CISM Chapter 10
Manufacturing
Manufacturing can be defined as the process of converting raw materials, components, or parts into finished goods that are valued by customers or meet customer expectations or specifications. Manufacturing is undertaken to produce goods that customers will buy. There are numerous types of manufacturing including assembly, discrete, process, and repetitive manufacturing.
Production Process Metrics
Manufacturing cycle time measures the time it takes for a product to make its way through all the production process work centers to become a finished good. Changeover time. Changeover is the process of converting a production line or manufacturing machine from producing one product to another. Throughput measures the average number of units being produced by a work center or manufacturing facility over a specified period of time (e.g., units per hour). Capacity utilization measures how much of the total manufacturing output capacity is utilized at a given point in time. It tracks the degree to which potential output levels are realized. Overall Equipment Effectiveness (OEE) is a globally recognized as a best practice measure and KPI of efficiency and productivity in many industries. OEE assesses quality, speed (performance) and downtime (availability) and is used to measure the overall effectiveness of a production line or piece of production equipment.
summary
Materials requirements planning (MRP) systems were some of the first information systems used to support the production process. These evolved into materials resources planning (MRP II) and subsequently to ERP systems. Warehouse management systems (WMS) support the production process by enabling centralized management of warehouse tasks. Manufacturing/production processes have been automated by robotics and additive manufacturing (AM). Industry 4.0 is described as the next phase of the digitization of manufacturing; it represents the fourth major era of industrial automation and mechanization. Because SAP ERP can support discrete, process, and repetitive production, it is the most widely used ERP system in large corporations. The production process converts raw materials, components, or parts into finished goods that customers will buy. Two major categories of manufacturing can be identified: discrete and process. Repetitive manufacturing is a type of mass production that makes high numbers of identical units in a continuous flow. Make-to-stock (MTS), make-to-order (MTO), assemble-to-order (ATO) and engineer-to-order (ETO) are well-known manufacturing strategies. Manufacturing firms often have measures for production cost, production quality, and inventory management goals; they often have KPIs for throughput, capacity utilization, production yield, overhead costs, machine efficiency, and production plan adherence. Manufacturing facilities typically include two warehouses: raw materials and finished goods. Warehouse and manufacturing personnel are key production process actors. The production area of a manufacturing facility is organized into work centers -- a work center is a location where a specified set of operations needed to produce a product is carried out. When a product is produced, it is routed among work centers until it is completed. Key documents in the document flow include planned orders, production orders, bill of materials (BOM), materials withdrawal (goods issue) slips, and goods receipt documents. Key data in the production process data flow includes finished goods data, data about planned and production orders, and materials and resources used during production. Physical flows include the movement of materials/quantities from storage locations in the raw material warehouse to work centers, product routings, and the movement of finished goods to the finished goods warehouse. Instance-level information answers questions such as "Has production been scheduled?" Process-level information provides insights into opportunities to the production process.
Material Withdrawal Document
Materials/components needed to complete a production order are moved to work centers when the production order is released for production. The release of a production order generates the creation of one or more material withdrawal (aka goods issue) slips that specify the raw materials and/or sub-components in the raw materials warehouse(s) needed to create the quantity of finished goods specified in the production order. These formally commit specific quantities of stored raw materials and/or sub-components to the production order.
Industrial Robots
Millions of industrial robots are used in today's manufacturing facilities and they are reshaping how manufacturing is performed. An industrial robot is a programmable manipulator designed to move materials, parts and tools, and perform a variety of tasks in manufacturing and production settings. They are often used to perform tasks that are dangerous or unsuitable for human workers. Typical applications of robots include welding (see Figure 10-17), painting, assembly, product inspection and testing, packaging and labeling, and palletizing. They can complete their programmed tasks efficiently, rapidly and with precision.
Production Process Document Flow
Planned order production order -bill of materials Material Withdrawal Goods reciept
MRP
A Material Requirements Planning (MRP) system is a computer-based inventory management and production planning system. Historically, MRP systems first appeared the 1960s; in the 1970's they became some of the first business software applications to be widely adopted. MRP is essentially an approach for creating production schedules and material plans that are based on supply chain lead times. Manufacturers were attracted to MRP systems because of their potential to improve efficiency and accuracy in production scheduling and inventory management. MRP systems are designed to help managers address three fundamental production questions: What products should be produced? How many units should be produced? When are the products needed?
