7-1. How to Use MRP 7-1. How to Use MRP Deliver on time using less inventory & WIP 7-1A. Overview 7-1B. The 10 Common Planning Issues

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1 7-1. How to Use MRP 7-1. How to Use MRP Deliver on time using less inventory & WIP Deliver on time using less inventory and WIP is not an empty slogan. If you use MRP to generate your master schedule based on common sense item settings, and then use the Job Control Panel and Shop Control Panel to execute the master schedule you can make lean manufacturing a reality. This chapter preface explains everything you need to know about using MRP and is organized into these seven sections: 7-1A. Overview This section explains the just in time nature of MRP and how it generates a coordinated master schedule based on your item settings. 7-1B. The 10 Common Planning Issues In this section we review the ten planning issues that are common to all manufacturing companies and the specific MRP planning tools that can be used to address each issue. 7-1C. Manufactured Items Setup This section explains how to establish and refine MRP settings for your manufactured items and includes a list of setup tasks and mistakes to avoid. 7-1D. Purchased Items Setup This section explains how to establish and refine MRP settings for your purchased items and includes a list of setup tasks and mistakes to avoid. 7-1E. SO Required Dates This section explains how to manage sales order required dates so that they are compatible with MRP scheduling dates. 7-1F. MRP Generation This section provides step-by-step instructions for job and PO generation. 7-1G. The Master Schedule This final section explains how to manage and execute the master schedule that was generated by MRP. 466 Operating Guide

2 7-1A. How to Use MRP Overview 7-1A. How to Use MRP Overview What is MRP? MRP stands for material requirements planning. DBA is an MRP system that uses common sense item settings to generate jobs and POs on a just in time basis within a coordinated master schedule. Control panel screens help you execute the master schedule out in the shop. MRP gives you all the tools you need to achieve lean manufacturing which is to deliver on time using less inventory and WIP. MRP generation is driven by four common sense item settings MRP generation is driven by four common sense item settings Lead Days, Job Days, Reorder Level, and Min Order. The planning process is all about getting these basic settings right. With good settings, you will get good results. The MRP item settings generate a master schedule The MRP item settings generate a coordinated master schedule that properly aligns jobs and POs so that materials, components, and subassemblies are timephased to be available when needed so that jobs can be started and finished on time. MRP efficiently combines interdependent demand A major source of inefficiency with manual planning is treating each make to order product structure as an independent chain of multi-level jobs. In actuality, much of your demand is interdependent, meaning that it is shared in a one-tomany relationship instead of one-to-one. For example, instead of always having a separate job for each customer order, MRP generates one job for multiple sales orders whenever it is warranted. Instead of always having separate sets of subassembly jobs for each top level job, MRP generates one subassembly job for multiple jobs whenever it is warranted. By combining interdependent demand into fewer jobs and POs, MRP generates a more efficient master schedule that is easier to manage and execute and helps keep work in process to a minimum. Jobs for customized items are generated from SO lines For items that are customized in some fashion for each customer order, MRP generates jobs directly from sales order lines in the exact quantity ordered. All other jobs and all POs are generated by net demand All other jobs, meaning those for non-customized items and lower level subassemblies, as well as all POs are generated by MRP in response to each item s net demand. Operating Guide 467

3 7-1A. How to Use MRP Overview What is net demand? It is the item s stock on hand, plus expected supply from open jobs or POs, less demand from sales orders and other jobs. MRP is designed for just in time planning MRP is designed for just in time planning whereby jobs and POs are generated only in response to the net demand within each item s planning period. Any demand outside the planning period is responded to in a future MRP run. This makes the master schedule easier to manage because scheduling dates are short term in and the number of jobs and POs is kept to a minimum. Each item has its own planning period Each item has its own planning period, which is the number of days allocated by MRP to make or purchase the item. In the case of manufactured items, the planning period is the item s calculated Lead Days plus allocated Job Days, skipping over any non-working days defined in the shop calendar. In the case of purchased items, it is the item s Lead Days allocation, rounded up to the nearest work day defined on the shop calendar. Control panels execute the master schedule Once MRP generates the master schedule, the system provides two screens that enable the master schedule to be executed as planned out in the shop: The Job Control Panel is used to release jobs to the shop floor on their scheduled start dates, provided that material is available and open capacity exists in the job s first work center. After jobs are released, the Shop Control Panel is used to create a daily schedule within each work center so that all jobs are prioritized in a coordinated fashion to meet their planned finish dates. Mission-Critical Mistakes to Avoid The only way to achieve lean manufacturing delivering jobs faster and on time using less inventory and WIP is to generate and execute a coordinated master schedule through MRP. The following are two mission-critical mistakes that avoid MRP and inevitably result in severe under-performance or system failure.. Manual job and PO creation A mission-critical mistake is to bypass MRP and attempt to plan and create jobs and POs from scratch as it was done in your prior system. DBA is designed around MRP and does not include any tools to assist with manual planning. Manual planning is inherently difficult, time-consuming, inefficient, and errorprone. The only way DBA can help you complete jobs faster and on time using less inventory and WIP is to use MRP. It takes far less time and is far more efficient to establish and refine your item MRP settings and to let MRP generate your jobs and POs accurately within a coordinated master schedule. 468 Operating Guide

