The third phase of Demand Driven MRP is to generate demand-driven jobs and purchase orders.
Summary
Time to Shipment targets generate sales order line item Required Dates to provide the demand that drives daily MRP generation. Jobs and POs are generated and converted level by level in response to current net demand within item planning periods relative to Reorder Points and Min Order quantities. Job and PO dates are derived and aligned from standard lead times with coordinated system target dates.
Demand Dates |
Supply Dates |
SO Line Required Date |
Job Finish Date |
Job Planned Start Date |
PO Line Expected Date |
React to the firm - MRP Action Windows
Instead of reacting to tentative demand, MRP will only react to firm demand. Each item has its own “action window”, which covers the time it takes to make or buy the item. MRP only reacts to demand within the action window, which is firm demand. Any demand outside the action window is tentative demand that is incomplete and highly likely to change as it firms over time.
Reacting to the firm yields miraculous benefits. Planned supply is always aligned with firm demand, which eliminates the misalignments that are the root cause of shortages, overstocking, and the need for constant job and PO revisions. Each item is planned individually, which eliminates the bullwhip effect from BOM explosions and job linking that amplifies misalignments at lower levels.
Protect for the future - Demand Driven Order Policy
Instead of using inventory to cover tentative demand projections, inventory is used to protect against future demand. Each item (other than to order items) is given a value that covers potential monthly demand. The monthly potential demand is applied to the item’s replenish time to calculate a dynamic reorder point. Whenever net demand within the item action window falls below the reorder point, MRP triggers a job or PO early enough to replenish stock before it runs out.
Overstocking is eliminated because new supply only gets triggered by firm demand and cannot keep accumulating. Throughput increases with consistent and efficient order quantities and run sizes. Even though the majority of items are planned for stocking, most companies experience a dramatic reduction in overall inventory.
Actions
1. Use the calculated SO Required Date to drive MRP and shop priorities
When entering a sales order line item, use the default SO line Required Date as a standard target date to drive MRP generation and shop priorities.
The SO Line Required Date drives MRP and shop priorities
The line item Required Date is the target demand date that drives MRP generation and determines job and picking priority. The default Required Date is established by the item's planned Time to Shipment target and thus reflects your time to shipment strategy.
Leave the default Required Date as is
Always leave the default line item Required Date as is so that it aligns with MRP planned job dates and provides consistent time to shipment from one order to the next over time. The only exception should be if a customer specifically requests a future ship date delivery schedule.
The Required Date is a target ship date
The Required Date is a target ship date that does not adjust to particular situations. Instead, adjustments are made by MRP and shop activities to meet the target date. Here are a couple of examples:
•When an unusually large order is entered for a Demand Driven stocking order policy item that is not covered by stock on hand, the Required Date stays fixed as is and does not get moved out. Instead, MRP immediately generates a job to replenish stock and the early Required Date gives the job high priority in work center queues to automatically expedite the job.
•When an unusually large order is entered for a To Order policy item, the Required Date stays fixed as is and does not get moved out. Instead, MRP immediately generates a job to order and the Required Date gives the job higher priority in work center queues to meet the target ship date.
Never move the Required Date out when past due
Never move the line item Required Date out when it is past due. A late Required Date gives the order high priority in job release, work center scheduling, and order picking. If the Required Date gets moved out, the order gets lower priority, which is counter-productive. Instead of changing the Required Date, you can freely change the Expected Ship date (see next action), without affecting shop priorities.
Only change the Required Date to enter a blanket sales order or by customer request
Only change the default line item Required Date when entering a blanket order where the customer requests a set of future shipments. In that case, enter a separate line for each shipment quantity and change the Required Date to correspond to the requested ship date. MRP is ideally suited for blanket orders because no action is taken against future shipments until the line item Required Date falls into the item's planning period action window.
The Required Date is updated with quote conversion
Whenever a quote is converted to a live sales order, each line item Required Date is refreshed relative to the current date to ensure date alignment with MRP job generation.