WMS & ERP
A WMS system can either be used as a standalone solution or it can be integrated with an ERP system to improve the overall business efficiency. Today's WMS systems are quite complex and data-intensive; they a massive volume of data each day. Most of today's ERP systems include integrated WMS to make the business operations fast, smooth and efficient. However, while WMS can be a part of ERP, there are have distinct differences. ERP modules support the entire business, whereas WMS only deals with warehouse related tasks. Examples of the data/information exchanged between WMS and ERP systems are illustrated in Figure 10-16.
Other Production Process Measures
Additional production process measures include: Scrap rates (percentages) Customer returns (of defective or out-of-spec products) Supplier quality (quality/usability of raw materials used to produce finished goods). Customer fill rates (percentage of orders shipped in full and on time to total orders shipped) Perfect order metric (POM)
Additive Manufacturing
Additive manufacturing (AM) is as the process of joining materials to make objects from 3D model data, usually layer upon layer. This process is also known as 3D printing, it involves the use of a computer and special CAD software communicates with the printer so that it "prints" in the desired shape. 3D printer cartridges loaded with different materials "prints" the object's shape in wafer thin layers. These layers are repeatedly printed on top of each other, and fused together until the shape is complete.
Manufacturing Strategy
An organization's manufacturing strategy consists of the objectives and action plans implemented by its manufacturing function to ensure medium- to long-term sustainable advantage its competitors. Manufacturing strategy is a response to competitive forces in the external environment, especially the operating and industry components of the external environment. The production and fulfillment processes are closely coupled in producer organizations and their strategies share names. Four common production/manufacturing strategies are make-to-stock (MTS), make-to-order (MTO), assemble-to-order (ATO), and engineer-to-order (ETO).
Industry 4.0 Has Many Names
As Figure 10-22 summarizes, Industry 4.0 represents the fourth major era of industrial automation and mechanization. Industry 4.0 would not be possible without the digitization of data, big data analytics, cloud computing, the Internet of things (IoT) and advances in industrial robots, additive manufacturing, and warehouse automation technologies. Other names for Industry 4.0 is include smart manufacturing, smart factory, and intelligent industry. It is closely related to the Industrial Internet of Things (IoT) which is sometimes called the Industrial Internet. The shop floor of the smart factory of the future is envisioned to include automated product routing among fully-automated work centers whose machines communicate and coordinate with one another using machine-to-machine (M2M) communications.
Assembly
Assembling involves putting components together to produce a finished product. Assembly lines have traditionally been common in automobile manufacturing (see Figure 10-1). The components used in assembling are often semi-finished goods produced and supplied by other organizations. A semi-finished good is an input used in the production of another good, including a finished good. Companies that make semi-finished goods may make them and then use them in their production process or they may make them and then sell them to other companies for use in their production processes. Some companies buy (procure) all the semi-finished goods used to produce their finished goods from other companies.
Assembly Robots
Assembly robots can assemble components that are too small for intricate for humans to assemble quickly and accurately. Assembly robots are ideal for: Manufacturing tasks that require both speed and precision, such as applying adhesives and sealants. Applications where cleanliness is essential, such as pharmaceuticals and medical device assembly. Unlike human assembly workers, assembly robots don't get tired, make mistakes, and they aren't prone to repetitive motion injuries, like carpal tunnel syndrome. Robotic assembly typically lowers manufacturing costs and increases efficiency, production capacity, and product quality. Today's industrial robots are mature technologies and represent low-risk, high-return investments.
Production Process Tasks & Activities
Because the production process can be very complex, such as the manufacturing of an automobile or airplane, each of the tasks/activities can be decomposed into sub-tasks/activities, especially the create product task/activity. 1. request production 2. authorize production 3. issue raw materials 4. create product 5. receiv finished goods
WMS
Because the production process includes more materials and goods movement than either the procurement or fulfillment process, standalone and ERP-integrated warehouse management software is widely used to support and automate manufacturing and production. WMS software programs enable centralized management of warehouse tasks such as tracking inventory levels and stock locations. In manufacturing environments, a WMS facilitates the optimization of raw materials, work-in-progress, and finished goods movements. Essentially a WMS is inventory tracking software which monitors the movement of materials stored in a warehouse. The WMS is notified if any new item is added or removed.
MRP II Benefits
Benefits of MRP II systems include: Accurate delivery predictions Accurate costing for every stage of production Improved control of every stage of production Improved manufacturing facility usage Rapid response to changing conditions.
