Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

12.5 Analyzing the Results of Material Requirements Planning (MRP)

Intended learning outcomes: Present projected available inventory and pegging. Produce an overview on action messages.

12.5.1 Projected Available Inventory and Pegging

The projected available inventory along the time axis, as defined in Section 12.1, is of relevance to every item. In the case of dependent demand calculations, planned receipts and requirements should be taken into account in addition to open orders and allocated quantities. The projected available inventory calculation extended in this way forms the basis for all exception reports (flagging deviations) and analyses.

Pegging or requirements traceability determines the independent demands that give rise to a dependent demand or a production or procurement order.

Pegging is one of the most important analyses for delayed orders, for example. It can be regarded as active where-used information. It determines the source of demand require­ments, determining whether the underlying independent demands are customer orders or whether they stem from uncertain forecasts in the master plan.

To carry out this type of investigation, objects are created in the course of MRP for order connectionpurposes, specifically between item issues (demand positions in an order) and item receipts (positions for demand coverage). These objects can then be used to derive the desired pegging.

Pegging is equivalent to an allocation algorithm that assigns demand (item issues) to orders (item receipts). It is sometimes possible to cover every demand with several positions from different production or procurement orders. Conversely, every position in a production or procurement order can be used for several demand positions in various orders.

Creating the order connection object during MRP results in four types of action messages, or exception messages:

  • Order to be pushed forward (speeded up)
  • New order proposal
  • Order to be deferred (slowed down)
  • Superfluous order
The rescheduling assumption assumes that it is more promising to speed up an order already in process than to create a new order, since the remaining lead time is shorter.

As a consequence of this assumption, MRP logic tends to push forward orders that have already been released before it proposes a new order:

For the purposes of pegging, the order identification concerned is entered. One of the algorithms corresponding to the multilevel where-used list (see Section 17.2.3) calculates all the independent demands that are affected by this order. This results in multilevel pegging, which identifies all the intermediate demands and orders. The “leaves” of the resulting tree structure are then independent demands: forecasts, genuine customer de­mands, or unplanned orders for end products or service parts. For example:

  • For bottom-up rescheduling, the planner uses pegging to solve mate­rial availability or similar problems. This can entail compress­ing lead time, cutting order quantity, or making changes to the master schedule.

For quick decision making in procurement situations, it may be necessary to identify the types of independent demand that give rise to a dependent demand, without the help of a pegging algorithm. A possible technique to solve this problem can be found in [Schö88a], p. 117 ff.

The structure of the order connection object can also be used for the opposite purpose.

Demand coverage traceability specifies all the (dependent) demands or orders that are at least partly caused by a particular (independent) demand.

A demand coverage list may be needed if, for example, you have to change the date or quantity for an independent demand (such as a customer order) and want to assess the consequences of this change. The algorithm is thus equivalent to the algorithm that generates a multilevel bill of material (see Section 17.2.3).

12.5.2      Action Messages

An action message, or exception message, is an output of a system that identifies the need for and the type of action to be taken to correct a current or potential problem ([APIC16]).

The MRP technique essentially yields planned orders with planned gross requirements for their components and loads at the work centers. The order completion date is calculated so that at least part of the batch will be used in a higher-level order or for a sales order as soon as it is produced or procured. For this reason, the start date of the production or procurement order should always be met. Exception messages should thus report the following problems associated with orders:

  • Planned orders whose start date has passed
  • Planned orders whose start date will pass in the immediate future, such as within a week
  • Open orders that should be speeded up or slowed down due to changes in the projected available inventory or too-fast or too-slow progress of the production or procurement order

The main problem with exception messages is that there are so many of them. Sorting and selection of exception messages is important to ensure that the right people receive the right messages. The most urgent messages should arrive first. Sorting and selection can be performed at the least according to the classification of items into groups and subgroups that reflect the structural organization of the planners. The ABC classification is another possible sorting criterion.

Some dependent demand is not due at the start date of an order, but at the start date of a later operation. Therefore, to obtain accurate dates for dependent demands, a scheduling technique should be used that calculates the start date of each operation. This will also reveal the planned load at the work centers, which can then be compared against planned capacity. See also Chapters 13 and 15.

The planners check the number and order quantity of the proposed orders. If the proposals relate to purchased items, they also select the suppliers. Proposals for new orders must then be released — see Section 15.1.

Course sections and their intended learning outcomes

  • Course 12 – Deterministic Materials Management

    Intended learning outcomes: Produce an overview on demand and available inventory along the time axis. Describe deterministic determination of independent demand. Explain in detail the deterministic determination of dependent demand (Material Requirements Planning, MRP). Differentiate various lot sizing techniques. Disclose how to analyze the results of the MRP.

  • 12.1 Demand and Available Inventory along the Time Axis

    Intended learning outcomes: Explain the projected available inventory and its calculation. Describe scheduling and cumulative projected available inventory calculation. Produce an overview on operating curves for stock on hand.

  • 12.2 Deterministic Determination of Independent Demand

    Intended learning outcomes: Present the customer order and distribution requirements planning (DRP). Disclose the consumption of the forecast by actual demand.

  • 12.3 Deterministic Determination of Dependent Demand

    Intended learning outcomes: Describe characteristics of discontinuous dependent demand. Explain material requirements planning (MRP) and planned orders. Disclose the determination of the timing of dependent demand and the load of a planned order.

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