Order Policy Codes for use in MRP and AVP

Jim SimunekSenior Consultant

CISTECH Inc.www.cistech.net

AGENDA

• Quantity Modifiers– How are they used– What are the results

• Order Policy Codes– How do I best determine which order policy code

to use?

MRP Steps1. Gather all requirements for an item and

sequence requirements by date

2. Net Requirement quantities against available inventory and open orders; recommend expedite/defer where due dates do not match requirement date

3. Plan orders where there is not enough available/on order

4. Calculate start date of planned order

Quantity modifiersQuantity modifiers

Order Policy CodesOrder Policy Codes

Order PointsOrder Points

PlannerPlanner

Order Point, Order Point, Safety Stock & Safety Stock & Fixed Order Qty.Fixed Order Qty.

Order Order Policy Policy CodeCode

Quantity Quantity ModifiersModifiers

Shrinkage %Shrinkage %

Order Quantity ModifiersOrder Quantity Modifiers

• MRP/AVP calculates what Quantity to order by referring to modifiers in the Item Warehouse record. Operates for MO or PO.

• To consider:

– a price break: Minimum – a handling situation: Multiple– a constraint situation: Maximum

Minimum Order QtyMinimum Order Qty

• If less than minimum is needed, planned order adjusted upward to the minimum quantity by MRP/AVP

• Such as:– Vendor specifies qty for price break– Vendor will not produce less than this quantity– Manufacturing carrier quantity or other EOQ– Setup control

Multiples – A dozen eggs!Multiples – A dozen eggs!

• MRP/AVP adjusts the planned order quantity

• Adjustment made after considering the minimum criterion such as:– 12 to a box

– 50 per tub

– 186 per plating carrier

MaximumMaximum

• MRP issues a warning message with the planned order

• AVP breaks the planned order quantity to the Maximum

• Use for:– Maximum per shift

– Truck load quantity

• Can release over the warning

• Use to detect problems

Quantity Modifier Set up

Shrink• If there is an expected loss when the item is

built/purchased, Shrinkage % will increase the planned order quantity

• Shrink does not affect cost or allocated quantities, only MRP planned orders

• Do not use Yield in the routing and shrink or you will double the loss calculations

Questions?

Order Policy Code

Parameters affected:•# of orders placed•inventory carried•resulting cost to carry•shop load

•Most of all: INVENTORY COSTS•Best described using case studies

The key to telling The key to telling MRP/AVP how to plan MRP/AVP how to plan orders and how to keep orders and how to keep inventory levels and costs inventory levels and costs under control!under control!

Order Policy CodesOrder Policy Codes

• CodeCode Used ByUsed By Meaning:Meaning:– A MRP Discrete (Lot for Lot)– B IM Order Point, Order Quantity (EOQ)– C IM Order Point, Order Up To Level– D MRP Fixed Order Quantity– F MRP Part Period Balancing - Standard Costs– G MRP Time Periods of Supply– H MRP Order Discretely Above a Fixed Quantity– I MRP Part Period Balancing - Current

Costs– Z MRP User Defined

MRP will generate planned orders and quantities based upon MRP will generate planned orders and quantities based upon the Order Policy Code for that item!the Order Policy Code for that item!

Order Policy Code B, Order Point with EOQOrder Policy Code B, Order Point with EOQ • Ignored by MRP/AVP, planned with reorder

report/Browser• When item availability goes below the item’s

order point, and order is placed• If Order Point and/or Fixed Order Quantity

fields are zero in the Item Balance record, a suggested order point is calculated

• Suggested order quantities are printed on the Inventory Reorder Report/or Browser

Order Policy C-Order Point, Order Up to LevelOrder Policy C-Order Point, Order Up to Level

• Ignored by MRP/AVP, planned with reorder report/Browser

• Similar to Code B but order is placed for difference between availability and the amount of inventory to be maintained.

• The amount of inventory to be maintained is placed in the Fixed Order Quantity field.

• If Fixed Order Quantity is Zero, an EOQ is calculated.

Order Policy Code “A”- Discrete-Lot for LotOrder Policy Code “A”- Discrete-Lot for Lot

• Creates planned orders equal to the daily net requirement

• Use this Order Policy Code where:

– Setup, handling, order costs are insignificant-More Orders.

– Item has high cost or spoilage – Demand/Order are 1 to 1.

– Specialty items in a job shop.

– End-items produced at fairly constant rate with no changes.

– Require minimum projected Inventory Balance with no need for service parts. Minimal Service Level to customers.

Order Policy Code A – Lot-for-Lot - “If you need 10 today Order Policy Code A – Lot-for-Lot - “If you need 10 today and 20 tomorrow, and none are available you will get planned and 20 tomorrow, and none are available you will get planned orders for 10 today and 20 tomorrow!!”. orders for 10 today and 20 tomorrow!!”.

