is the lead time associated with each discrete part number.
Manufactured parts have two lead times for each part: a manufacturing lead time (MLT)
and a cumulative lead time (CLT). Purchased parts have a purchasing lead time (PLT) asso-
ciated with them. The APICS Dictionary defines these lead times as:

manufacturing lead time (MLT): The total time required to manufacture an item,
exclusive of lower level purchasing lead time. For make-to-order products, it is the
length of time between the release of an order to the production process and shipment
to the final customer. For make-to-stock products, it is the length of time between the
release of an order to the production process and receipt into inventory. Included here
are order preparation time, queue time, setup time, run time, move time, inspection
time, and put-away time.

FIGURE 4-5 Bill of Material for Part 400 Bill of Material for Part 300
MLT = 4 Days Part 400 Part 300 MLT = 7 Days
Bills of materials CLT = 19 Days Parent Parent CLT = 22 Days
for Part 400 and
Part 300.
MLT = 5 Days Part 200 Part 50 PLT = 7 Days Part 200 MLT = 5 Days
CLT = 15 Days Component Purchased Component CLT = 15 Days

PLT = 10 Days Part 100 Part 100 PLT = 10 Days
Component Purchased
Part