4 7-1A. How to Use MRP Overview Not respecting scheduling dates Another mission-critical mistake is to ignore or downplay the integrity of scheduling dates. MRP is a time-phased, date-driven system where each sales order line is given a required date, each job a start date and finish date, and each PO line a due date. These dates are coordinated so that subassemblies, components, and raw materials are completed and received on a just in time basis. If scheduling dates are treated as insignificant or unimportant, the master schedule has no integrity and users resort to costly and inefficient expediting to get jobs finished. Operating Guide 469

5 7-1B. How to Use MRP The 10 Common Planning Issues 7-1B. How to Use MRP The 10 Common Planning Issues In this section we review the ten planning issues that are common to all manufacturing companies and the specific MRP planning tools that can be used to address each issue. 1. Should an item be made or purchased to order or to stock? To keep inventory to a minimum, raw material, components, and subassemblies should be purchased or made to order whenever doing so does not significantly delay job start dates and sales order shipping dates. When the time it takes to purchase or make an item causes what you consider to be unacceptable delays in job start dates and sales order shipping dates, the item should be purchased or made to stock. Lead Days Inquiry The Lead Days Inquiry against manufactured items is the planning tool used for making this judgment call. It lists all the to-order components within an item s product structure, which are the ones that contribute to its calculated Lead Days allocation. Any components that take unacceptably long to make or buy should be changed to being made or purchased to stock by giving the item a Reorder Level. For details, see section 7-1C. How to Use MRP Manufactured Items Setup. 2. If made or purchased to stock, what is the appropriate reorder level? An item is made or purchased to stock when it is given a Reorder Level. The Reorder Level must be set sufficient enough to cover projected demand within the item s planning period. Reorder Calculator The Reorder Calculator is the planning tool used to establish an item s Reorder Level. You enter estimated monthly sales and usage, along with a safety stock factor, and the program calculates the Reorder Level based on the item s planning period. For details, see section 7-1C, How to Use MRP Manufactured Items Setup, and section 7-1D, How to Use MRP Purchased Items Setup. 3. How can a job or PO reflect an economical order quantity? Some job and PO quantities are too small to be economical due to machine setups, price breaks, shipping costs, and other factors. Min Order The item Min Order setting is the planning tool used to establish economical order quantities. MRP will generate a job or PO quantity equal 470 Operating Guide

6 7-1B. How to Use MRP The 10 Common Planning Issues or greater than the Min Order amount, no matter how small the actual demand may be. For details, see section 7-1C, How to Use MRP Manufactured Items Setup, and section 7-1D, How to Use MRP Purchased Items Setup. 4. How are POs planned for extremely long lead time items? The best way to purchase items with extremely long lead times is to generate a set of demand-driven, staggered POs that arrive at regular intervals as opposed to larger, less frequent POs that increase the risk of stock shortages. Reorder Calculator The Reorder Calculator is the planning tool used to create a set of demand-driven, staggered POs. The item is given two settings a Reorder Level and a Supply Days amount. The Reorder Level triggers the generation of each PO and the Supply Days determines how much projected demand is to be covered by each PO. For details, see section 7-1D, How to Use MRP Purchased Items Setup. 5. How can POs be issued at regular intervals for blanket purchases? Blanket purchases are forecasts that have to be managed and adjusted to coordinate scheduled shipments with actual demand. The best way to manager blanket purchases is to generate demand-driven POs at regular intervals without the need for manual adjustments. Reorder Calculator The Reorder Calculator is the planning tool used to create demand-driven, POs at regular intervals. The item is given two settings a Reorder Level and a Supply Days amount. The Reorder Level triggers the generation of each PO and the Supply Days determines how much projected demand is to be covered by each PO. For details, see section 7-1D, How to Use MRP Purchased Items Setup. 6. How much time should be allocated to make an item? It is extremely difficult to estimate the time it takes to make an item based on projected hours derived from routing cycle times. This is because jobs typically spend much more time waiting in work center queues than they do in actual production, plus the number of hours available for production varies with overtime, number of shifts, and other factors. The best way to plan production time is to allocate a fixed number of Job Days that can be tightened over time as the shop gets more efficient. The Job Days correspond to the items Run Size setting, which represents a typical larger-size job quantity. Production Inquiry The Run Size and Job Days allocations are judgment calls based on common sense and past experience. The Production inquiry is the Operating Guide 471