Extend Required Dates with extra shop days if needed
(Sales - Sales Setup - SO Required Dates)
You can extend default Required Dates on an across the board basis by item order policy using the extra Shop Days settings in the SO Required Dates screen. Here are examples of how the extra Shop Days setting might be used:
•Against Stocking order policy items you may wish to extend Required Dates by an extra shop day because orders cannot always be shipped on the same day they are received.
•Against To Order policy items you may wish to extend Required Dates by one or more extra shop days to provide additional time for one-off BOM customization or other pre-MRP activities.
Avoid frequent adjustments
Avoid frequent adjustments to extra Shop Days settings because it can cause newer orders for an item to have earlier Required Dates than older orders.
2. Use the SO line Expected Ship date for customer communications
The Expected Ship date and header Promise Date do not affect MRP
The sales order line item Expected Ship date and the header Promise Date are customer communication dates that do not affect MRP generation or job and picking priority.
The Expected Ship date accompanies the line item Required Date
The Expected Ship date accompanies the line item Required Date and indicates when the line item is likely to be shipped. The program automatically makes the Expected Ship date equal to the Required Date when a new line is created, when a quote is converted, and when the Required Date is modified for blanket order entry. Unlike the Required Date, which is a target date for MRP generation and job and picking priority, the Expected Ship date can be freely changed as needed.
Do not add padding or safety to the SO Required date - use the Expected Ship date instead
The SO line Required Date is the principle driver of MRP and system priorities. If you wish to give yourself some cushion on a delivery use the Expected Ship date as your customer communication date.
Use the Late Supply screen to update Expected Ship dates
Use the Late Supply screen to update line item Estimated Ship dates for sales order line items that will not meet their Required Date due to late supply from jobs or purchase orders of insufficient stock on hand. The Expected Ship date is for customer communications and can be freely updated as needed without affecting job or picking priority.
The header Promise Date can also be used for customer communications
You also have the option of using the Promise Date for customer communications, which is a header level date that indicates when you think the entire order is likely to ship. The Promise Date has no effect on MRP and can be freely changed to reflect actual conditions.
NOTE: The downside of the Promise Date is that it is a single header level date and cannot handle multiple SO lines with potentially multiple shipment dates. We recommend the line level Expected Ship date as the preferred customer communication date.
Establishing the header Promise Date
When you create a new sales order you can specify the Promise Date prior to line item entry or you can update the Promise Date after line item entry.
▪If you specify a Promise Date prior to line item entry, it establishes a minimum Required Date against all the line items. This may be helpful in cases where line items have highly variable Required Dates and you want items to have the same target dates.
▪If you leave the default Promise Date as is and entire the line items, you can assess line item Required Dates and then update the Promise Date to cover the latest date among the line items.
3. Generate MRP on a daily basis
MRP is used on a daily basis to generate demand-driven jobs and purchase orders.
Jobs and POs are generated through MRP
All jobs and POs are generated by the MRP screen. Jobs are always generated first in multi-level order so that each level generates the demand that drives subsequent levels. POs are always generated last so that purchased items have complete demand profiles.
Run MRP on a daily basis for accurate target dates
MRP should be run on a daily basis so that jobs and POs are generated to respond in a timely fashion to any new demand that materializes within item planning period action windows.
Each MRP session is typically split by a planner and buyer
Each MRP session is typically split by a production planner and a buyer or is handled by one person who performs both roles.
The planner converts planned jobs
The production planner, who maintains item order policies and supply pipelines, M item standard Lead Days and Job Days settings, and top level item Time to Shipment targets, generates planned jobs and converts them into live jobs.
The buyer converts planned POs
The buyer, who maintains P item standard Lead Days settings, supplier line cards, and purchase prices, reviews and converts planned POs into live POs after verifying supplier selection, pricing, and manufacturer part number availability.
