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

12.3.3 Determining the Timing of Dependent Demand and the Load of a Planned Order

Intended learning outcomes: Differentiate between mean lead time calculation and detailed planning calculation of the timing of dependent demands.

Order proposals are compared against the net requirements, which are broken down into meaningful batch sizes. For a purchased item, generating an order proposal essentially means calculating the order point with due regard to the lead time (which is part of the master data for the item). For an item produced in-house, the start date can also be determined by sub­tracting the lead time from the completion date. The dependent demands for all the com­ponents will be needed on the start date. This is how the conventional MRP technique works.

A more detailed and comprehensive technique calculates the process plan (see Section 1.2.3) of the item’s final production stage. At the same time, planning data are generated for materials management, time management, and scheduling and capacity management:

  • The load that this order will generate at the various work centers: by multiplying the order quantity by the operation load for each operation (see also Chapter 14).
  • The time at which a load arises: by means of a lead-time calculation starting with the order completion date (see also Chapter 13).
  • The start date for the order (see also Chapter 13).
  • The dependent gross requirement (or dependent demand): by multiplying the order quantity by the usage quantity for each position on the bill of material.
  • The time at which a dependent demand arises, taking into account the start date for the operation that processes the demand.

Figure compares the conventional MRP technique (variation 1), that is, the mean lead time, with the above-mentioned more comprehensive technique (variation 2). The example calculates the timing of the dependent demands for a product A, which is made up of components B and C.

In variation 1, it is assumed that the average lead time for producing A is two months. The timing of the dependent demands for components B and C is thus the planned order completion date for A minus its average lead time.

Fig.       Calculating the timing of dependent demands.

Variation 2 shows the more comprehensive and detailed technique. The process plan for product A was included in the calculation. The first difference is that the lead time for batches of 25 is just 1.5 months, whereas it rises to 2.5 months for batches of 50. In addition, demand for C does not arise until the fourth operation, which should start half or one month before the order completion date, depending upon the batch size.

Figure shows how this affects the way in which the timing of dependent demands is calculated in variation 2. If B and C are very high-cost items, the detailed procedure would help to allow the components to be channeled into production exactly when they are needed. This can reduce both the volume and the value of goods in process.

If we compare the two variations, we can see that the more general variation 1 is very suitable both for (long-term) master planning and for medium-term or short-term planning for inexpensive and low-volume components. In all other cases, variation 2 is more suitable, although calculation requires much more processing power and more complex algorithms, which may also be more prone to error.

By the way: The multilevel available-to-promise (MLATP) technique uses variation 1, the capable-to-promise (CTP) technique uses variation 2. For details refer to Section 5.3.5.

Course section 12.3: Subsections and their intended learning outcomes