Precisely Wrong: Why Conventional Planning Systems Fail. Carol Ptak

how the MRP calculation is performed. Figures 2-9, 2-10, and 2-11 give a much more detailed description about how the MRP calculation determines gross requirements synchronized for specific timing and quantity to parent-level demand.

      Figure 2-9 shows gross requirements for items that are unique to FPA only over the relevant time horizon. In Figure 2-8 the FPA due date is labeled simply “X.” In Figure 2-9 we have given X a value of day 32. That means that FPA is due in 32 days. Three rows are displayed for each item. The row labeled “Demand” is simply the quantity of demand for the item on a particular day. For components of FPA the demand is dependent demand derived from FPA demand. The row labeled “Planned order receipt” represents the number expected to be ready to meet the demand. The planned order receipt quantity is what is actually driving the next lower level’s required quantities. The row labeled “Planned order release” is the time and quantity in which the order and materials for it will be authorized for production. It is derived from back-scheduling from the receipt date using the fixed lead time of the item. The shaded boxes simply highlight activity across the time horizon. The view in Figure 2-9 allows the reader to see the progression of exploded demand dependent requirements down each level.

FIGURE 2-9 Gross requirements for FPA unique items

FIGURE 2-10 Gross requirements for FPB unique items

FIGURE 2-11 Gross requirements for common items

      Figure 2-10 shows gross requirements for items that are unique to FPB only over the relevant time horizon. The FPB due date (referred to in Figure 2-8 as Y) is now given as day 35. That means that FPB is due in 35 days. As in Figure 2-9, this view allows the reader to see the progression of dependent demand requirements move through the product structure.

      Figure 2-11 shows the gross requirements for items that are common to FPA and FPB starting with SAA. With this view we begin to gain a true appreciation of just how powerful MRP can be if the assumptions behind its plan are valid. Components with multiple end-item sources of demand can be synchronized with that demand.

      One observation from seeing these tables is that for MRP to really be effective, demand must be known at least a cumulative lead time in advance. This important point will be expanded on in Chapter 3.

Net Requirements

      To this point only two of the three requirements to run MRP have been considered: the product structure file and the demand input. The final aspect of determining both quantity and timing in MRP is determining the net requirements by incorporating inventory records. The APICS Dictionary defines net requirements as:

      In MRP, the net requirements for a part or an assembly are derived as a result of applying gross requirements and allocations against inventory on hand, scheduled receipts, and safety stock. Net requirements, lot-sized and offset for lead time, become planned orders. (p. 110)

      The process of determining net requirements by incorporating the inventory records is called netting. Netting uses projected available balance to adjust gross requirements for each item in the future. The APICS Dictionary defines projected available balance as:

      An inventory balance projected into the future. It is the running sum of on hand inventory minus requirements plus scheduled receipts and planned orders. (p. 139)

      Projected available balance takes into account on-hand and scheduled receipts for each day against dependent demand required on that day. Ultimately, MRP systems are looking to net each position perfectly to zero. That means that MRP is hard-coded to take a high-level demand and determine the minimum amount of material and components required to make precisely that amount with nothing left over. At face value that sounds like exactly what any efficient-minded business would want to use and promote, but we have to remember that the MRP calculation assumes that demand is known and accurate.

      Additionally, in environments where order minimums and multiples differ between item numbers in the product structure, netting to zero is all but impossible. An example of this issue will be dealt with in Chapter 3. Our FPA and FPB example assumes the same order policies across all items.