Order Policy A – Lot for Lot – No Order ModifiersOrder Policy A – Lot for Lot – No Order Modifiers

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 90 M-PLAN 03 100 100 M-PLAN 04 60 60 M-PLAN 05 20 20 M-PLAN 06 90 90 M-PLAN 07 0 08 40 40 M-PLAN 09 450 450 M-PLAN 0

10 80 80 M-PLAN 011 0 012 90 90 M-PLAN 013 100 100 M-PLAN 014 60 60 M-PLAN 015 20 20 M-PLAN 016 90 90 M-PLAN 017 0 018 40 40 M-PLAN 019 450 450 M-PLAN 020 80 80 M-PLAN 021 0 022 90 90 M-PLAN 0

Order Policy A - 10% Shrinkage - No modifiersOrder Policy A - 10% Shrinkage - No modifiers

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 100 M-PLAN 03 100 112 M-PLAN 04 60 67 M-PLAN 05 20 23 M-PLAN 06 90 100 M-PLAN 07 0 08 40 45 M-PLAN 09 450 500 M-PLAN 0

10 80 89 M-PLAN 011 0 012 90 100 M-PLAN 013 100 112 M-PLAN 014 60 67 M-PLAN 015 20 23 M-PLAN 016 90 100 M-PLAN 017 0 018 40 45 M-PLAN 019 450 500 M-PLAN 020 80 89 M-PLAN 021 0 022 90 100 M-PLAN 0

Order Policy A – Modifier - Minimum 400Order Policy A – Modifier - Minimum 400

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 400 M-PLAN 3103 100 2104 60 1505 20 1306 90 407 0 408 40 09 450 450 M-PLAN 0

10 80 400 M-PLAN 32011 0 32012 90 23013 100 13014 60 7015 20 5016 90 400 M-PLAN 36017 0 36018 40 32019 450 400 M-PLAN 27020 80 19021 0 19022 90 100

Minimum Planned to Minimum Planned to satisfy Lot-for-Lot satisfy Lot-for-Lot demand….Not planned demand….Not planned again until required.again until required.

Sufficient inventory still Sufficient inventory still availableavailable

Always Orders MinimumAlways Orders Minimum

Minimum Planned to Minimum Planned to meet demand!meet demand!

Order Policy A - Multiple 12 - Minimum 400Order Policy A - Multiple 12 - Minimum 400

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 408 M-PLAN 3183 100 2184 60 1585 20 1386 90 487 0 488 40 89 450 444 M-PLAN 2

10 80 408 M-PLAN 33011 0 33012 90 24013 100 14014 60 8015 20 6016 90 408 M-PLAN 37817 0 37818 40 33819 450 408 M-PLAN 29620 80 21621 0 21622 90 126

Still Lot-for-Lot, with a Still Lot-for-Lot, with a Minimum Order Quantity of 400, Minimum Order Quantity of 400, but must make or buy in but must make or buy in multiples of 12. multiples of 12.

Policy Code D-Fixed Order QuantityPolicy Code D-Fixed Order Quantity

• Based on EOQ (Economic order quantity) calculation. Maintained in Fixed Order Quantity Field

• Similar to Minimum Order Quantity

• Use when:– Demand is fairly steady– Cost is insignificant– Packaging or handling constraints might

determine order size– An EOQ type of order quantity is required

Order Policy D - FOQ 400Order Policy D - FOQ 400

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 400 M-PLAN 3103 100 2104 60 1505 20 1306 90 407 0 408 40 09 450 450 M-PLAN 0

10 80 400 M-PLAN 32011 0 32012 90 23013 100 13014 60 7015 20 5016 90 400 M-PLAN 36017 0 36018 40 32019 450 400 M-PLAN 27020 80 19021 0 19022 90 100

Order Policy D Fixed Order Quantity - Multiple 12 - FOQ 400Order Policy D Fixed Order Quantity - Multiple 12 - FOQ 400

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 408 M-PLAN 3183 100 2184 60 1585 20 1386 90 487 0 488 40 89 450 444 M-PLAN 2

10 80 408 M-PLAN 33011 0 33012 90 24013 100 14014 60 8015 20 6016 90 408 M-PLAN 37817 0 37818 40 33819 450 408 M-PLAN 29620 80 21621 0 21622 90 126

Order Policy Code F-Part Period Balancing Std. CostOrder Policy Code F-Part Period Balancing Std. Cost

• MRP dynamically determines variable EOQs through time, using 2 step approach:– Uses set-up cost, order cost, carrying cost to develop

order quantity (EOQ from 1960’s)

• Not the JIT/lean approach • Attempts to avoid placing next order in a period of

low demand• Use when demand is erratic, order/setup costs are

high• Policy F is sensitive to minor schedule changes

Order Policy F - Order Cost $60 - Item Cost $70 - Order Policy F - Order Cost $60 - Item Cost $70 - Carrying Rate 25%/yrCarrying Rate 25%/yr

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 400 M-PLAN 3103 100 2104 60 1505 20 1306 90 407 0 408 40 09 450 720 M-PLAN 270

