mrp white paper

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Balancing Demand & Supply: A Brief Guide toMRP logic

An Oracle White PaperFebruary, 2003


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Balancing Demand & Supply: A Brief Guide to MRP logic

ABSTRACT

The purpose of material planning is to balance material supply to demand by simulating the future.Whenever, the user runs a Material Requirements Plan, the planning engine performs a requirements explosion.Through this process the engine takes a quick but detailed look at the existing sources of demand and supply. It looksthe dates when make or buy items are required, the dates when these items are due into inventory and suggests thedates when additional quantities need to be procured or produced to ensure that the requirements are met in terms ofquantity and time.

How the planning engine performs this task is beyond the scope of this paper. The purpose this paper intends to fulf il ito analyse and explain the outcome, which the planning process generates every time a material plan is run. The papeinterprets how the changes we make to the planning environment af fect the outcome and helps us understand whyplanning responds the way it does to these changes.

The Planning Detail Report (MRRDPR) is the chosen tool we would be using extensively to study and analyse thebehaviour of the planning engine. This report is written in Pro*C and its output reflects comprehensively, the outcome any Material Plan run.

SCOPE & APPLICATION

This paper is intended for an audience familiar with the planning process, and involved in creating and executing MPSand MRP plans in discrete manufacturing. The content of this paper is arranged in a manner so as to take the audiencthrough a guided tour of the discrete planning process. The journey begins with the creation of demand (independentdemand) and watching the demand percolate down the bill of material. We would then be introducing sources ofscheduled receipts first at the assembly level and then at the component level and analyse the impact of doing so.There are in essence seven sources of scheduled receipts discrete jobs, purchase requisitions, purchase orders,

purchase orders in receiving, internal (purchase) requisitions, intransit shipments and intransit receipts (i.e. intransitshipments in receiving). To avoid repetition, we shall not be using the last three. With the aid of the first four, we shallbe covering the salient points that would help us develop the level of understanding that we have set out to achieve.However, it must be noted that this paper does not claim to be an exhaustive study on the material planning process ait is virtually impossible to cover the entire expanse of the material planning subject in the course of a single paper.

UNDERSTANDING THE PLANNING PROCESS

The planning process begins with a driving schedule that has item numbers, quantities and due dates. For a masterproduction schedule (MPS) plan, the driving schedule is a master demand schedule (MDS). The MDS forms theconsolidated source of independent demand. For a distribution requirements plan (DRP) and a material requirementsplan (MRP), the driving schedule is either a master demand schedule or a master production schedule. In this paper wshall begin our tests with an MDS and use it to drive our MRP run.

An Overview of Lead Time

Oracle Manufacturing supports two scheduling methods for discrete manufacturing detailed scheduling and

dynamic lead-time offsetting. Detailed scheduling is the most precise scheduling method in Oracle Manufacturing. Ihelps schedule jobs to the minute based on detailed resource availabil ity and usages. This method is employed byOracle Work In Process and by Oracle Bills of Material. Oracle Planning uses dynamic lead-time offsetting. Throughthis scheduling algorithm, the system calculates the start date of an order based on order quantity, lead times, and theworkday calendar. It is essentially a given date plus or minus the number of workdays. To appreciate the dynamic lead


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time offsetting concept, we need to familiarise ourselves with a few lead time components that apply to buy and makeitems. These are displayed in Fig 1 below. It is to be noted that all lead time components are calculated and

stored in days (even if the resource usages are measured in hours).

Fig 1. Lead Time Components

Preprocessing Lead Time is the time required to release a purchased order or a job from the time the requirement isacknowledged. This has to be manually entered in the item definition form for buy items and for make items (ifrequired).

Processing Lead Time is the time required to procure or manufacture an item. This has to be manually entered in theitem definition form for a buy item. For a make item, Oracle Bills of Material calculates the same when you run theCalculate Manufacturing Lead Times GUI program. This program calculates the Fixed Lead Time and the VariableLead Time for make items and populates the values in the item definition form. Assuming a Lead Time Lot Size of 1,the value populated into the fixed and variable lead time fields is calculated as follows:Fixed Lead Time = Sum of the Usages of the Lot Based Resources in the items primary

Routing (calculated in days).

Variable Lead Time = Sum of the Usages of the Item Based Resources in the items primary

Routing (calculated in days).This calculation applies only to those resources that have the Schedule f lag set to Yes and that have a UOM thatbelongs to the same UOM Class as the UOM entered in the profile option BOM: Hour UOM.For example, in the Visio

instance, this profile has a (UOM) value HR for hours. So, the scheduling algorithm will pick up all resources that have

UOM defined as HR or any other UOM that belongs to the UOM Class to which HR belongs.

Once the algorithm calculates the fixed and the variable lead times it calculates the Cumulative Manufacturing Lead

Time for the make item by adding the fixed and the variable lead times, and rounding the result to the next wholenumber.Cumulative Manufacturing Lead Time is the total time required to make an item if you have all raw materials in stoc

but have to make all subassemblies level by level. This value is then populated into the Processing lead time field in

the item definition form. However, when executing the material plan the system does not pick up this processing leadtime value for the make item. The system uses the following lead time formula to schedule the plan dates for makeitems.Planned order lead time (Lead Time Offset)

= Fixed Lead Time + (order quantity * Variable Lead Time)It is the time that the shop floor needs to produce the order.This is the formula that we will be referring to again andagain when interpreting the outcome of the MRP.

Postprocessing Lead Time is the time required to make a purchased item available in inventory from the time it isreceived at the dock. This may include the margin we keep for inspection, quality testing, material handling etc. This


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applies only to buy items and is not relevant for make items. For buy items you have to manually enter this value in thitem definition form.

Now that all the individual lead time component values are in place, it is time to run the Rollup Cumulative Lead

Times GUI program. This concurrent program populates the field Cumulative Total in the item definition form.