7 7-1B. How to Use MRP The 10 Common Planning Issues planning tool used to view an item s past job quantities and actual job day intervals to help you make these settings. For details, see section 7-1C. How to Use MRP Manufactured Items Setup. 7. How much time should be allocated to purchase an item? The purchased item Lead Days is the number of calendar days allocated for procuring the item. This amount should be sufficient to cover ordering time, supplier delivery days, variations in delivery performance, and receipt processing time. Delivery Inquiry The Lead Days allocation is a judgment call based on common sense and past experience. The Delivery Inquiry is the planning tool used to view an item s past PO quantities and actual lead day intervals by supplier to help you make this setting. For details, see section 7-1D, How to Use MRP Purchased Items Setup. 8. How long does it take to deliver a make to order item? When a sales order is taken for a make to order item, the customer should be given an accurate shipping date, which is the line item Required date. This date must take into account three variables -- the time it takes to make or procure to-order components, the time it takes to make the item, and any delay time that needs to be added when shop capacity is currently constrained. Lead Days Generator & Extra Shop Days Two planning tools are used to establish an accurate Required date for make to order items the Lead Days Generator and the Extra Shop Days setting. The Lead Days Generator automatically calculates a manufactured item s Lead Days allocation based on the longest number of days it takes to make or procure any of its to-order components. The item s Job Days setting allocates the number of shop days required for production. The Extra Shop Days is a system-wide setting that adds extra days prior to the job start date to account for delay time when shop capacity is currently constrained. For Lead Days Generator details, see section 7-1C. How to Use MRP Manufactured Items Setup. For Extra Shop Days details, see section 7-1E, How to Use MRP SO Required Dates. 9. How can the delivery time for a make to order item be shortened? There are three variables that affect a make to order item s delivery time -- the time it takes to purchase or make to-order components, the time it takes to make the item, and any delay time that needs to be added when shop capacity is currently constrained. Of these three variables, the only one that can be 472 Operating Guide

8 7-1B. How to Use MRP The 10 Common Planning Issues significantly altered on a sustained basis is to reduce the time it takes to purchase raw material and components or to make subassemblies. This is done by changing selected components from being purchased or made to order to being purchased or made to stock. Lead Days Inquiry The Lead Days Inquiry against manufactured items is the planning tool used to assess which to-order components should be made or purchased to stock. The inquiry displays all the to-order components within an item s product structure, which are the ones that contribute to its calculated Lead Days allocation. Any components that take unacceptably long to make or buy should be made or purchased to stock, which is done by giving the item a Reorder Level. This automatically shortens the item s Lead Days allocation, which in turn shortens the item s delivery time. For details, see section 7-1C. How to Use MRP Manufactured Items Setup. 10. How can the shop reliably complete jobs on time? While it is desirable to generate a coordinated master schedule, if the shop cannot reliably adhere to the schedule, orders will not be delivered on time. In order to adhere to the master schedule, jobs must be started as planned and job sequences within each work center must be prioritized to meet job finish dates. Job Control Panel & Shop Control Panel Two planning tools are used to help the shop adhere to the master schedule the Job Control Panel and the Shop Control Panel. The Job Control Panel is used to release jobs to the shop floor as scheduled, provided that material is available and open capacity exists in the job s first work center. The Shop Control Panel is used on a daily basis to schedule each work center s job sequences in correct priority order to meet job finish dates. For details, see section 7-1G. How to Use MRP The Master Schedule. Operating Guide 473

9 7-1C. How to Use MRP Manufactured Items Setup 7-1C. How to Use MRP Manufactured Items Setup This section explains how to establish and refine MRP settings for your manufactured items and includes a list of setup tasks and mistakes to avoid. All jobs are generated by MRP DBA is an MRP system designed to automatically generate all jobs either directly from sales order lines (for custom to order items) or in response to the net demand within each item s planning period. MRP generates a coordinated master schedule that properly aligns job and PO required dates and combines quantities to reflect the interdependent nature of demand. MRP is a mandatory process Because jobs are capable of being created manually (which is necessary in cases where a job must be split to reflect a maximum quantity limitation), it is a common misconception that MRP is somehow an optional process and that manual job creation is a viable alternative. This is absolutely not the case. MRP is a mandatory process because it is the only way to properly generate the master schedule that drives the manufacturing system. Lean manufacturing requires a master schedule Refining item MRP settings and generating and executing the master schedule is how you achieve lean manufacturing delivering on time using less inventory and WIP. The master schedule is too complex for any human to replicate by means of shortage lists or other MRP substitutes. MRP adds the dimension of time to your planning Planning within non-mrp systems relies upon shortage lists, BOM explosions, job chaining, and other workaround tools to compensate for the lack of MRP functionality. Because non-mrp systems do not include jobs with start and finish dates, they lack any dimension of time. 474 Operating Guide

