Material requirement planning is based on several basic concepts, which are implicitly defined. These concepts are
• Independent versus dependent demand
• Lumpy demand
• Lead time
• Common use item
• Time phasing.
132 A Modern Approach to Operations Management 7.2.1 INDEPENDENT DEMAND
It exists when a demand for a particular item is unrelated to a demand for other item or when it is not a function of demand of other inventory item. Independent demands are not derivable or calculable from the demand of something else hence they must be forecast.
7.2.2 DEPENDENT DEMAND
It is defined as dependent if the demand of an item is directly related to, or derived from the demand of another item or product. This dependency may be “vertical” such as when the component is needed in order to build a subassembly or product, or “horizontal” as in the case of an attachment or owner’s manual shipped with the product in most manufacturing businesses, the bulk of the total inventory is in raw materials, component parts, and subassemblies, all largely subjected to dependent demand. Since such demand can be calculated, and precisely determined from the demand for those items that are its sole causes, it need not and should not, be forecast.
The demand for the end product may have to be forecast. But none of the component items, including the raw materials, need be forecast separately. An example can be given for a certain wagon or rail coach manufacturing company. It may have to forecast how many wagons it can sell, and when.
Having done that, however, the manufacturing company need not forecast the number of wheels, since each wagon needs four sets of wheels.
In dependent demand, there is a material conversion stage, which creates the relationship between raw materials, semi-finished parts, component parts, subassemblies and assemblies. Each of which carries a unique identity (part number) and as such represents an inventory item in its own right that must be planned and controlled. Demand for all these inventory items is being created internally, as a function of the next conversion stage to take place. If one of the assemblies of a gear box is taken as an example. A sheet steel is made into a forging blank which, in turn, is machined into a gear which then becomes one of a number of components used in assembling the gear box - a major component of a transmission. The transmission will be required for the building of some end-product (vehicle), which is also an assembly. MRP is the appropriate technique for determining quantities of dependent demand item.
7.2.3 LUMPY DEMAND
Manufacturing is frequently done on an intermittent basis in lots, or models, of one type or another. The components of a finished product are needed only when the product is being manufactured. Thus, there may be large demands on inventory at some times and none at other times, making the demand ‘lumpy’.
When the demand occurs in large steps, it is referred to as “lumpy demand.” MRP is an appropriate approach for dealing with inventory situations characterized by lumpy demand.
7.2.4 LEAD TIME OF ITEM
The lead-time for a certain job is the time that must be allowed to complete the job from start to finish.
In manufacturing, lead-time is divided into ordering lead-time and manufacturing lead-time. An ordering lead time for an item is the time required from initiation of the purchase requisition to receipt of the item from the vendor. In this case if the item is raw material that is stocked by the vendor, the ordering lead time should be relatively short. If the item must be fabricated by the vendor, the lead time may be substantial, perhaps several months.
Manufacturing lead time is the time needed to process the part through the sequence of machines specified on the route sheet. It includes not only the operation time but also the non-productive time
Material Requirement Planning 133 that must be allowed. In MRP, lead times are used to determine starting dates for assembling final products and sub-assemblies, for producing component parts and for ordering raw materials.
The different individual lead times of inventory item that makes up the product is also another factor that affect material requirements. Because the component item order must be completed before the parent item order that will consume it can be started, the back-to-back lead times of order that the four items consume in the following example may be added up to find the cumulative lead time.
If the manufacturing lead times for the four items of a truck are
Transmission A 1 weeks
Gearbox B 2 weeks
Gear C 6 weeks
Forging blank D 3 weeks
Cumulative lead-time 12 weeks 7.2.5 COMMON USE ITEMS
In manufacturing, one raw material is often used to produce more than one component type. And a component type may be used on more than one final product. For example if the product structure in Fig-7.1 is used to manufacture a product X, a component A is required, which needs another component B. Component B also requires other three components among which C requires D and component D requires the other end component E which may be a raw material. It is clearly seen from the other branch of the tree that the end item E is also required to manufacture N, S and T. Hence E is required to manufacture two different components of the finished product X. Similar relations can be shown between the component P and X. MRP collects these common use items from different products to effect economies in ordering the raw materials and manufacturing the components.
X
A N Z
Q R S
T U V W
E
I P
B
M C
E D P
P
Figure 7.1. Product Structure.
7.2.6 TIME PHASING
Time phasing means adding the time dimension to inventory status data by recording and storing the information on either specific dates or planning periods with which the respective quantities are associated.
134 A Modern Approach to Operations Management The inventory status information was expanded by adding data on requirements (demand) and
“availability” (the difference between the quantity required and the sum of on-hand and on-order quan- tities). Using the classic inventory status equation we can write
a + b – c = x where a = quantity on hand
b = quantity on order c = quantity required
x = quantity available (for future requirements)
The quantity required (c) would be derived from customer orders or a forecast, or a calculation of dependent demand. The quantity available (x) has to be calculated. Negative availability signifies lack of coverage and the need to place a new order.
Generally, time phasing means developing the information on timing to provide answers to questions like:
• When is the quantity on order due to come in, and is it a single order or are there more than one?
• When will the stock run out?
• When should the replenishment order be completed?
• When should it be released?
MRP calculates item demand and time-phases for all inventory.