Cumulative Total Lead Time is the total time required to make an item if no inventory exists and you have to order a

the raw materials and make all subassemblies level by level.For buy items:Cumulative Total Lead Time = Preprocessing Lead time + Processing Lead Time

+ Postprocessing Lead TimeThis is the formula we shall be referring to most frequently when analysing how Planning schedules buy items.

For make items:Cumulative Total Lead Time = Cumulative Manufacturing Lead Time

+ the maximum of the Cumulative Total Lead Time of the

previous (lower) level components

The setup we shall perform in this paper will help il lustrate how these formulae work.

An Overview of Planning Dates

Based on Fig 1, we can deduce the following:

Start Date for Make Items = Due Date Lead time Offset

= Due Date [Fixed Lead Time + (order quantity * Variable Lead Time)]

Order Date for Make Items = Start Date Preprocessing Lead Time

Due Date for Buy Items = Dock Date + Postprocessing Lead timeA point to note here is that the Dock Date for a purchase order or a purchase requisition is picked up from the Need Bdate entered against that order or requisition.

Start Date for Buy Items = Dock date Processing Lead Time

Order Date for Buy Items = Start Date Preprocessing Lead Time

CREATING A SETUP

To recreate a planning scenario, we need to establish a basic setup on which to build our foundation for the test cases

(1) Inventory: Items > Master ItemsDefine an item called FinG. Use the Finished Good template for this item. This is a Make item that willconstitute our final assembly.Inventory: Items > Master Items > (T) MPS/MRP PlanningSet Shrinkage Rate = 0.2. Save your work.

Assign this item to organization Dallas Manufacturing, hereafter referred to as M3.

Define Buy item Pur1. Use the Purchased Item template.Inventory: Items > Master Items > (T) General PlanningSet Safety Stock Method = MRP Planned%Bucket Days = 5 and Percent = 20The safety stock method MRP Planned% tells planning to dynamically calculate safety stock. The calculationinvolved would be explained when we execute the plan.To ensure that MRP calculates the safety stock, we will have to enable the Plan SafetyStock checkbox in Plan Options, when defining the plan. We shall do this in step (10).


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Inventory: Items > Master Items > (T) Lead timesSet Preprocessing = 1, Processing = 30, Postprocessing = 12.Please note, planning treats these values as days.We shall accept the Lead Time Lot Size default of 1.Inventory: Items > Master Items > (T) Work In ProcessSupply Type = Push, Subinventory = StoresAssign this item to organization M3.

Define Buy item Pur2. Use the Purchased Item template.Inventory: Items > Master Items > (T) Lead timesSet Preprocessing = 2, Processing = 20, Postprocessing = 10.Accept the Lead Time Lot Size default of 1.Inventory: Items > Master Items > (T) Work In ProcessSupply Type = Push, Subinventory = StoresAssign this item to organization M3.

(2) Now define the Bill of Material as shown below.Bills Of Materials: Bills > Bills

Fig 2. Bill Of Material for FinG

Bills Of Materials: Bills > Bills > (T) Component DetailsFor item Pur2, set Yield = 0.8. We shall see the impact this has over and above theshrinkage factor of FinG, when we run the plan.

(3) Bills Of Materials: Routings > DepartmentsDefine two departments Dep1 and Dep2.

(4) Bills Of Materials: Routings > ResourcesWe shall now define four resources as follows:Res1: Type = Machine, UOM = HR, Charge Type = WIP Move, Basis = Lot

Res2: Type = Machine, UOM = HR, Charge Type = WIP Move, Basis = Item

Res3: Type = Machine, UOM = HR, Charge Type = WIP Move, Basis = LotRes4: Type = Machine, UOM = HR, Charge Type = WIP Move, Basis = Item

(5) Bills Of Materials: Routings > Departments > (B) ResourcesAssign Res1 and Res2 to Dep1.Assign Res3 and Res4 to Dep2.For all these resources, Available 24 Hours = Yes, Units = 1

What if Resources are assigned to shifts - A Special Note on (5): Here, I have


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assumed that the resources are available on a 24-hour basis. Although I would be usingthe results of this setup (as created in (5)) in the test cases that follow, it is worth notingthat a more realistic scenario may demand that resources be available in specific shifts,neither before nor after. Initially, the lead time offset algorithm of Oracle Planning used toconsider workday and workday exception information from the organization calendar, butwould ignore shift and shift exception information. In essence, the lead time calculationprogram would consider 24 hours per shift regardless of the shifts specified for theresources in a department. This picture has been rectified in Bug 2014692. Thefix introduced through this bug ensures that the lead time calculation takes into accountshift timings (if shifts are attached to Scheduled resources) and the gaps between theshifts. To demonstrate this, we shall be creating two supplementary setups (5.1) and (5.2)within step (5). Steps (5.1) and (5.2) are not to be linked to the setup of step (5), but

should only be viewed in a parallel perspective.

(5.1) Bills Of Materials: Routings > Departments > (B) ResourcesAssign Res1 and Res2 to Dep1.Ensure that the Available 24 hours button is unchecked.

For Res1, click on the Shifts button.

Attach shift 1 = Normal Daily Shift to Res1. Save your work.

Similarly, for Res2, click on the Shifts button and attach shift 2 = Normal Night Shift toRes2. Save your work.Shifts 1 and 2 are available shift options under the Vision01 calendar.Shift 1 = 7:00:00 hours to 15:00:00 hours.Shift 2 = 15:00:00 hours to 23:00:00 hoursAssign Res3 and Res4 to Dep2.Ensure that the Available 24 hours button is unchecked.

