Computation Section
Materials Requirement Planning
 -Linking the Parts
When all the data has been entered, it is time to select the menu command "Link Parts" from the OMIE menu. The result for the example is shown below for parts P-400 and PP.
  Linking parts results in a significant modification of the entries in the worksheet as shown in the table below. Most the information is computed using formulas inserted in the cells by the add-in. The formula cells are shown in yellow on the worksheet. The user should not modify the formulas.
Rows of the Part Form
Quantity Explanation
Gross Requirements This is the sum of all the independent demand and dependent demand required for the production of other parts. P-400 has only independent demand obtained directly from the MPS. PP has only dependent demand. Its Gross Requirements come from the Planned Order Releases of P-400. The add-in places formulas in this row of the form so the numbers automatically adjust when the MPS is changed.
Level This is the maximum number of production steps between the part and a finished good. P-400 is at level 0 and PP is at level 1.
Unit Cost This is the accumulated value of the costs added by all the component parts lower in the process structure.
Projected on Hand This projects the on-hand inventory without additional production. The values are computed with formulas that take into account the initial inventory, gross requirements and scheduled receipts.
Net Requirements The requirements that cannot be met with on-hand inventory or scheduled receipts are the net requirements. These must be satisfied from production during the time horizon. They are computed with formulas entered by the add-in.
Planned Order Receipts These are computed based on the net requirements and the lot sizing method. In the case of P-400 which uses a fixed order period of 3, the planned order receipts are based on the requirements in the next three periods.
Planned Order Releases This row is the same as the planned order receipts except it is offset by the lead time for the part. This row becomes a portion of the Gross Requirements for parts in the BOM. If a number other than 0 appears as the first entry of this row (cell F15 for P-400), the number indicates the planned order receipts cannot be satisfied with the current lead time. The number indicates the total shortage.
Inventory on Hand This row computes the number of complete units available in inventory in each period.
Work in Process This row computes the number of units in the production process, but not yet received.
The column at the right of each part data computes averages over the time horizon.
Quantity Explanation
Demand Rate The average demand per period over the time horizon.
Setup Cost The cost for a production run for a manufactured part or an order for a purchased part. This is data.
Holding Cost This is the cost of holding one unit for one period. It is computed by multiplying the Unit Cost by the Interest Rate.
Average WIP and OH This is the average over the time horizon of the number of units in production and in inventory.
Average Setup This the average number of setups per period.
Inventory Cost This is a measure of effectiveness for the scheduling policy. It adds the cost of holding WIP and inventory and the cost of setups. An optimum policy would minimize this value.
EOQ Economic Order Quantity. This is the optimum lot size based on the averages over the time horizon. It is computed with the standard EOQ formulas.
EOP Economic Order Period. This is the optimum period between orders assuming demand is continuous over the time horizon and the EOQ is used.
  The Link Parts command produces a complete MRP schedule based on the data in the MPS and the information entered for each part. The worksheet is primarily implemented with formulas, so the MPS and most of the other data on the worksheet can be changed by the user and the effects of the changes are automatically reflected on the worksheet. The timing associated with the Wagner Whiten lot sizing policy is not reoptimized when the MPS changes, however, the order quantities are adjusted.

One type of change that is not immediately reflected is a change in the BOM of a part. If the basic structure of the process is modified in this way, choose the Link Parts command from the menu to adjust the formulas. All WW policies are also recomputed.
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Operations Management / Industrial Engineering
by Paul A. Jensen
Copyright 2004 - All rights reserved

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