The demands of the large volume of materials used in manufacturing operations arise from the decisions to produce some item which contains it. The components of compact articles, textiles, and ceramics, as well as food ingredients, chemicals, and pharmaceuticals, are not used at constant and uniform rates nor are they needed until the article in which they intervene is produced. This means that these items have a dependent demand, a key aspect of the supply chain.
The dependent demand consists of any requirement for articles determined directly by programs with the aim of producing related goods in a sequential list of materials (or related articles of any kind,) for example, the raw materials or the ingredients needed for a food product. In contrast, independent demand is the one that deals with finished products or components not related to the demand for other items in a company’s inventory.
To this extent, the initial achievement of the dependent demand materials, as well as their continuous replenishment, is handled very well generally by applying a simple analysis. First, define when you want to manufacture the specific product and how many units are required. Secondly, what components are needed for such production? Third, how many of these components are already available in your warehouse. Fourth, how many additional components are needed, and when they will arrive in your warehouse. Fifth, when more components will be needed, and finally, when those additional components are required.
That analysis is really fail-proof. It is equally applicable to products made according to an order and manufactured products according to the buyer’s design. This logic applies to all types of products and processes that require multiple components whatsoever.
Read also: Fundamental supply principles: Let’s get back to the basics, by David Kiger
What is important here is to remember that significant differences are imposed on the ways in which this method is implemented in different processes. The requirements for proper material planning and strict control are the same for everyone, but a few things must be really considered. One is that a valid master plan should be developed to establish what will actually be developed. This plan should include the number of components which are needed and the time they will be required. The other aspect is that it is essential to have accurate information on orders already sent to obtain additional quantities of each item (whether purchased or manufactured,) and, additionally, including the quantity requested and the expiration date of the distributed products.
A planner who determines the requirements for any assembly period should insert the required quantity that is expected from each product. Once the requirements for each component have been calculated, they can be compared to the total quantity of each item available in the inventory.
This simple and manual technique of requirement planning has been used for a long time and remains perfectly useful. Its users consider it superior to a point-of-order system for ordering components, and, even though its use eventually leads to an excess of inventory, it could be avoided when it is substantially refined. The only drawback of this method is that only the total quantity required can be displayed over a period of time and this should be long enough to cover the longest manufacturing or purchase guide time of any component.
Another problem that may arise is that the planning period may be too long. The planning of fixed requirements for a period of more than twelve weeks requires a forecast of anticipated requirements for each final item. The point is that the longer this forecast goes into the future, the less accurate it will be.
The planning of net material requirements in scheduled stages requires very specific data. First, you must include a master program of production in scheduled stages in which each article is described by a sequential list of materials. Second, it is vital to identify each component by a unique number in the sequential list of materials. Third, BOMs must be appropriately structured and strict controls of engineering changes must be made. Additionally, it is key to define accurate quantities and reliable delivery dates on open purchase and manufacturing orders. Finally, guiding times should be reliable in relation to items purchased and manufactured.
When it comes to the implementation of this technique, what should be said is that the software you use to handle large volumes of data should be safe and efficient. This software should be able to produce reports at any time (automated or requested) about the material inputs and outputs, as well as any inventory adjustments, order closures, and shipments.
There is no a unique way to implement this method. Actually, each organization has its own characteristics, and it is important to keep them in mind before thinking of any plan. What is guaranteed is that this method offers a quite adequate systematization to increase the dependent demand, and, therefore, the supply chain will have fewer issues.
I hope this information was helpful for you. See you next time!
* Featured Image courtesy of Jaro at Flickr.com