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

15.1.1 Order Proposals for Production and Procurement and Order Release

Intended learning outcomes: Describe the reasons for order proposals for production or procurement. Differentiate between the dealing of order proposals for C items and of other items. Explain purchase order release and production order release. Describe the reasons for order proposals for production or procurement. Identify the traveling card and the two-bin inventory system.



The order proposal, or planned order, states the goods to be produced or procured, the order quantity, the proposed latest completion date, and — often given implicitly  the earliest start date.

The reasons for order proposals for production or procurement vary:

  • An unplanned demand is submitted, that is, demand for customer or production orders not covered by projected available inventory or scheduled or planned receipts. In certain cases, the proposal corresponds to the customer’s demand in terms of quantity as well as delivery date. In other cases, order proposals stipulate production or procurement of a larger batch.
  • A purchase requisition is submitted. This is an authorization to the purchasing department to purchase specified materials in specified quantities within a specified time, usually short term (cf. [APIC16]).
  • Stock of an item falls below the order point. Here the planned order proposal stems from medium-term planning. See also Section 11.3.1.
  • Net requirements planning specifies production or procurement of a lot of an item. This type of order proposal stems from long- or medium-term planning. See also Section 12.3.1.

There are two possible forms of presenting order proposals: either as simple lists of proposals or as planned orders in the order database. In the case of direct procurement for a customer order, the identification of the order proposal should refer directly to the identification of the order position in the customer order.

If there are only a few order proposals to release, or proposals based on unplanned customer demand, planners will release these individually. Keeping track of orders to be released among numerous order proposals is difficult. It is useful to sort the orders by planner and weekly time window:

  • An order proposal for C items in an ABC classification, particularly for goods to be purchased, can be released directly — with the proposed order quantity, proposed latest completion date, and standard supplier. Spot verifications will suffice for these automatically released orders.
  • For other items the rhythm of selection, and thus ordering, depends on the items’ importance. This rhythm may be periodic, such as daily, weekly, biweekly, or monthly. However, an order may be released as soon as a demand event occurs.

In collective materials management, all items belonging to the same planning group are checked at the moment of order release. Joint ordering avoids procurement costs that are lot-size independent, but leads to additional carrying costs due to premature procurement.

Purchase order releasedoes not necessarily have to be a formal procedure. According to specific agreements, certain suppliers can take on themselves the restocking of C items in the warehouse. This is common practice not only in the grocery retail trade but also with suppliers of consumable material in industrial production (compare the Kanban technique in Section 6.3).

Production order release reasonably comprises, for every order, a check on availability, at least of critical resources. This also holds for order proposals stemming from long, or medium-term planning, even if avail­ability checks have been carried out earlier. The availability test consists of:

  • Calculation of lead time, to determine the start dates for operations at critical work centers, as well as dates for the demand of critical components. We presented the techniques for calculating lead time in Sections 13.3 and 13.4.
  • Availability test of the components on the start date of the operation for which they are needed. We outlined the techniques for this in Section 12.1. As an aside, in releasing contract work, the availability of any accompanying material that must be provided for the (external) operations must also be checked.
  • Availability test of required capacity on the start date of operations using techniques that were outlined in Sections 14.2, 14.3, 15.1.2, or 15.1.3.
An allocation is the classification of quantities of items that have been assigned to specific orders but have not yet been released from the stockroom to production.
Staging is pulling material for an order from inventory before the material is required (cf. [APIC16]). 

Production order release entails the following problems:

  • Even with computer support, checking resource availability is a complicated and lengthy process. It is often impossible to gain rapid and exact results. As a common compromise solution, planners will test at least component availability at the start date of the order or the relevant partial order.
    The allocation of all the resources required for the order. If one of the resources is not available, the remaining components and production facilities nevertheless remain allocated for the order. Staging has the same effect: The order waits for missing resources and, moreover, blocks the plant.
    Thus all the operations for an order should be released at the same time and only when all resources are fully available. However, some of such allocated resources may be used instantly in other production orders. Then, instantly available capacity may be used, which is very important for well-utilized capacities. But assigning resources to other orders would further increase the problems for the waiting order.

To achieve an acceptable lead time for production order release as well as to make use of available capacity, a compromise — though less than optimal, since it leads to waiting work-in-process — can be reached through the following measures:

  • Release only a partial quantity of the order lot.
  • Release the first operations only, if the missing components are not required until later operations.
  • Designate the planned order as firm planned order: With this, the allocation of components and production facilities on hand is also designated as “firm allocated.” The necessary organizational discipline then ensures that the “firm allocated” resources are not with­drawn for other orders. In addition, it is important that computer programs, such as the MRP technique (material require­ments planning), do not change this type of orders automatically.

There are different kinds of accompanying documents in production and procurement. The two following cases can be distinguished. First case: The contents of an order change remain the same each time, with the possible exception of the order quantity:

With a traveling card, a variable order quantity can be set. The due date automatically results, in relation to the date on which the traveling card is sent.

If the entire inventory of an item can be carried in two bins, a visual control system can be installed, namely, the following efficient “traveling” system with fixed order quantity:

With a two-bin inventory system, the replenishment quantity is ordered as soon as the first bin (the working bin) is empty. During replenishment lead time, material is used from the second (reserve) bin, which has to contain enough items to cover the demand during lead time, plus a safety demand. At receipt of the replenishment quantity, the reserve bin is filled up. The excess quantity is put into the working bin, from which stock is drawn until it is used up again.

The traveling card and the two-bin inventory system have come into renewed favor with the Kanban technique and its two-card Kanban system.

Second case: The contents of an order change each time. In this case, a formal order from the ordering party (the sales department or the production management) to the order recipient (production or the supplier) is necessary:

A purchase order, for procurement both of goods and work (see Section 1.2.1), essentially corresponds in form and structure to a customer order. As the current trend is to shorten administrative times between manufacturer and supplier, techniques supported by informa­tion technology are coming into increasing use. The detailed order data structures behind the “order” business object in Section 1.2.1 have undergone increasing standardization. This has led to the development of the EDI/EDIFACT interface. Thanks to Java programming and the CORBA standard (Common Object Request Broker Architecture), an increasing
number of organizations are now making use of transmissions via the Internet.
For a production order, the people at the shop floor responsible for execution require precise instructions as to the nature of the work to be executed and the components to be built in. See Section 15.2.1.



Course section 15.1: Subsections and their intended learning outcomes

  • 15.1 Order Release

    Intended learning outcomes: Describe order proposals for production and procurement as well as order release. Explain load-oriented order release (Loor) and capacity-oriented materials management (Corma).

  • 15.1.1 Order Proposals for Production and Procurement and Order Release

    Intended learning outcomes: Describe the reasons for order proposals for production or procurement. Differentiate between the dealing of order proposals for C items and of other items. Explain purchase order release and production order release. Describe the reasons for order proposals for production or procurement. Identify the traveling card and the two-bin inventory system.

  • 15.1.2 Loor — Load-Oriented Order Release

    Intended learning outcomes: Produce an overview on the principle of the technique and the planning strategy. Describe the regulator analogy for load-oriented order release. Differentiate between time filter and load filter. Explain the steps of load-oriented order release. Present an evaluation of the technique. Identify its limitations and typical areas of application.

  • 15.1.3 Corma — Capacity-Oriented Materials Management

    Intended learning outcomes: Identify the calculation of anticipation time in the stochastic case. Produce an overview on the three parts of the generic principle of the technique. Explain the critical ratio of an order. Describe rescheduling of orders in process according to current materials management status. Present an evaluation of the technique. Identify its limitations and typical areas of application.