Production Process Data Flow
Data flow in the production process includes data about finished goods, production orders, materials and resources used during production, and storage locations of finished goods that are produced. When production is requested, the needed quantity of the finished good is identified along with when it is needed. The finished good's BOM specifies the quantities of raw materials and components needed to produce the needed quantity of the finished good. When production is authorized, scheduled and released, a commitment is made to produce a specific quantity of finished goods by a certain date. Numerous resources including raw materials/components and work centers are committed to producing the specified quantity of finished goods in the production order. The authorization of production includes the assignment of a production order number and specifies the operations needed to produce the finished good, the work centers that will carry out the operations, and the sequence (product routing) in which the operations will be performed.
Production Process Actors
Depending on its manufacturing/production strategy, a company's production process may include actors from the engineering function, raw materials warehouse, production/manufacturing, and finished goods warehouse. Engineers perform design work in engineer-to-order (ETO) production and may be involved in some make-to-order (MTO) manufacturing processes. For most companies, raw materials warehouse personnel, production/manufacturing personnel, maintenance personnel, and finished goods warehouse personnel have roles in the production process.
Discrete Manufacturing
Discrete manufacturing involves the production of distinct, countable items. Because individual items are produced by discrete manufacturing, a serial number or unique identifier can be assigned or affixed to each item that is produced. Automobiles, televisions, smart phones, appliances, and furniture are examples of items produced by discrete manufacturing.
ERP vs. MRP II
Enterprise resource planning (ERP) systems evolved from MRP II systems. Like MRP II, ERP roots go back to MRP. MRP helped companies plan material purchases, MRPII added detailed scheduling and production controls; ERP extends both MRP and MRP II by integrating the information flow among all departments/functions within an organization including finance, marketing, production, shipping, and human resources. A properly configured ERP system improves communication and monitoring and gives all departments/functions real-time access to status of a customer order. As Figure 10-14 illustrates, MRP, MRPII, and ERP are essentially iterations of the same type of system. These are software programs designed to help businesses better manage their costs, control inventory, meet customer delivery expectations, and track and improve their internal processes.
Finished Goods Warehouse
Finished goods warehouses stores the finished goods produced by the company's manufacturing/production process. Customer orders are filled via the company's fulfillment process from the products stored in its finished goods warehouse(s). It is important for finished goods warehouses to be organized and well-managed to facilitate the fulfillment of customer orders. When a manufacturer sells finished goods stored in its finished goods warehouse(s), it incurs revenue. When products are sold, the manufacturer's accounting system calculates costs of goods sold (COGS) - for each unit of a product, the COGS includes its raw materials/components cost and the labor and resource costs involved with its production.
Manufacturing/Production Automation
Historically, the manufacturing/production process has been supported by materials requirements planning (MRP), materials resources planning (MRP II), and ERP systems. Industry 4.0 provides insights into how manufacturing/production automation is expected to evolve in the years ahead.
Finished Goods Warehouse Personnel
In MTS production, production requests typically originate in the organization's finished goods warehouse. Finished goods warehouse personnel monitor finished goods inventory levels and average daily sales rates relative to sales forecasts and/or historical demand levels. When their monitoring indicates that warehouse inventory levels may fall short of sales forecasts and actual customer demand, they either initiate production requests or communicate with manufacturing/production personnel responsible for creating production requests. Finished goods warehouse personnel are also responsible for receiving and putting away (storing) finished goods produced in the manufacturing/production area and for completing the pick-pack-ship activities in the fulfillment process.
Raw Materials Warehouse
In a manufacturing facility, the raw materials warehouse stores the raw materials and components used in (consumed by) the manufacturing/production process to make the finished goods that are sold to customers. Raw materials and components are acquired from suppliers via the company's procurement process. For accounting purposes, raw materials cost is recognized in inventory at the point of acquisition and is an asset on the company's balance sheet. Because of the costs associated with raw material inventory acquisition and management, it is important for raw materials warehouses to be organized and well-managed.
ATO Production
In assemble-to-order (ATO) production, products are assembled from components when orders are received. Rapid fulfillment (fast delivery of ordered products), customization, and flexibility are competitive priorities for ATO production. In ATO production, production involves the use one or more base (standard) modules onto which options can be added according to specifications in the customer order. High-end personal computers (PCs) are examples of products produced using ATO production.
