In reality, we intuitively know that lead times are not fixed and will in fact vary. It does not always take two days to build FPA, and it does not always take five days to receive PPB. In both cases it could take more or less time depending on a variety of potential influencing factors including capacity load, sequencing, changes in priorities, and many other unexpected events, which we have more of in today’s more variable and complex environments. Yet in order to make a plan, you must have an estimation of the time to accomplish each task at the time of planning.
Finally, the connected boxes to the right simply indicate each level of the product structure. End-item product structures begin at level zero. FPA is at level zero of the product structure. PAG is the lowest level of the product structure at level 3. Each part number in a company environment is assigned only one level. When components are shared across multiple product structures, the lowest-level value is assigned to the part (the biggest number). This is called the part’s low-level code. The use of low-level codes is vital to how an MRP system sequences its series of calculations to avoid an infinite calculation loop.
Independent Demand Forecasts
The APICS Dictionary defines independent demand as:
The demand for an item that is unrelated to the demand of other items. Demand for finished goods, parts required for destructive testing, and service parts requirements are examples of independent demand. (p. 79)
Independent demand forecasts are simply what we think the total demand for finished goods (end items), parts for testing, or service parts will be within a typical time bucket. At the end-item level, these forecasts are commonly the output of some sort of S&OP process or a statistical forecasting technique based on past usage.
Service parts and parts for destructive testing are typically at lower levels in the product structure (bill of material). As explained earlier in the chapter, service-part orders are most often left out of the MPS input and instead put directly into MRP. This explains the dotted line moving from “Independent Demand Forecast” into the “MRP SYSTEM” in Figure 2-1. Items subject to both dependent and independent demand (such as service parts) have the independent forecast quantities simply added to the calculated dependent requirements, giving us the total gross requirements for the item from both sources of demand. Note that service-part demand is either forecast or recorded upon receipt of orders (placed by a service-part organization operating its own system), but as a rule usually not both.
External Orders for Components
These are explicit requirements from points of consumption—most commonly an actual sales or customer order. According to the APICS Dictionary, “It is often referred to as actual demand to distinguish it from forecasted demand” (p. 39). This is a customer or market interface stating specifically what is actually needed as opposed to a marketing, sales, or planning function stating what we think will be needed in a future time period.
Inventory Record File
The APICS Dictionary defines inventory record as follows:
A history of the inventory transactions of a specific material. (p. 85)
The inventory record contains the on-hand, on-hold, on-allocation, and in-transit amounts for any particular item. On-hand is the amount currently available for use. On-hold is the amount that is here but unavailable for use (e.g., quality hold). On-allocation is the amount reserved for a particular use or order. In-transit is the amount that is ordered but not yet received (also frequently called “open supply”).
Manufacturing Execution System
The APICS Dictionary defines a manufacturing execution system as:
Programs and systems that participate in shop floor control, including programmed logic controllers and process control computers for direct and supervisory control of manufacturing equipment; process information systems that gather historical performance information, then generate reports; graphical displays; and alarms that inform operations personnel what is going on in the plant currently and a very short history into the past. Quality control information is also gathered and a laboratory information management system may be part of this configuration to tie process conditions to the quality data that are generated. Thereby, cause-and-effect relationships can be determined. The quality data at times affect the control parameters that are used to meet product specifications either dynamically or off line. (p. 98)
MES is responsible for executing the plan that is generated from MRP and collecting data about that execution including the inventory transactions that are a necessary input to the MRP system. In Figure 2-1 the dotted line coming out of the MES box and going into the “Inventory Record File” box depicts this transactional activity. The balance of this chapter will focus on the rules behind MRP—how it does what it does. Chapter 3 will then focus on the problems that arise as a result of the combination of MPS and MRP. The components and the behavior of manufacturing execution systems are beyond the scope of this book because MES is not an integral part of MRP.
MRP Requirements and Assumptions
The requirements to run MRP are very simple and straightforward, and the impact of each will be explained in this chapter:
• A bill of material that exists at the time of planning (product structure file)
• A source of demand for item numbers contained in the product structure file
• Inventory records for each item
Figure 2-3 shows these three required inputs to MRP in the conventional planning schema. Each input is labeled with its number on the requirements list. Note that there are three sources of demand going into MRP. The two dotted arrows from “Independent Demand Forecasts” and “External Orders for Components” represent demand for lower-level components such as service parts that are often inserted directly into MRP (not supplied by the MPS).
FIGURE 2-3 MRP requirements
When these requirements are present as inputs, the MRP system can properly calculate. However, to expect some kind of reasonable result from the system, the following assumptions are made:
• Inputs are 100% accurate and complete. This means that demand is accurate and complete, product structure (and all its aspects) is accurate and complete, and inventory records are accurate and complete.
• Every inventory item in the product structure goes into and out of stock. This distinguishes an item as stock (a completed item) versus work-in-process inventory (an incomplete item).
• There is full allocation. No order is released unless all the components are available. An order release is simply the approval for materials and/or components and activities to commence to make (or ship) an item that has been ordered.
• Components are discrete. Every distinct part named in the product structure file can be counted and measured (no “use as required”).
• Orders are independent. Every order for an item in the product structure can be started and completed on its own (assuming full allocation).
As with any plan, when the assumptions behind the plan begin to break down, the plan becomes