Never delay MRP generation
The only way to achieve demand driven planning is to generate MRP on a daily basis to respond immediately to any new demand that arises. Unlike manual planning, which is time-consuming and therefore is often done only once or twice a week in lengthy sessions, MRP generation takes little time and should be run at least once per day.
Never generate partial or fragmented MRP sessions
Each MRP session is designed for complete generation and conversion through all job levels and conclusion with PO generation and conversion. Complete generation is essential for achieving a coordinated master schedule and uncovering your firm demand through all levels of production. Never skip levels or generate jobs on one day and POs on another.
Never delay planned job or PO conversion
When MRP generates a planned job or PO, it must be converted immediately to avoid introducing late dates into the master schedule. Never delay conversion because this defeats the “just in time” nature of the master schedule.
Do not bypass MRP with manual jobs and POs
MRP generates a coordinated master schedule in which supply dates are aligned with demand dates and jobs are prioritized in work center queues relative to their required dates. When you interject a manually created job or PO into the master schedule, it has no relationship with other dates and disrupts the schedule by misallocating materials and distorting work center priorities.
Job generation and conversion
CTO jobs are generated first
In the first phase of MRP generation, jobs are generated directly from sales order lines for CTO (custom to order) items. Jobs are backward scheduled from the sales order line’s Required Date, which was established by the item’s Time to Shipment target and is within the item’s planning period action window.
Net demand jobs are generated level by level
After jobs are generated for CTO items, MRP generates jobs level-by-level for all other manufactured items. A job is generated whenever current net demand (stock on hand + all inbound jobs - actual demand within the item’s planning period) falls below the item’s Reorder Point. The job quantity will be equal to actual net demand or the item’s Min Order quantity, whichever is greater.
Planned start date is the target date for Job Release
As you convert Jobs level by level, the Planned Start date for Jobs generates the firm demand for subassemblies and purchased components. MRP aligns all components so they are available for the target release date of Jobs. DBA allocates all materials in the Job Release screen to ensure availability when your release Jobs for production.
Long-term tentative demand is not included
Any long-term demand outside the item’s planning period action window is not included in the net demand calculation. This is because there is ample time to generate a job later when the demand eventually falls into the item’s action window and becomes short-term and firmly set. Demand driven planning takes no action against long-term demand because it is tentative, incomplete, and subject to scheduling and specification changes and order cancellations.
If you prefer longer planning periods:
Item planning periods keep inventory lean because they prevent jobs from being generated prematurely before they are needed. That being said, if you feel more comfortable with longer planning periods, never pad or inflate Job Days settings, which has harmful consequences. Instead, go to the MRP - MRP Defaults screen and use the Planning Period - Extra Days for Lower Level M Items setting to expand all subassembly item planning periods by a set number of days.
Planning periods are never expanded for top level items
Planning periods are never expanded for top level items because premature job generation at the top level will generate premature demand for lower items that would cause excessive inventory and introduce long term dates into what should be a firmly set master schedule. The planning period for top level items is also ideally suited for handling blanket sales orders because it excludes demand from future required dates that does not need current action.
Interdependent demand is consolidated into single jobs
Because the job schedule is limited to short-term demand that is firmly set, there is no need to isolate demand into separate sets of multi-level jobs in case scheduling or specifications changes are needed. Consequently, interdependent (shared) demand for each item is consolidated into a single job for more efficient scheduling and production.
Job conversion should be a completely automatic process
Job conversion at each level should be a completely automatic process that goes very quickly. Unless a Review Note is specified for special instructions (see next), there is no manual intervention to be applied.
Use a Review Note for special situations
A Review Note should be used for items where the planned job must be modified for special situations. For example, a formula might be required to calculate a specific job quantity. Or perhaps the planned job must be split to accommodate machine size limitations. Assign such items a Review Note in the MRP Settings screen with special instructions included. During MRP generation the job cannot be converted until the Review Note has been read and confirmed as completed.