10 7-1C. How to Use MRP Manufactured Items Setup Without the dimension of time, it is difficult to avoid shortages caused by timing issues. For example, a subassembly item s total demand may be covered by a pending supply job, in which case the item fails to get listed on the shortage report. However, if the item is needed immediately by other jobs and the pending supply job won t be completed until several days from now, an actual shortage exists which prevents those jobs from being started. It is also difficult to avoid over-stocking due to timing issues. Total demand for an item may exceed incoming supply, in which case the item gets listed on the shortage report, which dictates creating a new job. But if some of that demand has a later requirement date that can be supplied by a future job, making the full quantity now results in an over-supply. MRP is a time-phased shortage list MRP is a special type of shortage list one that is time-phased, which solves all the timing issues that are endemic to traditional shortage lists. Each MRP run generates a shortage list that is limited just to the items that need jobs now to meet future required dates. Tomorrow and each succeeding day, another set of required dates will fall into item planning periods and another shortage list will be generated. So if you are accustomed to creating jobs from a shortage list, that is precisely what you will be doing using MRP. The difference is that you are working from a much smaller list that is confined just to items that need jobs today. MRP consolidates interdependent demand In non-mrp systems, it is a common practice to limit shortage lists to specific jobs or chains of multi-level jobs. Without the ability to time-phase required dates, this is the only way to keep track of what is needed to start specific jobs. None of this is necessary when you use MRP because net demand is driven by required dates, not specific jobs. So if multiple jobs need the same subassembly component on the same job start date, MRP generates a single job in response to the aggregate demand instead of an individual job for each higher-level job. This reduces the overall number of jobs, simplifies the master schedule, reduces job setup and receipt processing, and results in larger and more efficient job quantities. Use subassembly jobs instead of phantom assemblies When a Phantom type BOM parent is added as a component within another BOM, at time of job creation, the phantom parent is swapped out by the phantom BOM s components. Phantom assemblies are popular in non-mrp environments because they reduce the number of jobs that would otherwise be required using subassemblies made on separate jobs. This makes it easier to create manual jobs, but you lose the dimension of time because there is no way to assign a start date or finish date to the phantom assembly. Operating Guide 475

11 7-1C. How to Use MRP Manufactured Items Setup In an MRP environment, however, subassembly jobs are generated automatically, which eliminates the need to use phantoms for easy job creation. When a multi-level product is assembled one level at a time, separate subassembly jobs should be used so that MRP can assign each such job its own start and finish date, properly offset and aligned in the actual order of assembly. This enables purchased inputs to be scheduled in a staggered fashion as needed instead of all at once. Using subassembly jobs offers additional benefits. When multiple jobs require the same subassembly, MRP generates a single subassembly job with an efficient run size compared to making separate phantom assemblies within each job. Using subassembly jobs also makes for cleaner routings and job travelers and provides for greater work center scheduling control within the Shop Control Panel. Is there a legitimate role for phantom assemblies in an MRP system? Yes, they can work well when an item has a relatively short Job Days allocation and the entire product structure is assembled more or less all at once. So limit your use of phantom assemblies to items with short Job Days allocations. Wherever possible, convert phantom assemblies to subassemblies by changing the parent item s BOM Type from Phantom to BOM. Five MRP item settings drive all your jobs Five MRP item settings drive all your jobs the CTO designation, the Lead Days calculation, the Job Days allocation, the Reorder Level, and the Min Order amount. Focus on and refine these five settings and you can profoundly improve your manufacturing efficiency. These settings are maintained in the MRP Settings screen. Identifying your CTO items Select the CTO (custom to order) checkbox against items that are customized for each job such that the finished item cannot be sold to other customers. Jobs for CTO items are generated by MRP directly from sales order lines in the exact quantity ordered. Do not designate a non-customized item as CTO because you lose all manufacturing flexibility, such as the ability to make extra quantities, to make one job for multiple customers, or to stock the item when needed. Establishing the Run Size and Job Days Each and every manufactured item must be given a Run Size amount and Job Days allocation. The Run Size represents a typical large-size job quantity and provides a referential basis for the Job Days allocation. Because MRP always allocates a fixed number of Job Days, no matter what the actual demand may be, the Run Size amount should be high enough to cover the larger job quantities that are 476 Operating Guide

12 7-1C. How to Use MRP Manufactured Items Setup likely to be required. You can click the Production tab in the MRP Settings screen to get a listing of past job quantities to help you establish this setting. The Job Days is the number of shop days allocated by MRP for making the Run Size. Allocate sufficient shop days to ensure a high probability that the Run Size quantity can be completed within that time. NOTE: The Job Days amount is an allocation and is not the literal time it takes to manufacture the item. For example, on paper an item may only take so many hours to make the Run Size, but in reality, jobs spend much more time moving from work center to work center and waiting in queues than they do in actual production. The best way to set the Job Days allocation is to give it a common sense value based on your past experience. You can click the Production tab in the MRP Settings screen to get a listing of the actual shop days associated with past jobs to help you establish the Job Days allocation. If you have no history, enter a conservative amount and tighten it over time as you gain experience. NOTE: Even though a Job Days Inquiry is available via a button in the Job Days field, we do not recommend using its calculated value to establish the actual Job Days allocation. The correct method is to use a common sense allocation that can be tightened over time as you get more efficient. The calculated value can provide input, but it should not be used as the literal setting. Establishing a Reorder Level If you wish to make an item to order, give it a zero Reorder Level. MRP will generate a job whenever demand materializes from sales orders and jobs. Many items have relatively short planning periods and can thus be made to order as needed without causing an undue delay in starting jobs that use the item or shipping customer orders. When an item has a relatively long planning period, however, it cannot be made to order because doing so would cause an unacceptable delay in starting jobs that use the item or in shipping customer orders. Where this is the case, the item must be made to stock so that it is available without delay when needed by jobs and sales orders. To make an item to stock, it must be given a Reorder Level. MRP will generate a job whenever net demand within the item s planning period falls below its Reorder Level. Operating Guide 477