Attach shift 1 to Res3 and shift 2 to Res4.This gives the following picture :Assigned Res1 (Lot Based) to (7:00:00 to 15:00:00)Assigned Res2 (Item Based) to (15:00:00 to 23:00:00)Assigned Res3 (Lot Based) to (7:00:00 to 15:00:00)Assigned Res4 (Item Based) to (15:00:00 to 23:00:00)

(5.2) Bills Of Materials: Routings > Departments > (B) ResourcesAssign Res1 and Res2 to Dep1.Ensure that the Available 24 hours button is unchecked.This time we shall ensure that Lot based resources have contiguous shifts (7:00 to 15:00and 15:00 to 23:00), and the same for Item based resources.Attach shift 1 to Res1 and Res2. Save your work.Assign Res3 and Res4 to Dep2.Attach shift 2 to Res3 and Res4. Save your work.This gives the following picture:Assigned Res1 (Lot Based) to (7:00:00 to 15:00:00)Assigned Res2 (Item Based) to (7:00:00 to 15:00:00)Assigned Res3 (Lot Based) to (15:00:00 to 23:00:00)Assigned Res4 (Item Based) to (15:00:00 to 23:00:00)

(6) Bills Of Materials: Routings > RoutingsCreate the routing for FinG as shown below.


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Fig 3. Routing for FinG

Bills Of Materials: Routings > Routings > (T) Operation ResourcesOperation 10, Dep1

Res1: Sequence = 10, Usage = 4.8HR/Lot, Schedule = Yes

Res2: Sequence = 20, Usage = 1HR/Item, Schedule = Yes

Operation 20, Dep2Res3: Sequence = 10, Usage = 2.4HR/Lot, Schedule = Yes

Res4: Sequence = 20, Usage = 2HR/Item, Schedule = Yes

Bills Of Materials: Routings > Routings > (B) Routing DetailsDefine Completion Subinventory = FGI.Bills Of Materials: Bills > BillsAttach the routing operations to the components. Attach operation 10 to Pur1 and operation 20 to Pur2. Thougthis would not affect the MRP outcome, it is worth mentioning that if the components on the bill are not attachto the specific operations defined, then the system assumes that all the components in the bill are associated the first operation in the routing (operation 10 in our case).

(7) Bills Of Materials > Routings > Lead Times

Run Calculate Manufacturing Lead Times GUI for Item = FinGNow verify the outcome fromInventory: Items > Organization Items > (T) Lead TimesWe find that for FinGFixed = 0.3 (recall: In dynamic lead time offsetting, the lead time component units are always in days)Fixed Lead Time = Sum(Lot Based Resource Usage) = Res1 + Res3

= 4.8HR/Lot + 2.4HR/Lot= (4.8HR/Lot)/(24HR/day) + (2.4HR/Lot)/(24HR/day)= 0.2 day/Lot + 0.1 day/Lot = 0.3 day


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Variable = 0.125Variable Lead Time = Sum(Item Based Resource Usage) = Res2 + Res4

= 1HR/Item + 2HR/Item= (1HR/Item)/(24HR/day) + (2HR/Item)/(24HR/day)

= 0.125 day

Therefore, Cumulative Manufacturing Lead Time (FinG) = 0.3 + 0.125 = 0.425 daywhich is rounded to the next whole number that is 1.Hence, Cumulative Manufacturing Lead Time = 1 day.This implies that if Pur1 and Pur2 were already available in Inventory, it would require a period of 1 da

to manufacture the assembly FinG, provided the resources are available 24 Hours.This value is populated into the Processing Lead Time field.Hence, Processing Lead Time = 1 day.We shall need these figures to interpret the scheduling suggested by MRP for item FinG, later in this paper.A Special Note for the setup created in steps (5.1) and (5.2):If you run the Calculate Manufacturing Lead Times GUI for Item = FinG for the setup in (5.1) or for the setup i(5.2), you will find that both these cases result in the following calculations:Fixed = 0.9

Variable = 0.375

This is because as per the fix in Bug 2014692, the lead time calculation program has to consider that each

resource is available for a 8-hour (which is the shift duration) period per day.Therefore,Fixed Lead Time = Sum(Lot Based Resource Usage) = Res1 + Res3

= 4.8HR/Lot + 2.4HR/Lot= (4.8HR/Lot)/(8HR/day) + (2.4HR/Lot)/(8HR/day)= 0.6 day + 0.3 day = 0.9 day

Variable Lead Time = Sum(Item Based Resource Usage) = Res2 + Res4= 1HR/Item + 2HR/Item= (1HR/Item)/(8HR/day) + (2HR/Item)/(8HR/day)= 0.125 day + 0.25 day = 0.375 day

Processing Lead time (for FinG) = 2 day (the sum of fixed and variable lead times rounded to the next wholenumber).This implies that if Pur1 and Pur2 were already available in Inventory, it would require a period of 2

days to manufacture the assembly FinG, given that the resources are available for an 8-Hour period(shift) per day.

Conclusion: Whether resources are assigned to specific shifts or available on a 24 hour basis, the ultimateimpact would be on the calculation of the Fixed and the Variable Lead Time components. If resources areavailable only in specific shifts, then the Fixed and Variable Lead times are likely to have higher values (asshown above) than when resources are available 24 hours, which in turn would raise the span of the Lead TimOffset. Thus the Lead Time Offset formula will ensure that planning comes up with realistic suggested dateskeeping the restricted availabil ity of the resources into consideration.However, as already pointed out in (5), for the test cases that follow, we shall stick to our original

values of Fixed = 0.3 and Variable = 0.125.

(8) Bills Of Materials > Routings > Lead TimesRun Rollup Cumulative Lead Times GUI.