PO generation and conversion
Jobs are always generated first
Jobs and POs are generated in a single, multi-level process. Jobs are generated and converted for all levels of production. MRP then aligns the purchased materials with the planned start of Jobs ensuring that all demand is properly covered and dates are aligned. The Planned Start date of Jobs provides the demand for subassemblies and purchased components and establishes the target date for job release.
POs are triggered by actual net demand
A PO is generated whenever current net demand (stock on hand + all inbound POs - actual demand within the item’s planning period) falls below the item’s Reorder Point. The PO quantity will be equal to actual net demand or the item’s Min Order quantity, whichever is greater. POs are aligned with the target job release date (planned start date) to ensure material is available for production.
Long-term tentative demand is not included
Any long-term demand outside the item’s planning period action window is not included in the net demand calculation. This is because there is ample time to generate a PO later when the demand becomes current and firmly set. Demand driven planning takes no action against long-term demand because it is often tentative, incomplete, and subject to scheduling and specification changes and order cancellations.
If you prefer a larger action window:
Item planning periods keep inventory lean because they prevent POs from being generated prematurely before they are needed. That being said, if you feel more comfortable with longer planning periods, never pad or inflate Lead Days settings, which has harmful consequences. Instead, go to the MRP - MRP Defaults screen and use the Planning Period - Extra Days for P Items setting to expand all P item planning periods by a set number of days.
Interdependent demand is consolidated into single POs
Because the PO schedule is limited to short-term demand that is firmly set, there is no need to isolate demand into separate POs for each job. Consequently, interdependent (shared) demand for each item is consolidated into a single PO for more efficient scheduling and optimal pricing.
Verify that each PO has a valid Supplier Price
The integrity of the costing system depends on each PO having a realistic DBA Unit Cost, which is derived from the Supp Price. When the PO is received, the DBA Unit Cost updates the item’s unit Inventory Cost, which is the cost that gets applied to job issue transactions. Therefore your most important responsibility with PO conversion is to make sure that each planned PO has a valid Supp Price.
Verify Supplier selection
When generated, each planned PO is assigned to the item’s Default Supplier. You can freely change the Supplier to any of the item’s alternate suppliers and you can also create a new supplier line card record for the item, which includes the supplier part number, unit of measure, conversion multiplier, and supplier price.
Verify Mfgr Part No availability
If a Mfgr Part No is specified against the item, make sure it is available. If not, you can freely change the Mfgr Part No to any of the item’s alternate manufacturer part numbers. You can also create a manufacturer and manufacturer part number record for the item.
Use Review Notes for special situations
Unlike planned job conversion, which is largely a completely automated process, planned POs often require active intervention prior to conversion. For example, some items may require a price quote with each purchase. Other items may require price comparison among multiple suppliers to find the best current price. Other items may require verification of manufacturer part number availability.
A formal means for conveying special purchasing instructions is to document them in a Review Note that is assigned to the item in the MRP Settings screen. During MRP generation the planned PO cannot be converted until the Review Note has been read and confirmed as completed.
POs can be converted by supplier
Planned POs can be converted incrementally by supplier. This enables you to focus on one supplier at a time to verify prices and supplier and manufacturer part numbers. Each set of planned POs for a supplier is converted into a single, multi-line purchase order.
Augment converted POs if needed
Each planned PO is a minimum action profile. After the PO has been converted, the PO can be augmented manually within the Purchase Orders screen to accommodate special situations. For example, to fill a truck or container you may wish to increase the PO quantity or add extra items. Or you may wish to increase the PO quantity to meet a volume level commitment with a supplier.
Review actual POs and send to suppliers
After PO conversion is completed, the final task is to go to the Purchase Orders screen to conduct a final review of each Opened status PO, which is a PO that has not yet been sent to the supplier. After each such PO has been reviewed and finalized, click the Print button to Email or print the PO, which changes the PO status to Printed to indicate that it has been sent to the supplier.