13 7-1C. How to Use MRP Manufactured Items Setup Using the Reorder Calculator The Reorder Level amount is established using the Reorder Calculator, which is accessed by the button within the Reorder Level field. The Reorder Level must be sufficient to cover projected demand within the item s planning period. Projected demand consists of three elements: Monthly Sales This is your estimate of current monthly unit sales for the item. On this screen you can review past sales history with monthly and quarterly averages to help determine your estimate. Monthly Usage This is your estimate of the current monthly usage for the item, meaning its use as a subassembly component in various jobs. On this screen you can review past usage history with monthly and quarterly averages to help determine your estimate. Safety Stock If the sales or usage for this item varies greatly from month to month, you should enter a safety stock amount to cover possible spikes in demand that could result in stock shortages. On this screen you can review past deviations in monthly sales or usage that can help you determine an appropriate safety stock amount. The program translates the sum of these three amounts into a daily average that is then multiplied by the item s planning period days to arrive at a calculated Reorder Level. Establishing a Min Order amount The Min Order setting provides control over job quantities. When MRP generates a job, the job quantity will be equal or greater than the Min Order amount, no matter how small the actual net demand may be. 478 Operating Guide

14 7-1C. How to Use MRP Manufactured Items Setup With manufactured items the Min Order amount is used as an economical order quantity to generate job quantities sufficiently large enough to justify machine setups or to match quantities with machine sizes. Keep in mind that if an item does not have a Min Order amount, whenever demand materializes, no matter how small the demand may be, MRP will generate a job. So if you wish to reduce the sheer number of jobs that get generated, use the Min Order setting to achieve larger job quantities. Assign a Multiple quantity where needed If an item must be manufactured in increments of a particular quantity, perhaps to reflect a machine batch quantity, specify that as the Multiple quantity and MRP will round job quantities up to the next increment divisible by that amount. Reviewing make to order Lead Days allocations Each make to order item (those with a zero Reorder Level) has a Lead Days allocation that is automatically calculated by the program in real time. The Lead Days allocation represents the longest lead time of any BOM component for this item that is made or purchased to order (meaning the component has a zero Reorder Level). The Lead Days is used by MRP to allocate sufficient time prior to starting the job for material procurement or making subassemblies. An item s Lead Days plus Job Days (plus MRP Interval Days) constitute its planning period. If the item is made to order and its planning period results in shipping dates that are not acceptable to your customers, the Lead Days allocation must be reviewed to see if its calculated value can be shortened. You can use the Lead Days Inquiry (which is accessed by the button within the Lead Days field) to review the components that contribute to the calculated Lead Days allocation. The inquiry displays a multi-level view in cases where a chain of subassemblies must be made to order before a job for this item can be started. If you note that a particular component in the chain contributes more to the calculated Lead Days than you consider acceptable, you have the option of making or purchasing that item to stock instead of to order, in which case the component will be removed as a contributor to the calculated Lead Days. This Operating Guide 479

15 7-1C. How to Use MRP Manufactured Items Setup may or may not result in the calculated Lead Days being shortened, depending on what other contributor components remain in the chain. In some cases, multiple components may have to be removed as contributors. To make or purchase a component item to stock, it must be given an appropriate Reorder Level. Generate jobs on a daily basis If you are accustomed to using shortage reports to manually create jobs, it may be something you only do so every few days because of all the work required to evaluate the supply and demand details behind each shortage. MRP, on the other hand, can be run on a daily basis because it takes a fraction of the time by automatically determining job quantities and scheduling dates and being limited just to items that need jobs on that given day. Use the Stock Status inquiry Within the MRP screen you can click the Demand button against any planned job to launch the Projected tab of the Stock Status inquiry, which displays all the item s supply and demand details within and beyond its planning period. You also can view the item s MRP settings on the Summary tab. The information in the Stock Status inquiry can be used to assist with any adjustments you may wish to make to the planned job quantity or to the item s MRP settings. Refine item settings whenever needed During MRP generation, if you determine that adjustments are needed to the item s Job Days, Reorder Level, or Min Order settings, you can click the Links button and select the MRP Settings option to launch that screen with the item pre-selected. After making your changes, close the screen and you are returned to the MRP screen. The key to improving manufacturing efficiency is to constantly refine and improve the quality of your item settings over time in response to actual events. Finally respect the planning period If you are accustomed to working from shortage lists, you may feel at first that MRP is somehow missing some demand that would otherwise be listed on the shortage report. This is true and is exactly how MRP is supposed to work. The shortage list has no dimension of time and treats all supply and demand as being current. MRP, on the other hand, is limited just to shortages that occur within each item s planning period. Because planning periods vary with each item s Lead Days and Job Days allocations, some jobs will be generated before others. It is almost never the case that all jobs that are ultimately needed are generated on the same day. What you absolutely do not want to do is to increase the system MRP Interval setting to an extreme amount, such as 365 days, to in essence give each item an unlimited planning period. This can create severe over-stocking and understocking distortions and myriad other problems. 480 Operating Guide