ETO Production
In engineer-to-order (ETO) production, products are designed from scratch and are subsequently manufactured and delivered to a customer. The receipt of a customer order triggers the design activity. Designing the product may consume many engineering hours and may involve significant collaboration with the customer. This approach is used for very low volume and on-off products, such as a Mars rover.
MTO Production
In the make-to-order (MTO) production strategy, the production process is triggered by the receipt of a customer-order. This strategy is best suited for low volume, high-cost (and high profit margin) situations where products are custom-produced to customer specification. Products are not produced until confirmed orders are received. Flexibility and customization are key competitive priorities for MTO production. Examples of products produced by MTO production include high-end, specialized medical equipment and aircraft.
Industry 4.0
Industry 4.0 is described as the next phase of the digitization of manufacturing. As Figure 10-21 illustrates, several factors are contributing to Industry 4.0 including: Increases in data volumes, and computational power Increasing connectivity including the Internet of things (IOT) Advances in analytics and business-intelligence (BI) capabilities, New forms of human-machine interaction, including touch interfaces and augmented-reality systems, Improvements in transferring digital instructions to the physical world, such as advanced robotics and 3-D printing, and Advances in machine learning, machine-to-machine (M2M) communications, and artificial intelligence.
Instance-Level Information
Instance-level information (information about the status of a production order) of the production process enables the organization to address customer questions such as: Has the production order been approved? Has production been scheduled? When will production take place? Have the ordered products been produced? When will the ordered products be delivered?
MRP II
MRP II is often described as a computer modelling technique for analyzing and controlling complicated manufacturing/production operations. MRP II facilitates the development of a detailed production schedule that considers machine and labor capacity, scheduling the production runs according to the arrival of materials. MRP II outputs include labor and machine schedules. Data about the cost of production, including machine time, labor time and materials used, and number of units produced, is passed from the MRP II system to the organization's accounting and finance systems.
MRP II Calculations
MRP II systems can predict the lead time and cost of every production component for any manufacturing condition. When a new order is received, MRP II can calculate how much production work will be needed, when the needed production can start, and when the ordered products can be delivered. In addition to production, MRP II systems also track customers, suppliers and accounting functions. MRP II systems also enable just-in-time (JIT) manufacturing; raw materials/components purchase orders and component assemblies can be made "Just in Time". The effects of new orders, changes in production or machine capacity, material shortages, changeover delays and other manufacturing disturbances can be easily calculated and tracked by MRP II systems.
MRP vs. MRP II
MRP software is included in MRP II systems; it is also found in today's ERP systems. By the 1980s, manufacturers began seeking production planning and inventory management solutions that could also forecast inventory requirements and integrate with their accounting systems. Manufacturing Resources Planning (MRP II) systems added such functionality to all the capabilities offered by MRP.
Maintenance Personnel
Maintenance personnel are the subset of manufacturing/production personnel who are responsible for changeovers between production runs and the maintenance of manufacturing equipment. Changeovers include production line tear downs and set ups during which the equipment and/or production line configuration needed to produce one product is re-configured to produce the next.
Process Manufacturing
Process manufacturing is the manufacturing/production of finished goods by combining supplies and ingredients according to formulas or recipes. Examples of process manufacturing goods include food, beverages, gasoline, pharmaceuticals, plastics, and chemicals. Breweries, chemical plants, and oil refineries are examples of process manufacturing facilities.
Process-Level Information
Process-level information aggregated from multiple production orders can be used to identify manufacturing/production process patterns as well as opportunities to improve the process. It enables to the organizations to address questions such as: What is the average time needed to produce each finished good? What is the average time needed to complete each operation in the production of a finished good? Which finished goods are produced most frequently? What is the average quantity of a production order for each finished good? What is the first-time pass rate for each product? What is the average re-work percentage? What is the average scrap rate? What percentage of production orders are completed on time? What percentage are delayed? What are the common causes of production delays? What is the average daily capacity utilization?
Manufacturing/Production Personnel
Production authorization is performed by manufacturing/production personnel (aka operations personnel). Manufacturing/production personnel are also responsible for production scheduling. Authorization and scheduling often involve prioritizing production requests and identifying the best sequence in which to produce the requested products. When the manufacturer stores finished goods in multiple warehouses, production requests for the same product from two or more warehouses may be combined into a single production order. When production is authorized, a production order (run) is placed in the queue of scheduled production orders.
