This article is designed to briefly illustrate the interaction between order parameters and "material requirements planning" (MRP). As you will see, order parameters play a key role in the execution of MRP.
Item Site Settings
For the purposes of this exercise, we will be looking at the order parameter settings for a purchased item found in the demo database—item TBOX1. The following screenshot shows the item site record for TBOX1. To open the "Item Site" window use the following steps:
- Locate "Inventory" from the top menu
- Go to the "Item Site" submenu
- Choose the "List" option
- The "Item Sites" window will open, from this list choose the item: TBOX1
- The "Item Site" window will open for TBOX1:
Item Site with Order Parameters Selected
As you can see in the example, the "Enforce Order Parameters" flag is turned on for this item site. Selecting this option tells the system to enforce the specified order parameters when MRP is run. The "Enforce on Manual Orders" option applies to manual work orders only and does not have an impact on MRP.
Let's define the significance of each order parameter setting:
- Reorder Level: Specifies when a planned replenishment order should be created for an item site. If planned availability minus safety stock falls below the reorder level, then a replenishment order will be created when MRP is run. The replenishment order quantity will be equal to the quantity required to return planned availability to either the reorder level or the order-up-to quantity—whichever is greater. We will look at planned availability later in this section, for this example, the reorder level is set to 200. So, when planned availability minus safety stock falls below 200, MRP (when it is run) will recognize this and reorder quantities for the item site.
- Order-Up-To: Indicates the level of planned availability an item site should be replenished up to when MRP is run. In cases where the reorder level for an item site exceeds the order-up-to (OUT), MRP will replenish the item site up to the reorder level. In this example, the OUT level is 50. So, in our example, when planned availability falls below the reorder level, MRP (when it is run) will replenish the item site quantity up to 50.
Info: Setting the order-up-to level to "0" removes any restrictions on maximum order quantities. Removing quantity restrictions can be an effective strategy to help ensure that all order demands are satisfied when MRP is run. Order demands may not be met if order-up-to levels are set below the demand threshold.
- Minimum Order: Indicates the minimum quantity that may be entered for a planned replenishment order when MRP is run. In this example, the minimum order quantity = 20.
- Order Multiple: Indicates the quantity multiple that should be used for planned replenishment orders when MRP is run. In this example, the order multiple = 10.
- Group Planned Orders Every: Value entered specifies the length of a period—measured in days—within which planned replenishment orders will be grouped together (i.e, consolidated) to meet scheduled demand for the period. This functionality serves to limit the total number of planned replenishment orders, thereby simplifying order processing. For example, to consolidate demand for an item site into 30-day buckets, set the value to "30." When MRP is run, the system will automatically consolidate all demand falling within the 30-day horizon into a single planned purchase order or planned work order. The grouping of planned orders moves forward in time, meaning the system will create as many buckets as will fit within the cutoff date specified when MRP is run. The initial grouping of planned orders is handled differently than subsequent buckets. The following formula specifies how the date range for the initial period is determined:
- Start Date = Today's date
- End Date = Today's date + Lead time
- All subsequent periods are determined using the following calculations:
- Start Date = End date of previous period + 1
- End Date = Start date of current period + Group value
Info: To enforce just-in-time (JIT) delivery of planned orders, confirm that the "MRP Time Fence" is set to "0." This will ensure that planned order due dates are the same as the demand due dates to which they correspond. If the MRP order grouping value is set to "0," the initial period will be determined in the same way as for all planned order groups:Start Date = Today's End Date = Today's Date + Lead Time
However, the date range for all subsequent JIT planned orders will be based on the following calculations:Start Date = Demand Due Date - Lead Time End Date = Demand Due Date
- Safety Stock: Specifies the quantity of stock you want to keep in inventory to protect against unplanned, unforeseeable trends in your order forecasts. When "Material Requirements Planning" (MRP) is run, the system considers the safety stock value when determining whether to create planned replenishment orders. If planned availability minus safety stock is below the reorder level, then planned orders will be created. If not below the reorder level, then no planned orders will be created. The system's calculation effectively creates a buffer inventory (if needed) to handle unexpected fluctuations in demand. In this example, safety stock is set to 0.
Info: If you do not want to use the safety stock functionality, set the safety stock value to "0."
Viewing Planned Availability
"Planned Availability"—also known as available quantity—describes inventory quantity available for consumption by work orders or sales orders. To determine available quantity, the system uses the following formula:
- "Planned Availability" = "Unallocated Qty." + "Qty. on Order"
Let's look now at planned availability for item TBOX1. The "Inventory Availability" screen found in the inventory module provides us with this detail. To open the "Inventory Availability" window use the following steps:
- Locate "Inventory" from the top menu
- Go to the "Reports" submenu
- Select the "Inventory Availability" option to open the "Inventory Availability" window
- From the blank drop-down menu (click the "+" button if it's not present) select the "Item" option
- In the search box, type TBOX1
- Click the QUERY button to view the inventory information for TBOX1:
Inventory Availability Display Showing Availability Below Reorder Level
As you can see from the screenshot, the available quantity is displayed in red. The red-colored font is used to indicate that planned availability has fallen below the reorder level. Whenever this scenario occurs, planned replenishment orders will be generated the next time MRP is run.