16 7-1C. How to Use MRP Manufactured Items Setup NOTE: In the next product build, the system MRP Interval setting will be capped to a maximum of 7 days to insure the integrity of item planning periods. Setup Tasks In order for MRP to work properly, all your manufactured items must be given appropriate MRP settings. For initial MRP setup it is best to focus on one setting at a time across all items instead of establishing all settings one item at a time. Within each setting, try to establish consistent patterns so that similar items are given similar settings. NOTE: Unless otherwise indicated, all tasks are performed within the MRP Settings screen. Review your use of phantom assemblies Limit your use of phantom assemblies to items with short Job Days allocations. Wherever possible, convert phantom assemblies to subassemblies by going to the Bills of Material screen and changing the parent item s BOM Type from Phantom to BOM. Assign a Run Size and Job Days to all M items Give each of your manufactured items an appropriate Run Size amount and Job Days allocation. WARNING: Make sure that all manufactured items are given a Job Days allocation. A zero value will result in illogical scheduling dates that can adversely affect other job and PO dates. Designate your CTO items Select the CTO (custom to order) checkbox against all manufactured items that are customized in some fashion for each customer order. Assign a Reorder Level where needed Identify those manufactured items that have Lead Days and Job Days values sufficiently long enough to disqualify the item from being made to order. Assign such items an appropriate Reorder Level, using the Reorder Calculator. Assign a Min Order where needed Enter a Min Order amount against those manufactured items that need an economical order quantity. Assign a Multiple quantity where needed If an item must be manufactured in increments of a particular quantity, perhaps to reflect a machine batch quantity, specify that as the Multiple quantity and MRP will round job quantities up to the next increment divisible by that amount. Operating Guide 481

17 7-1C. How to Use MRP Manufactured Items Setup Review make to order Lead Days Review your made to order items and identify those with a calculated Lead Days you consider to be unacceptable. In those cases, shorten the calculated Lead Days by making or purchasing contributor components to stock instead of to order. Establish One-Off Item Defaults Establish Lead Days and Job Days settings in the One-Off Item Defaults screen, located on the Inventory Setup menu. These two default settings flow through to the One-Off Item Generator screen when one-off items are created during sales order entry. Within that screen, these settings can be modified for any given order. So using common sense, enter a default Lead Days amount in the One-Off Item Defaults screen that provides for enough time to procure material and make subassemblies. Enter a Job Days amount that provides sufficient production time to make a typical oneoff item order. Mistakes to Avoid DBA is an MRP system. Used properly, it can profoundly improve your manufacturing efficiency, which we define as completing jobs faster and on time using less inventory and work in process. Use the system improperly, however, and you can experience little or no improvement in manufacturing efficiency. To use the system properly, avoid the following mistakes: Not respecting the Job Days allocation It is a serious mistake to ignore or downplay the Job Days allocation. The Job Days allocation establishes each job s start and finish date and should allocate a sufficient number of shop days to ensure a high probability that jobs for the item will be completed on time. Never allow a zero Job Days amount because it results in meaningless job schedules. So in order for MRP to function properly, make sure that each and every manufactured item is given a meaningful Job Days allocation. Frequently changing an item s Job Days An item s Job Days allocation is intended to be a fixed value from one MRP run to another, even though actual job quantities may vary with net demand. If you frequently change the Job Days allocation in an attempt to synchronize the setting with anticipated job quantities, the item s planning period will fluctuate from one MRP run to another, creating problems. For example, newer jobs can be scheduled for completion earlier than older jobs, which is not logical, and existing jobs can fall outside the planning period and fail to be included in the net demand calculation. 482 Operating Guide

18 7-1C. How to Use MRP Manufactured Items Setup As a general rule, the Job Days allocation should start out as a conservative value that gets gradually tightened over time as you gain efficiency. It is not a setting designed for frequent changes from one MRP run to another. If you need to expedite a particular job within a given MRP run, do not change the item s Job Days allocation. Instead, move up the job finish date if you feel the job can be completed in less time than is normally allocated. Manually entering M item Lead Days Do not manually enter Lead Days amounts against your manufactured items. Instead, select the Use Lead Days Generator checkbox in the MRP Defaults screen so that Lead Days amounts are automatically calculated by the program based on the longest lead days among each item s components. The calculated Lead Days amounts provide for accurate scheduling alignment of multi-level make to order jobs. Not using the Min Order setting for efficient job quantities The Min Order setting is often overlooked and can be used to create fewer and more efficient job quantities. When the Min Order setting is zero, each time net demand falls below an item s reorder level, a job gets generated, no matter how small the quantity may be. If an item is frequently used, you can safely give it a Min Order amount to generate a more efficient job quantity, knowing that any extra stock on hand will be consumed in short order. Not using Reorder Levels when appropriate Many companies only make subassemblies when required by jobs, which is done by giving the item a zero Reorder Level. Although making subassemblies to order minimizes inventory, it is counter-productive when it results in excessively long delivery times that adversely affect sales. When the time it takes to make a subassembly causes what you consider to be unacceptable delays in job start dates and sales order shipping dates, the item should be made to stock by giving it a Reorder Level. Making a subassembly to stock has two benefits. First, the item will be available for immediate issuing to jobs, which reduces job lead days and shortens delivery times of the items you sell. Second, because a to-stock subassembly job quantity reflects total projected net demand for the item, it is larger and more efficient than the series of smaller jobs that would be generated if the item were made to order. Operating Guide 483