Repetitive Manufacturing
Repetitive manufacturing is a type of mass production that makes high numbers of identical units in a continuous flow. This is used to manufacture products that have a continuous and steady demand, such as food products and medical supplies. A company may use repetitive manufacturing to produce its own products or to produce products for other companies. When producers are confident that their products will always be in demand, they can invest in manufacturing equipment that is very fast and highly efficient. Figure 10-4 illustrates repetitive manufacturing in a commercial brewery.
Robotic Assembly
Robots are increasingly being used for product assembly. In automobile manufacturing, robotic assembly of components such as water pumps, gearboxes, and engines has become commonplace. Assembly robots are also used to build computers, household appliances, consumer electronics, and medical devices. Many of these products have been engineered with modular designs that are conducive to robotic assembly. Figure 10-19 illustrates the use of assembly robots to manufacture 3D printers.
Production and SAP ERP
SAP ERP has been adopted by a wide-range of manufacturers who are often recognized as leaders within their industries. SAP ERP supports both discrete and process manufacturing; it can also support repetitive manufacturing. The data/information in a SAP ERP BOM can be quite extensive and detailed. In a SAP ERP BOM, each part/component has a unique identifier (ID) in the ERP database that is associated with a vendor/supplier and general ledger entry so that every part/component used in the production process can be accounted for. In process manufacturing, BOMs are essentially recipes for making a unit of the finished product. In MTS production, planned orders may be automatically generated when the MRP software is executed; the MRP software may also generate purchase requisitions for raw materials/components quantities that are not currently on hand to produce planned orders.
Production Process Metrics
Schedule attainment (or production attainment) measures actual production as a percentage of the scheduled production. Availability is the ratio of operating time to planned production time. Operating time is planned production time minus downtime (any period of production stoppage). First pass yield is percentage of products that are manufactured correctly and to specifications the first time, without scrap, re-run or rework. Overall yield is the percentage of products produced in a given time period that may, or may not, require re-work
Robot Variety
Some robots are programmed to repeatedly carry out specific actions without variation and with high levels of accuracy. Such robots are likely to be found in repetitive manufacturing facilities. The actions that these robots perform are determined by programmed routines that specify the sequence, direction, distance, acceleration, velocity, and deceleration of a series of coordinated motions. Other robots are much more flexible as to the orientation of the object on which they are working. In some instances, the robot must first determine the task that needs to be performed on the object before it begins working on it. Guidance for such flexible robots may be provided by visual sensors and machine vision sub-systems linked to computers or controllers. Artificial intelligence (AI) is increasingly used to support industrial robot flexibility.
ERP System Characteristics
The ability of an ERP system to integrate business functions and operations is illustrated in Figure 10-15. Today, to be considered a full-fledged ERP system, a software vendor's ERP product must be able to support manufacturing, human resources, accounting and finance, sales, purchasing, and inventory management processes. It must also be able to be able to serve as an integration point for an organization's SCM, CRM, and SRM systems. Because it can interface and interact with other enterprise systems, an ERP system is widely viewed as the heart of an organization's suite of enterprise applications.
Bill of Materials (BOM)
The bill of materials (BOM) document identifies the components (raw materials and sub-components) needed to produce a single unit of a finished good. The bill of materials for a finished good is used to identify the quantities of raw materials and sub-components needed to complete a production order. This is a very important input to the production process's issue raw materials task/activity.
Production, Procurement, & Fulfillment
The creation of a delivery document in the fulfillment process results in finished goods inventory reductions equal to the number products included in the customer delivery. These inventory reductions, may, in turn, trigger the creation of production requests (planned orders) to restore finished goods inventory depleted by customer orders. When a planned order is converted to a production order and scheduled for production, the quantities of raw materials/components needed to manufacture the specified product quantities are assigned to the production order. If available raw materials/components are insufficient, the production order will trigger the creation of purchase requisitions to ensure that raw materials/components inventory level will be sufficient to complete production.
MRP Data
The data used by an MRP system includes: A forecast of the products that need to be produced in the next (few) month(s). Existing customer orders Existing purchase orders Existing production orders The bill of materials (BOM) of the materials/components required to produce each product The time required to manufacture products in the existing production schedule Existing raw materials/components inventory Existing finished goods inventory Planning factors such as reorder points and safety stocks
Production Process Goals and Measures
The goals, measures, and KPIs for a company's production process typically align with its production strategy; however, some commonalities exist. In companies that use MTS, MTO, and ATO, improving productivity, asset utilization, and efficiency are typically identified as production process goals. Manufacturing firms often measure the achievement of production execution, production cost, production quality, and inventory management goals. They often have KPIs for capacity utilization, production yield, overhead costs, machine efficiency, and production plan adherence. Production quality measures include scrap percentage, rework percentage, and inspection pass rates. Inventory management measures include inventory turns and inventory on hand.