The following columns are of interest to us now:
- Available QOH = 0: If quantities of item TBOX1 were in any way allocated, the two values: quantity-on-hand (QOH) and available quantity would not be the same; which is the case for this example.
- Allocated = 500: Item quantity is considered allocated if sales orders or work orders are demanding the item. In this case, there are demands for item TBOX1 that have been created in the system, and so the allocated quantity = 500.
- Reorder Lvl = 200: This is the reorder level specified on the item site definition.
- OUT Level = 50: This is the order-up-to level specified on the item site definition.
- Available = -500: You can see that the available quantity of item TBOX1 in warehouse EAST is below the reorder level. As a result, a planned replenishment order for item TBOX1 should be created when MRP is run.
Now let's run MRP and see what happens. Based on our knowledge of the item site order parameters and the available quantity for item TBOX1, we know that a planned replenishment order will be created. We know this because the following condition is true:
Planned Availability (-500) - Safety Stock (0) < Reorder Level (200)
Whenever planned availability minus safety stock falls below the reorder level, a planned order will be generated when MRP is run. The only question now is what will the planned order quantity be?
The following screenshot, "Run MRP by Item," is one of two utilities used to run MRP. The other is "Run MRP by Planner Code." For this exercise, we will be running MRP by item. To open the "Run MRP by Item" window, use the the following steps:
- Locate "Schedule" from the top menu
- Go to the "Scheduling" submenu
- Select the "Run MRP" submenu
- Choose the "by Item" option
- The "Run MRP by Item" window will open:
Running MRP by Item
- In the "Item Number" box, type TBOX1
- Put today's date in the "Cutoff Date" box
- Click the CREATE button
We enter item TBOX1 in the item number field, specify the warehouse where the item site is located, and set the cutoff date for the current day. Once we select the CREATE button, MRP is off and running. To see the resulting planned replenishment orders, we open the M/S display "Planned Orders by Item," as shown below. To open the "Planned Orders" window follow these steps:
- Return to "Schedule" on the top menu
- Go to the "Reports" submenu
- Choose the "Planned Orders" option
- The "Planned Orders" window will open
- Select "Item" from the drop-down box and enter in TBOX1
- Click QUERY to show the planned purchase order for TBOX1:
MRP Created Planned Purchase Order
As you can see in the example, a planned purchase order has been generated for 50 units of item TBOX1. So how did the system determine that 50 units was the required quantity?
Well, when MRP creates planned orders, the system looks at both the reorder level and the order-up-to (OUT) level. It determines which of the two has the greater value—and then it places an order to replenish available quantity up to that value. In our example, the reorder level is greater, so we have the following scenario:
0 (QOH) - 500 (Availability) + 700 (Needed Replenishment Qty.) = 200 (Reorder Level)
So you can see, MRP generated a planned order for 700 units of item TBOX1 to restore available quantity to the reorder level.
Note: Since item TBOX1 is a purchased item, the replenishment order is a planned purchase order. Had the item been a manufactured item, planned work orders would have been created—and also planned purchase orders, depending on the availability and reorder levels of required component items.
Converting Planned Orders to Actual Orders
The next step is to convert the planned purchase order to a purchase request. Doing so will make "Purchasing" aware of the requirement. We can release the order using the "Release Order" option from the right-click menu. After choosing that option, we are prompted to create a purchase request, as shown below:
Convert Planned Order to Purchase Request
A quick check of the details on the "Purchase Request" window shows us that the quantity ordered is correct. We now select the CREATE button to generate the purchase request and forward it to purchasing. To verify this activity, we turn to the P/O module "Display Purchase Requests by Item," as shown below. To open the "Purchase Requests by Item" window, follow these steps:
- Locate "Purchase" on the top menu
- Go to the "Purchase Requests" submenu
- Choose the "by Item" option
- Type TBOX1 in the "Item Number" box
- Click the QUERY button to open the TBOX1 purchase request:
Release Purchase Request
Sure enough, there's the purchase request for the correct quantity. Once again, we select the "Release P/R" option from the right-click menu. Since item sources have been defined for the item, we are asked to pick a vendor from among the list of possible vendors for this item, as shown in the next screenshot:
Select Item Source during Purchase Request Conversion
We will choose the first vendor "Toy Parts Inc." from the list, because this is the vendor with the highest ranking. After highlighting the vendor and clicking SELECT, we are asked whether we want to add the item to an existing open purchase order—or whether we would like to create a new purchase order for this item:
Choose Existing or New PO
After making our choice, we are brought straight to the "Purchase Order Line Item" window. As you can see in the next screenshot, all the correct values have automatically been entered: item number, order quantity, unit price, extended price, due date, etc.:
P/O Line Item with Values Pre-Populated
We verify the details and then select the SAVE button. Finally we are brought to the "Purchase Order" header, as shown below:
Purchase Order Originated by MRP Replenishment
As you can see, we have successfully created a purchase order using MRP replenishment functionality. All we have to do now is post the purchase order, and the replenishment quantity will be well on its way.