19 7-1D. How to Use MRP Purchased Items Setup 7-1D. How to Use MRP Purchased Items Setup This section explains how to establish and refine MRP settings for your purchased items and includes a list of setup tasks and mistakes to avoid. All POs are generated by MRP DBA is an MRP system designed to automatically generate all manufacturing purchase orders in response to the net demand within each item s planning period. MRP generates a coordinated master schedule that properly aligns job and PO required dates and combines quantities to reflect the interdependent nature of demand. MRP is a mandatory process Because POs are capable of being entered manually (which is necessary for editing purposes), it is a common misconception that MRP is somehow an optional process and that manual PO creation is a viable alternative. This is absolutely not the case. MRP is a mandatory process because it is the only way to properly generate the master schedule that drives the manufacturing system. Lean manufacturing requires a master schedule Refining item MRP settings and generating and executing the master schedule is how you achieve lean manufacturing delivering on time using less inventory and WIP. The master schedule is too complex for any human to replicate by means of shortage lists or other MRP substitutes. MRP adds the dimension of time to your planning Planning within non-mrp systems relies upon shortage lists, BOM explosions, job chaining, and other workaround tools to compensate for the lack of MRP functionality. Because non-mrp systems do not include jobs with start and finish dates, they lack any dimension of time. 484 Operating Guide

20 7-1D. How to Use MRP Purchased Items Setup Without the dimension of time, it is difficult to avoid shortages caused by timing issues. For example, an item s total demand may be covered by an incoming PO, in which case the item fails to get listed on the shortage report. However, if the item is needed immediately and the PO is due to arrive several days from now, an actual shortage exists which prevents jobs that need the item from being started. It is also difficult to avoid over-stocking due to timing issues. Total demand for an item may exceed incoming supply, in which case the item gets listed on the shortage report, which dictates creating a new PO. But if some of that demand has a later requirement date that can be supplied by a future PO, ordering the full quantity now results in an over-supply. MRP is a time-phased shortage list MRP is a special type of shortage list one that is time-phased, which solves all the timing issues that are endemic to traditional shortage lists. Each MRP run generates a shortage list that is limited just to the items that must be purchased today to meet future required dates. Tomorrow and each succeeding day, another set of required dates will fall into item planning periods and another shortage list will be generated. So if you are accustomed to creating POs from a shortage list, that is precisely what you will be doing using MRP. The difference is that you are working from a much smaller list that is confined just to items that need POs today. And unlike a traditional shortage list that requires manual PO entry, MRP generates the physical POs for you, which saves tremendous time and eliminates data entry errors. MRP consolidates interdependent demand In non-mrp systems, it is a common practice to limit shortage lists to specific jobs or chains of multi-level jobs. Without the ability to time-phase required dates, this is the only way to keep track of what is needed to start specific jobs. None of this is necessary when you use MRP because net demand is driven by required dates, not specific jobs. So if multiple jobs need the same component on the same job start date, MRP generates a single PO in response to the aggregate demand instead of an individual PO for each job. This reduces the number of POs, simplifies the master schedule, lowers shipping costs, reduces PO receipt processing, and results in larger and more efficient PO quantities and better supplier prices. Three MRP item settings drive all your purchase orders Three MRP item settings drive all your purchase orders the Lead Days allocation, the Reorder Level, and the Min Order amount. Focus on and refine these three settings and you can profoundly improve your purchasing efficiency. These settings are maintained in the MRP Settings screen. Operating Guide 485