Now verify the outcome fromInventory: Items > Organization Items > (T) Lead Times(Refer the section - An overview of Lead Time for the formulae)For Pur1, Cumulative Total = 43 (= 1+ 30 + 12)For Pur2, Cumulative Total = 32 (= 2+ 20 + 10)For FinG, Cumulative Total = 44

(= Cumulative Manufacturing Lead Time + 43= 1 + 43)


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This means that if Pur1 and Pur2 were not available in Inventory, then it would take a period of 44 days to mathe assembly item FinG.

(9) Material Planning: MDS > NamesCreate MDS for FinG = MDS_FinGCheck the Relieve checkbox.Material Planning: MDS > Names > (B) ItemsItem = FinGMaterial Planning: MDS > Names > (B) Items > (B) DetailDate = 12-Apr-2003, Current (Quantity) = 100This gives a warning message at the bottom of the screen Warning: Schedule date is nota valid workday. This is because we have entered a manual demand for 12-Apr-2003which falls on a Saturday (a non-workday as per the organization calendar). So where willMRP place this demand? We shall soon find out.

(10) Material Planning: MRP > NamesCreate MRP for FinG = MRP_FinGCheck the Feedback checkbox.Material Planning: MRP > Names > (Options)Attach MDS_FinG as the Schedule for MRP_FinG.

Check the Plan Safety Stock checkbox. This is done to ensure that MRP calculates thesafety stock for Pur1, every time we run the plan.Accept the default settings for the remaining options.Save your work.

(11) Before you launch the plan, you need to ensure that the Planning Manager is active.Material Planning: Setup > Planning Manager. The Active checkbox should be checked.If it is not, then you need to click on the Start button to launch the Planning Manager.Material Planning: MRP > LaunchLaunch MRP_FinGIn the Launch MRP Parameters form we find the following values as defaultingAnchor Date = 10-Feb-2003Plan Horizon = 12-Aug-2003

Where do these dates default from?These dates appear based on the value of the profile option MRP:Cutoff Date Offset

Months. The default value for this is 6. This implies a planning horizon of 6 months.Anchor Date reflects the first working day of the week (as per the organization calendar)in which the plan is being launched. Since the plan was being launched on 10-Feb-2003which was a Monday, the same became the Anchor Date. If you relaunch this plan on anyday within this week, the Anchor Date would continue to display the default value of 10-Feb-2003. The Plan Horizon date is calculated at a space of 6 months from the AnchorDate. If you change the profile option value to 3 and then proceed to launch the plan, youwould get the following result: Anchor Date = 10-Feb-2003 and Plan Horizon = 10-May-2003 - a spacing of 3 months. In the time phasing for the Plan Horizon, there is nodistinction made by the system between workdays and non-workdays.Note: The organization calendar defined for organization M3 in the Vision database is

Vision01. This calendar has a 5-day week starting with Monday. This is why, when we runthe plan, in the Horizontal Listing section of the Planning Detail Report output, we wouldfind weekly buckets listed by the dates on the Mondays in each week, e.g., 10-Feb-2003,17-Feb-2003, 24-Feb-2003, and so on.

ANALYSING THE PLANNING OUTCOME

(12) Now run the Planning Detail Report for item FinG only.Material Planning: Reports


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Accept the defaults in the report parameters screen. Enter FinG in the Item From and Tofields. Throughout this paper, when we run this report, our only intervention in the reportparameters screen would be to enter the item number(s).When the report executes successfully, you would note that the header contains thevalues of some specific item parameters that are of significance to the planning process.

The Plan Date appears on the top right indicating the date the plan was run. NettableInventory, Non-nettable Inventory and Receiving Inventory show the current supply statusfor item FinG.Note: Annual Projected Demand = 249. This f igure was arrived at through the following

formula: Annual Projected Demand =

(Demand for Planning Horizon) * (365/length of Planning Horizon)

= 125 * (365/183) = 249 (rounded).Demand for Planning Horizon = Sum total of gross requirement in the planning horizon,which in our case works out to 125. How? This is explained in the next paragraph.Length of planning horizon = Plan Horizon date Anchor Date

= 12-Aug-2003 10-Feb-2003 = 183 days.

The output also shows a Shrinkage Rate of 0.20 and Planning Time Fence Date of 11-Feb-03. In Inventory: Items > Organization Items > (T) MPS/MRP Planning, the PlanningTime Fence was kept as User-Defined with 1 days (default value) for FinG. Since the plandate is 10-Feb-2003, we get 11-Feb-2003 as the planning time fence date. This paperwould not delve into t ime fences as that is a topic that has been adequately documented.

We shall now take a look at the Horizontal Listing for FinG.

Note: We had manually entered demand for quantity = 100 for 12-Apr-2003 in our MDS.


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However, since we had defined a Shrinkage Rate of 0.20 in the item definition form forFinG, planning calculates a Gross Requirement = Demand/(1 Shrinkage Rate)= 100/(1 0.2) = 125, which is what we see here. In our case, this is the sole demand forthe planning horizon for FinG. So, the system suggests Planned Orders for 125 units ofFinG since we have zero inventory for FinG.

Now, something about the timing of this demand.

Note: We had manually entered demand for quantity = 100 for 12-Apr-2003 in our MDS.However, since 12-Apr-2003 (Saturday) is a non-workday as per the organizationcalendar (which is Vision01 for org M3, in the Vision instance), the demand has beenshifted to the nearest workday in the same week i.e. Friday, 11-Apr-2003. However, theadditional demand generated by the introduction of the shrinkage rate appears (on thesame date) as a Demand Type of Planned order scrap. This throws some light on whatshrinkage stands for. Shrinkage Rate reflects an anticipated loss of the item during

its manufacture or procurement. This leads to an inflation of demand and order

quantities to account for this expected loss.