MTS Production
The make-to-stock (MTS) production strategy is driven by finished goods inventory levels. Finished goods are stored in one or more warehouses until they are needed to fulfill customer orders. MTS is usually a "build-ahead" production approach in which production plans are based on sales forecasts and/or historical demand and production takes place before customer orders are received. In some instances, MTS production may be reactive to customer demand; if warehouse inventories fall below predefined levels, the production process may be triggered to bring inventories back to acceptable levels. Key competitive elements of this strategy are low-cost and consistent quality. Because it is designed to match production and inventory to consumer demand, the success of the MTS strategy is often determined by the accuracy of demand forecasts.
Production Process Documents
The planned order is created by the production process's request production task/activity; it is a formal request for production that specifies what finished goods need to be produced and the quantity (number of units) that is needed. The production order document is created during the authorize production task/activity; it is a formal commitment to produce the specified quantity of finished goods by a specific date and/or time. The production order formally commits numerous resources, including time, raw materials, work centers, and production workers to the production of the finished goods specified in the production order.
Production Process Overview
The production process includes the tasks/activities used by an organization to transform inputs (raw materials and/or components) into outputs (products and services) that are valued by customers. It is more complex than procurement and fulfillment processes and it is integrated with both procurement and fulfillment in well-run businesses. Because the production process creates (produces) goods/services that are valued by customers, it is a core business process. The production process is best understood within the context of operations in Porter's Value Chain model.
Production Process Physical Flow
Typically, there are more physical flows associated with the production process than the procurement or fulfillment processes. The primary physical flows associated with the production process involve: the movement of raw materials/components from raw material storage locations to work centers, the movement (routing) of partially completed finished goods among work centers involved in producing the finished goods, and the movement of finished goods from the production area to storage locations in the finished goods warehouse.
Production and SAP ERP
When a planned order is converted to a production order, a uniquely numbered production order document is saved to the ERP database. The conversion process also results in "issuing/assigning" the raw materials/components needed to produce the specified quantity of finished goods to the production order. When the production order is completed and confirmed, the specified quantity of finished goods is moved from the production area to the finished goods warehouse. This goods movement is verified by the creation and saving of a uniquely numbered Goods Receipt document in the ERP database.
Work Centers & Product Routings
When a production order is released for production, manufacturing/personnel at work stations in the production area monitor and/or perform the production tasks in the sequence needed to produce the product. A work center is a location where work needed to produce a product is carried out. It may be a machine, a group of machines, a production line, an assembly area, or a person or group of people responsible for completing a specified set of operations. As a product is produced, it is routed among work centers until it is completed. Product routings specify the sequence of work centers used to produce a product. In manufacturing facilities that produce multiple products, there can be significant variation among product routes.
Raw Materials Warehouse Personnel
When a production order is released, the raw materials and components needed to produce the specified quantity of products to be released are moved from the raw materials warehouse to work centers in the production area. Raw materials warehouse personnel are responsible for ensuring that these materials movements take place. They are also responsible for monitoring raw material and components inventory levels and initiating purchase requests when raw materials inventory falls below the levels needed to meet sales forecasts, historical demand, and actual volume of customer orders. This often requires coordination with the company's sales function and personnel in the finished goods warehouse.
Goods Receipt Document
When production is completed and confirmed, the finished goods are moved from the production area to the finished goods warehouse. During the receive finished goods task/activity, a goods receipt document is created by finished goods warehouse personnel. This documents that verifies receipt of the goods produced for the production order. The creation of this document triggers the updating of the warehouse's finished goods inventory.
MRP Software Calculations
When the MRP software program is run, its uses data to determine the net requirements for the materials needed to produce each product for each period of the planning horizon (e.g. for the next month or quarter). This includes the calculation of net requirements for raw materials, component parts, and sub-assemblies used to build the product. The MRP software first calculates the gross requirements, then subtracts out existing inventory levels and adds safety stock levels to determine net requirements. The main outputs of MRP processing includes planned orders (to meet demand forecasts for the planning horizon), released orders (to meet current demand), and changes to planned orders made by production managers (cancellations, quantity changes, date changes). An MRP run may also generate purchase requisitions for raw materials/components.