21 7-1D. How to Use MRP Purchased Items Setup Establishing the Lead Days allocation Each and every purchased item must be given a Lead Days allocation. The Lead Days is the number of days allocated by MRP for procuring the item from the default supplier. Keep in mind that the Lead Days amount is an allocation and is not the literal time it takes to procure the item. For example, an item may take only two days to be received from the supplier, but for planning purposes, you might set the Lead Days amount to four or five days to cover possible delays and to account for receiving processing time. Use common sense when establishing this setting. If you don t allocate enough time, some POs will arrive late and cause job delays. If you allocate too much time, some jobs will be scheduled to start later than they otherwise could. It s all about finding the sweet spot, which is a judgment call that only you can make based on your experience with the item and its default supplier. NOTE: You can click the Delivery tab above the grid within the MRP Settings screen to get a listing of actual delivery days associated with past PO receipts. Establishing a Reorder Level If you wish to purchase an item to order, give it a zero Reorder Level. MRP will generate a PO whenever demand materializes from jobs or sales orders. Many items have relatively short lead days and can thus be purchased to order as needed without causing an undue delay in starting jobs that use the item. When an item has a relatively long lead time, however, it cannot be purchased to order because doing so would cause an unacceptable delay before jobs that use the item could be started. Where this is the case, the item must be purchased to stock so that it is available without delay when needed by jobs. To purchase an item to stock, it must be given a Reorder Level. MRP will generate a PO whenever net demand within an item s planning period falls below its Reorder Level. Using the Reorder Calculator The Reorder Level amount is established using the Reorder Calculator, which is accessed by the button within the Reorder Level field. The Reorder Level must be sufficient to cover projected demand within the item s planning period. Projected demand consists of three elements: Monthly Sales This is your estimate of current monthly unit sales for the item. On this screen you can review past sales history with monthly and quarterly averages to help determine your estimate. 486 Operating Guide

22 7-1D. How to Use MRP Purchased Items Setup Monthly Usage This is your estimate of the current monthly usage for the item, meaning its use as a component in various jobs. On this screen you can review past usage history with monthly and quarterly averages to help determine your estimate. Safety Stock If the sales or usage for this item varies greatly from month to month, you should enter a safety stock amount to cover possible spikes in demand that could result in stock shortages. On this screen you can review past deviations in monthly sales or usage that can help you determine an appropriate safety stock amount. The program translates the sum of these three amounts into a daily average that is then multiplied by the item s planning period days to arrive at a calculated Reorder Level. Establishing a Min Order amount The Min Order setting provides control over PO order quantities. When MRP generates a PO, the order quantity will be equal or greater than the Min Order amount, no matter how small the actual net demand may be. Keep in mind that if an item does not have a Min Order amount, whenever demand materializes, no matter how small the demand may be, MRP will generate a PO. So if you wish to reduce the sheer number of POs that get generated, use the Min Order setting to achieve larger order quantities. Purposes The Min Order amount has three main purposes: Economical order quantity The Min Order amount can be used as an economical order quantity to take advantage of supplier price breaks and to reduce unit shipping and handling costs that are typically higher with smaller orders. Purchasing items with extremely long Lead Days When an item has an extremely long Lead Days allocation, such as several months, the Min Order can be used to create a series of staggered POs. For example, in the case of an item with a six month lead time, the Min Order could be set to supply 30 days of anticipated demand. If demand materializes as expected, MRP would generate a PO every 30 days. At any given time, six POs would be in progress, each due to arrive in 30 day intervals. Blanket purchasing If you give a supplier an annual volume commitment in exchange for a fixed price and you wish to issue POs at regular intervals, such as once a month, the Min Order is used to achieve this by means of the Supply Days setting (see below) and a Reorder Level, Operating Guide 487

23 7-1D. How to Use MRP Purchased Items Setup NOTE: Absolutely do not manually create blanket POs, which have artificial due dates that conflict with actual required dates, causing shortages and over-supply. Instead, use the Supply Days setting in combination with a Reorder Level, which generates blanket-style POs at regular intervals, triggered by actual demand and synchronized with required dates. If you are using the Min Order amount for an economical order quantity, enter the quantity directly in the Min Order field. If you are using the Min Order amount for managing long lead days items or for blanket purchases, you must use the Supply Days setting (see next) to calculate the Min Order amount. Using the Supply Days setting The Supply Days setting is located within the Reorder Calculator screen, which is launched by clicking the button within the Min Order field. The Supply Days represents the number of days of projected demand you wish to be covered by each PO. Projected monthly demand is the sum of the Sales, Usage, and Safety Stock amounts. The program takes projected monthly demand, converts that amount into a daily average, then multiplies it by the Supply Days to arrive at a calculated Min Order amount. Assuming that projected demand proves accurate and the item has an appropriate Reorder Level, MRP will generate a PO for the item at intervals equal to the Supply Days amount. The ability to control PO intervals is what makes the Supply Days setting ideal for managing long lead days items and blanket purchases. Assign a Multiple quantity where needed If an item must be ordered in increments of a particular quantity, perhaps to reflect a standard package size, specify that as the Multiple quantity and MRP will round PO quantities up to the next increment divisible by that amount. Generate POs on a daily basis If you are accustomed to using shortage reports to manually enter POs, it may be something you only do so every few days because of all the work required to evaluate the supply and demand details behind each shortage. MRP, on the other hand, can be run on a daily basis because it takes a fraction of the time by automatically determining PO quantities and due dates and being limited just to items that need POs on that given day. Use the Stock Status inquiry Within the MRP screen you can click the Demand button against any planned PO to launch the Projected tab of the Stock Status inquiry, which displays all the item s supply and demand details within and beyond its planning period. You also can view the item s MRP settings on the Summary tab. The information in 488 Operating Guide