As expected, planning suggests planned order quantity for 125 units of FinG on 11-Apr-2003.Note: Since, FinG has Preprocessing Lead Time = 0, we will find that planned order StartDate = Order Date for FinG. But, we find that Due Date Start Date= 11-Apr-2003 20-Mar-2003 = 16 workdays. Why?Due Date Start Date = Lead Time Offset

= Fixed Lead Time + (order quantity * Variable Lead Time)= 0.3 + (125 * 0.125) = 15.925 days = 16 days (rounded)

(13) Now run the Planning Detail Report for Pur1 and Pur2.


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For Pur1, we notice that the Lead Time component values are displayed along with the20% Safety Stock factor.

The gross requirement for Pur1 falls in the weekly bucket of 17-Mar-2003. We shallshortly see why that is so. The demand for 125 units of Pur1 derives from the demand for125 units of FinG.Note: Planning has calculated safety stock of 5 units for Pur1. The following is theformula planning uses to do this.Safety Stock = (Gross Requirement/Safety Stock Bucket Days) * Safety Stock%

= (125/5) * 20% = 5In discrete material planning, a day that has no gross requirement has its safety stockcalculated as the previous days safety stock. This is why for all buckets subsequent tothe 17-Mar-2003 bucket we see the 5 units of safety stock carried forward.A word on the Projectedrows. The Projectedrows represent the projected inventorybalance at the end of the period. There are two types.Current Projected On Hand represents the projected inventory balance at the end of theperiod with no planning process suggestions. It is calculated as follows:Current Projected On Hand = (Quantity on Hand + Scheduled Receipts)

- Gross Requirements= (0 + 0) 125 = -125

Projected Available represents inventory balance or stock on hand. The values given fora specific period represent the projected inventory balance at the end of the period withthe planning process suggestions included. If the item has safety stock defined, theplanning process arranges for Projected Available to be the safety stock quantity (ashas happened in our case); otherwise the planning process arranges for ProjectedAvailable to be zero. It is calculated as follows.Projected Available = (Quantity on Hand + Scheduled Receipts + Planned Orders)

- Gross Requirements


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In this case, since we have a safety stock calculation of 5 units, this will become ourProjected Available (at the end of the week starting 17-Mar-2003). Substituting theavailable values we get: 5 = (0 + 0 + Planned Orders) 125, which means planningneeds to suggest Planned Order for 130 units.

This is the demand scenario for Pur1. In (12) we saw that planning suggests Order Dateand Start Date for the Planned Order for FinG on 20-Mar-2003. This explains why theDemand Date for Pur1 is scheduled as 20-Mar-2003. As a consequence, the demand for125 units of Pur1 appears in the Horizontal plan under the weekly bucket starting 17-Mar-2003.

This shows the scheduling of the suggested Planned Order for Pur1.Note: In keeping with the Demand Date for Pur1, the Planned Order Due Date for Pur1has been fixed as 20-Mar-2003. But we now come across a new parameter Compression Days, which works out to 15 days. To understand more about

Compression Days, we need to focus on a fundamental tenet of the Dynamic Lead TimeOffsetting algorithm. Oracle Planning does not schedule into the past. When the

calculated start date precedes the system date, Oracle Planning uses the system

date for the start date (In contrast, Oracle Work in Process schedules into the past in

these cases). Thus in Oracle Planning, the lead time offset algorithm, compresses jobs tostart on the current date (system date), if the calculated start date would be in the past.Therefore, in our case, the Suggested Order Date for the Planned Order has to bethe system date i.e. 10-Feb-2003. So, we now have dates at the two ends as fixed. Nowlet us recall the lead time components as defined for Pur1 and compare these with thedistance between the dates.As per planning:Suggested Due Date Suggested Dock Date = 20-Mar-2003 04-Mar-2003= 12 workdays

As defined for the item:Postprocessing Lead Time (= Due Date Dock Date) = 12 days.So there is no compression in this time segment.As per planning:Suggested Dock Date Suggested Start Date = 04-Mar-2003 10-Feb-2003= 16 workdaysAs defined for the item:Processing Lead Time (= Dock Date Start Date) = 30 days.So, compression = (30 16) days = 14 days.As per planning:


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Suggested Start Date Suggested Order Date = 10-Feb-2003 10-Feb-2003= 0 workdaysAs defined for the item:Preprocessing Lead Time (= Start Date Order Date) = 1 day.So, compression = (1 0) days = 1 day.Therefore, Compression Days = (14 + 1) days = 15 days.

Let us review the plan output for Pur2.

Note: The gross requirement for Pur2 is calculated as 156 and not 125. This is because

we had introduced aYield of 0.8 for component Pur2 in the bill of material for FinG. So, ifFinG has a demand of 125, planning will calculate the demand for Pur2 as 125/(0.8) =156.3 = 156 (rounded).Thus we find that shrinkage and yield are essentially parameters to instruct the planningprocess to overplan supply for an anticipated loss in the manufacturing process.

Differences between Shrinkage Rate and Yield:

Shrinkage Rate is a decimal factor and defaults to 0. Yield is a decimal factor that defaults to 1.

Planning applies the same Shrinkage Rate to every use of an item in a Bill. This is because shrinkageis defined at the item level. So if our item FinG has a shrinkage of 0.2, the same will apply every timethis item is used in a Bill. Yield is defined for a component at the bill of material level. As such it can bvaried every time the same item is used in a new bill. So if item Pur2 has a yield of 0.8 in the bill ofmaterial for FinG, it can have a different yield value when being incorporated in a bill for a differentitem.

Shrinkage demand is calculated at the parent assembly level and passed down to components.Component yield is calculated at the component level. So, although the MDS demand for FinG was100, shrinkage of 0.2 caused this demand to swell to 125. This demand was passed down to Pur1 andPur2. However, for Pur2, planning applied its yield factor of 0.8 to 125 and generated a demand of 15

Just as for Pur1, Pur2 too has a Demand Date of 20-Mar-2003, keeping in view the Orderand Start Date of the Planned Order for FinG.