10 80 19011 0 19012 90 10013 100 014 60 210 M-PLAN 15015 20 13016 90 4017 0 4018 40 019 450 720 M-PLAN 27020 80 19021 0 19022 90 100

Policy Code IPart Period Balancing Current Costs

• Calculates same as Policy F except that current costs are used

• Search order:– Current unit cost– Last cost– Unit cost default

Policy Code G-Time Period of SupplyPolicy Code G-Time Period of Supply

• Totals all Requirements within the Days Supply• XA default Order Policy Code when adding an Item

Balance/Warehouse record• Starts count of days with 1st net Requirement found• A time period = 0 or 1 equates to Policy A• Use when

– Unit and carrying costs are low– Desire to set up blanket order releases– Setup and purchase costs are insignificant– Demand is erratic

Order Policy G – with 5 days of supplyOrder Policy G – with 5 days of supply

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 360 M-PLAN 2703 100 1704 60 1105 20 906 90 07 0 08 40 660 M-PLAN 6209 450 170

10 80 9011 0 9012 90 013 100 270 M-PLAN 17014 60 11015 20 9016 90 017 0 018 40 660 M-PLAN 62019 450 17020 80 9021 0 9022 90 0

Order Policy G - 5 days of supply - Multiple 12Order Policy G - 5 days of supply - Multiple 12

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 360 M-PLAN 2703 100 1704 60 1105 20 906 90 07 0 08 40 660 M-PLAN 6209 450 170

10 80 9011 0 9012 90 013 100 276 M-PLAN 17614 60 11615 20 9616 90 617 0 618 40 660 M-PLAN 62619 450 17620 80 9621 0 9622 90 6

Order Policy G - 10 days of supplyOrder Policy G - 10 days of supply

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 930 M-PLAN 8403 100 7404 60 6805 20 6606 90 5707 0 5708 40 5309 450 80

10 80 011 0 012 90 930 M-PLAN 84013 100 74014 60 68015 20 66016 90 57017 0 57018 40 53019 450 8020 80 021 0 022 90 90 M-PLAN 0

Policy Code HPolicy Code HOrder discretely above Fixed QtyOrder discretely above Fixed Qty

– Summarizes Requirements until fixed qty is exceeded.• Placed as order on 1st day that has

net requirements.• Fixed Order quantity specifies fixed

qty– The planned order qty must equal or

exceed the FOQ (fixed order quantity) before the order is planned

– Use when vendor/mfg specifies min order qty

Policy Code H - KanbanPolicy Code H - Kanban

– Kanban…Fixed Order Quantity and Maximum Quantity set to same number

– Planned Order quantity will always be for the same quantity (i.e. quantity matches the Kanban card)

– Multiple orders can be placed on the same date, if the total requirement quantity exceeds the Kanban quantity (example: one order per truck load).

Order Policy H – Order Above Fixed order Qty 400Order Policy H – Order Above Fixed order Qty 400

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 400 P-PLAN 3103 100 2104 60 1505 20 1306 90 407 0 408 40 09 450 450 P-PLAN 0

10 80 440 P-PLAN 36011 0 36012 90 27013 100 17014 60 11015 20 9016 90 017 0 018 40 490 P-PLAN 45019 450 420 P-PLAN 42020 80 34021 0 34022 90 250

Requirements of 440 over 400 at Requirements of 440 over 400 at this point!this point!

Order Policy H - Fixed order Qty 400 – Multiple 12Order Policy H - Fixed order Qty 400 – Multiple 12

Due DateReqmt Quantity

Order Quantity REFER

Projected Balance

1 0 02 90 408 P-PLAN 3183 100 2184 60 1585 20 1386 90 487 0 488 40 89 450 444 P-PLAN 2

10 80 444 P-PLAN 36611 0 36612 90 27613 100 17614 60 11615 20 9616 90 617 0 618 40 492 P-PLAN 45819 450 420 P-PLAN 42820 80 34821 0 34822 90 258

Code ZCode Z – Can use your own ordering routine in program AMM34 or code Z defaults to order policy A (discrete)

If none of the other order policy codes work for your organization you can customize your own ordering policy

MRP programs must be modified to call your program to calculate order quantity

Order Policy Code Z

Summary• There is no ‘wrong’ order policy code, each

one will plan orders to cover the requirements

• By using the Order Policy Codes in conjunction with Minimum, Multiple and Maximum quantity modifiers you can have MRP/AVP plan for the correct order quantity

• Once Order Quantities and start/due dates are correct, begin using ‘Auto Release’ of MO’s & PO’s to maximize planner efficiency

Questions?

Thank you for attending!

Need Help Fine Tuning Your MRP?

Give us a call!

• Review your current MRP planning process• Education Review of MRP terms and set up• Implement improvements to streamline MRP

use and achieve optimal results• Review results and refine improvements

Typically 3 Days of Services