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So planning suggests a Due Date for Pur2 to match its Demand Date. The Order Datecan be no less than the system date of 10-Feb-2003. so, as expected there is acompression introduced by this scheduling. The same can be verified based on theCompression Days calculation we performed for Pur1 above.

(14) WIP: Discrete > Discrete JobsCreate a Discrete Job. Job# 39486, Assembly = FinG.Ensure that the MRP Net Quantity is less than the job Start Quantity.Start Quantity = 20, MRP Net Quantity = 15. Start Date = 07-Mar-2003, Completion Date= 09-Mar-2003. Release the job.Ensure that Net WIP checkbox is checked in Plan Options.Material Planning: MRP > LaunchRelaunch MRP_FinG.Once the plan completes successfully, rerun the Planning Detail Report for FinG.

The released discrete job becomes a source of supply for the f inal assembly FinG. Assuch, planning treats it as a scheduled receipt.Note: The job is scheduled (by Work In Process) to be completed on 09-Mar-2003 whichhappens to be a Sunday and hence a non-workday as per the organization calendar.

Therefore, as seen earlier in (12), the scheduled receipt has been shifted to the nearestworkday in the same week i.e. Monday, 10-Mar-2003. This is why the Current ScheduledReceipts shows 15 units in the 10-Mar-2003 bucket. Based on the formula we had speltout in (13), the current Projected On Hand works out to 15. But the actual demand arisesin the 07-Apr-2003 bucket. Therefore planning will suggest a reschedule out of the job tothis bucket. Planned Order quantity suggested would be reduced by the amount of the jobMRP Net Quantity. We had a demand for 125. Now, with a scheduled receipt of 15, theplanned order quantity drops to 125 15 = 110. But planning arrives at the same result

with a slightly different logic. This is how planning resolves this scenario. There is anexpected receipt of 15 units through the discrete job. Looking at the shrinkage rate,


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planning estimates that 20% of these 15 units will be lost in production. 20% of 15 = 3.This leaves a net supply from the job of (15 3) units = 12 units. Since we have a totaldemand of 100 and supply of 12, we have a net requirement of 100 12 = 88 units. Now,if planning is to suggest a planned order of 88 units it must consider that 20% of thisquantity will also be lost to shrinkage. Therefore, planning will suggest a planned orderquantity = 88/(1 0.2) = 110 units. Therefore, if we have a shrinkage rate of 0.2, planningessentially assumes that 20% of any current discrete job and 20% of any suggestedplanned order will be lost to shrinkage.

Let us review the gross requirement scenario. On the lines of the planning logic explainedabove, there is the original MDS Demand for 100 units.Note: When we have a shrinkage rate for the assembly, planning uses the followingformula to calculate total demand:Total Demand = Original Demand + Discrete Job shrinkage

+ Planned Order shrinkage

= Original Demand + (Job Quantity * Shrinkage Rate)

+ (Planned Order Quantity * Shrinkage Rate)= 100 + (15 * 0.2) + (110 * 0.2) = 100 + 3 + 22 = 125.

These three components of total demand appear above as:Discrete job scrap (or Discrete Job shrinkage) = 3 unitsPlanned order scrap (or Planned Order shrinkage) = 22 unitsManual MDS (our Original Demand) = 100 units.

The discrete job appears as a scheduled receipt for FinG.Note: The Current Due Date and Start Date are what Oracle Work In Process hadscheduled during the creation of the job. However, planning has to meet a demand of 125units on 11-Apr-2003 and not before. Therefore, planning suggests that the discrete jobDue Date be Rescheduled out (as seen in the Planner Action field) to 11-Apr-2003(Suggested Due Date). The Suggested Order Date and the Suggested Start Date are setat 10-Apr-2003.11-Apr-2003 10-Apr-2003 = 1 workdayDue Date Start Date = Lead Time Offset = 0.3 + (15 * 0.125) = 2.175

= 3 (rounded to the next whole number).Therefore, compression = (3 1) days = 2 days.


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Finally, a look at the Planned Orders. Suggested Due Date has been set at 11-Apr-2003And planning has backward scheduled by the Lead Time Offset period to arrive at theSuggested Start and Order Date of 21-Mar-2003.Here, Lead Time Offset = 0.3 + (110 * 0.125) = 14.05 = 15 days.Therefore, Suggested Start Date = Due Date 15 days = 11-Apr-2003 15 workdays= 21-Mar-2003.

(15) Now rerun the Planning Detail Report for Pur1 and Pur2.

The Horizontal Listing for Pur1 now shows a demand for 20 units for the discrete job inthe 07-Apr-2003 bucket. This is in keeping with the Reschedule out action of the job byplanning, as seen in (14) above. The job was a scheduled receipt for FinG, scheduled for11-Apr-2003. It now becomes a source of demand for Pur1 (and so too for Pur2).Note: There are a number of important points to note here.

Start Quantity versus MRP Net Quantity: With respect to the discrete job, planning hadconsidered the MRP Net Quantity of 15 for FinG. However, for the components Pur1 andPur2, planning picks up the job Start Quantity of 20. This is the intended behaviour. The

component requirements are always based on the job Start Quantity. The assembly

supply is always based on the MRP Net Quantity. The reasons for the Start and NetQuantity being different are typically, either to reflect a yield loss of the assembly (e.g. dueto destructive testing of x% of the job quantity) or to reflect a different usage for some of

the assembly (e.g. 5 units of the assembly are to be diverted for a trade exhibition, so donot count towards on-hand inventory, rather put them into a non nettable subinventory). Inboth cases, we have to plan to go through the manufacturing process for 100% of theStart Quantity (20 in our example) even though we only expect that a smaller number (15in our example) will find their way into a nettable subinventory.Safety Stock calculation: For the 07-Apr-2003 bucket, the Safety Stock = 1. Going bythe Safety Sock formula in (13):Safety Stock = (20/5) * 20% = 0.8 = 1 (rounded).Projected Available calculation: The Safety Stock of 1 becomes the Projected Available


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for the 07-Apr-2003 bucket.Planned Order calculation: Let us refer the formula for Projected Available from (13).

Projected Available = (Quantity on Hand + Scheduled Receipts + Planned Orders)


= (Projected Available for the previous period + Planned Orders)


Substituting the values known to us, in the above formula:1 = (5 + Planned Orders) 20, which gives Planned Orders = 16.

Now, let us check the gross requirement for Pur1.

The discrete job start Quantity reflects as demand for Pur1 over and above the initialPlanned Order demand for 110.

Besides, the 16 units of Planned Order for the discrete job demand, the grossrequirement for 110 units of Pur1 translates into a 115 units Planned Order suggestion byincorporating the 5 units of safety stock.

The Horizontal Listing for Pur2, shows the discrete job demand of 20 inflated by a yieldfactor of 0.8.

For Pur2, discrete job demand = 20/0.8 = 25.


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Also, after the creation of the discrete job, the demand for Pur2 in the 17-Mar-2003bucket has changed from the initial value of 156 (as seen in (13)), to 138. This is inkeeping with the new demand for FinG in this bucket, which now stands at 110. Thistranslates into a demand of 110/0.8 = 137.5 = 138 (rounded) for Pur2.

(16) Now perform a Miscellaneous Receipt of 10 units each of Pur1 and Pur2 into the Storessubinventory (which is a nettable subinventory). Relaunch MRP_FinG. Once the plancompletes successfully, run the Planning Detail Report for Pur1 and Pur2.

For Pur1, Nettable Inventory increases to 10. The same happens to Pur2 as well.


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The Projected Available becomes 10, and the Planned Order quantity drops from theprevious figure of 115 to 105. The same happens to Pur2 as well.

(17) Now perform a WIP component issue of 10 units each for Pur1 and Pur2 to the job number 39486. Thencomplete 8 units of FinG and scrap 2 units. Now relaunch MRP_FinG. Once the plan completes successfully,rerun the Planning Detail Report for FinG.

The completed quantity of 8 units of FinG appears as Nettable Inventory for FinG.

Note: Quantities completed into Inventory are no longer considered by planning as scheduled receipt. Theyappear as Projected Available and Current Projected On Hand, since they increase the on hand stock.Therefore, the scheduled receipt quantity reduces to MRP Net quantity quantity completed to inventory

quantity scrapped= 15 8 2 = 5. This quantity of 5 units appears as Current Scheduled Receipts in the 10-Mar-2003 bucket,since the actual job completion date is 09-Mar-2003. However, as planning had suggested that the job due dabe rescheduled out to 11-Apr-2003, the 5 units of job quantity appear as Scheduled Receipt in the 07-Apr-200bucket.But, why does the Gross Requirement in the 07-Apr-2003 bucket reduce to 123 from the previous figur

of 125? Let us review the gross requirement break-up to get a better understanding.


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Recall the concept of total demand as explained in (14).Total Demand = Original Demand + Discrete Job shrinkage

+ Planned Order shrinkage

= Original Demand + (Job Quantity * Shrinkage Rate)

+ (Planned Order Quantity * Shrinkage Rate)= 100 + (5 * 0.2) + (110 * 0.2) = 100 + 1 + 22 = 123.

Here, for FinG the Job (Scheduled Receipt) Quantity has changed from 15 to 5.

The Scheduled Receipt comes down to 5.

(18) Now run the Planning Detail Report for Pur1 and Pur2.

There is a slight change to be noted in the Horizontal Listing for Pur1. There is a demandfor 10 units of Pur1. This figure comes from job Start Quantity quantity completed quantity scrapped = 20 8 2 = 10. However, for Pur2, this figure will be 25 8 2 = 15.This is because, as seen in (15), the job demand of 20 units had been inflated to 25 unitsduring planning for Pur2 due to the 0.8 yield factor.

(19) Now create a Purchase Requisition as follows:Line1: Item = Pur1, Qty = 6, Need By Date = 28-Feb-2003Line2: Item = Pur2, Qty = 6, Need By Date = 28-Feb-2003Save your work. Note down the requisition number (# 1141).Approve the requisition.

Note: The planning process nets only those purchase requisitions and purchase orders(assuming Net Purchases is enabled in the Plan Options) that are in Approved statusand that have a purchasing location that is associated to the Inventory organization inwhich the plan is defined. If these conditions are not met, the purchase requisitions orpurchase orders will not be v isible to planning and will not appear in the Planning DetailReport output. We have defined our plans for the current tests in organization M3 (in theVision instance), and so our purchase requisition has Location = M3- Dallas.

Now, relaunch MRP_FinG. Once the plan completes successfully, run the Planning Detail


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Report for Pur1 and Pur2.

The Horizontal Listing for Pur1 shows that the purchase requisition quantity of 6 appearsas Scheduled Receipt. The same applies to Pur1.

Note:The Purchase Requisition Need By Date becomes the Current Dock Date for

planning. The same rule applies to Purchase Orders as well. Thereafter, the CurrentDue Date of 18-Mar-2003 is arrived at by forward scheduling by the Postprocessing LeadTime of 12 workdays from the Dock Date.But the Compression Days calculation here is slightly different from our previous

examples, because we do not have the Order Date and the Start Date in this case.This is how it works here.Suggested Due Date - Suggested Dock Date = 21-Mar-2003 05-Mar-2003 = 12workdays which matches with Pur1's Postprocessing Lead Time of 12 days. So we havezero compression in this time segment.This plan was run on 11-Feb-2003.So from the Plan date (11-Feb-2003) to Suggested Dock Date (05-Mar-2003) would bePreprocessing Lead Time + Processing Lead Time = 1 + 30 = 31 days.However, Suggested Dock Date 11-Feb-2003 = 05-Mar-2003 11-Feb-2003

= 16 workdays.Therefore, required compression for Pur1 = (31 16) days = 15 days.

(20) Now, Autocreate a purchase order of quantity = 6, for each of Pur1 and Pur2 from the requisition created in(19). Note the purchase order number created (PO #1773). Open the PO and set the Ship To f ield to M3-DallaApprove the PO. Again, as in the case of a purchase requisition, a PO must be in Approved status and musthave the ship to location set to the location corresponding to the Inventory organization from which the plan isbeing launched. Otherwise, planning will not be able to see the PO.

Now relaunch MRP_FinG. Once the plan completes successfully, run the Planning Detail Report for Pur1 andPur2.


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As seen in the horizontal plan for Pur1, the PO quantity of 6 appears as Scheduled Receipt. The same appliesto Pur2 as well.

The logic here, for calculation of Compression Days is the same as that explained in (19).

(21) Now perform a receipt on PO number 1773. For Pur1 and Pur2, Destination Type = Receiving, Routing =Standard Receipt. Receive 4 units each of Pur1 and Pur2. Save your work. Thus, 4 units each of Pur1 and Puare received into the dock.

Relaunch MRP_FinG. Once the plan completes successfully, run the Planning Detail Report for Pur1 and Pur

For Pur1, the Receiving Inventory shows as 4. The same would apply to Pur2.


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We now have two sets of scheduled receipts, but there is a difference.

The 4 units received into the dock, are treated by planning as Purchase Orders In Receiving which is still a forof scheduled receipt but are treated differently from the 2 units of Pur1 in the PO that are yet to be received.The 4 units are included in Projected Available in the bucket for 24-Feb-2003, because the Expected ReleaseDate of27-Feb-2003 for these 4 units falls in that bucket.Note: How is the Expected Release Date being calculated here?Purchase Orders in receiving denote stock, which is in the Dock and is waiting to be released to Inventory.Planning would estimate that this should take time equal to the Postprocessing Lead Time, which is 12 days foPur1.Now, Receipt Date = 11-Feb-2003.Receipt date + 12 workdays = 11-Feb-2003 + 12 workdays = 27-Feb-2003= Expected Date of Release.

(22) From the Receiving Transactions form, perform a receipt into Destination = Inventory. Note the receipt numbe(#2044). Receive all the 4 units each of Pur1 and Pur2 into Stores subinventory. Save your work. Check theStores subinventory, to ensure that the on hand quantity has increased for Pur1 and Pur2.

Now relaunch MRP_FinG. Once the plan completes successfully, run the Planning Detail Report for Pur1 andPur2.


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The 4 units of Pur1 have moved from Receiving Inventory to Nettable Inventory.

The 4 units are now counted as on hand stock and therefore treated as Projected Available. They are availablfrom the date on which they were received i.e. 11-Feb-2003 which falls in the 10-Feb-2003 weekly bucket. The

same applies to Pur2.

CONCLUSION

Oracle Planning uses the dynamic lead time offset algorithm for scheduling which uses the orderquantity, lead time offset and the organizations workday calendar. This algorithm picks upworkday and workday exception information from the calendar. The lead time offset is calculatedusing the fixed lead time, variable lead time and the order quantity. For a make item, the fixed andvariable lead times are calculated by Oracle Bills Of Material through the Calculate ManufacturingLead Times GUI program. This calculation sums up the usage values of resources (from theitems routing), that have the Scheduled flag set to Yes and have a UOM that belongs to thesame UOM Class as the UOM defined in the profi le option BOM:Hour UOM. The fix introducedin Bug 2014692 ensures that the manufacturing lead time calculation program would consider the

shift duration when calculating the fixed and variable lead times, if the resources are assigned tospecific shifts.

The lead time offset algorithm in Oracle Planning, compresses jobs to start on the current date(system date), if the calculated start date would be in the past. This leads to the creation ofCompression Days in the planning output.

The value in the profile option MRP:Cutoff Date Offset Months determines the length of thePlanning horizon in months. The start and end dates for this horizon are visible in the fieldsAnchor Date and Plan Horizon in the Launch MRP Parameters form. The plan horizon span does


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not distinguish workdays from non-workdays.

Shrinkage Rate and Yield are parameters defined for items to instruct the planning process tooverplan supply for an anticipated loss in the manufacturing process. Shrinkage Rate operates atthe assembly level and impacts the components down the bill of material. Yield operates at thecomponent level. When using shrinkage, the total demand for the item is arrived at by taking intoaccount the discrete job shrinkage as well as the planned order shrinkage. Planning can also beused to calculate and plan safety stock for a component or assembly.

Planning may suggest rescheduling in or out (from the original date) of a source for scheduledreceipt depending on when requirement is due. In the context of a discrete job, planning considersthe MRP Net Quantity as supply for the assembly. The component requirements are derivedbased on the job Start Quantity.

ACKNOWLEDGEMENT

I wish to record my sincere appreciation towards

Sanjeev Kale, for reviewing this paper and for enriching it with his valuable insight on the work done inenhancing the lead time calculation program through Bug 2014692.

John Paramore, for highlighting the significance of the job Start Quantity and the MRP Net Quantity withreference to assembly and component level planning.

Diane Davis, for her invaluable help through the review and publishing process.

ABOUT THE AUTHOR

Saumit Mandal CPIM, is a Senior Support Analyst and a BDE for Core Manufacturing at OraclesIndia Support Center, Bangalore.

White Paper: Blancing Demand & Supply: A Brief Guide to MRP logic

February, 2003

Author: Saumit Mandal CPIM

Contributing Authors: N/A

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