Planned Order – definition with example

This article discusses planned order and the terms related to it. It also includes details on the role of planned order in MRP, examples, and how it is different from a purchase requisition.

In materials requirements planning (MRP), Planned Order is a process that determines the number of items that need to be ordered to meet the future demand for those items. The Planned Order quantity is then used to create purchase or manufacturing orders. This way helps ensure that the correct quantity and variety of items are always available when needed.

Introduction

Planned Order

Planned order is a suggested production, purchase, or replenishment order generated by MRP or other planning systems to meet a projected shortage against desired safety stock levels.

The shortage date becomes the due date, the release date is backward scheduled based on the lead time, and the quantity is based on the specified lot size.

Planned orders for upper-level items create requirements for lower-level components, and MRP generations delete existing planned orders and regenerate new ones based on changes in requirements.

Planned orders must be firmed or accepted before releasing to production or a vendor.

Planned order

What is it in details?

It is a term used in the MRP glossary, reflecting the projected shortage of materials, assemblies, or subassemblies against a safety stock value.

A planned order is an MRP generated for procuring required materials to replenish inventories.

The number of units ordered firmly, at the beginning of a productive time fence, is known to make up for spent inventories.

It is always well calculated and ordered in specific quantities or lot sizes. When the projected available balance from the previous time fence is zero, after netting the scheduled receipts and inventory from the gross requirement, an MRP is generated for a planned order.

This order is firmed and does not get canceled due to minor changes in the system.    

What is the role of a planned order in MRP?

MRP is a computer-based inventory management system developed by a computer engineer to achieve the computerized moderation of the inventory and automation of the manufacturing process.

It makes the manufacturing process more accessible and has assisted production managers in scheduling purchases, keeping a tab on the materials required that are already present in the on-hand inventory, and setting up due dates for that.

Materials requirement planning is an ingenious method to automate the complicated inventory management system and simplifies a detailed procedure of material inflow, maintenance, production purchases, scheduled stocking of the inventory, demands, and products delivered accordingly.

Planned order in SAP is a component of MRP used when the inventory on-hand and scheduled receipts together generate a negative balance after netting from the gross requirement amount.

SAP is an automatic scheduled order for materials that have been put in at the beginning of every productive time fence, only if the system qualifies for it.

MRP is of two types,

  1. Based on the expenditure within a specific time fence.
  2. Based on the consumption rate of the past periods.

No other requirement than a specific range of projected available balance can trigger an automated planned order.

In the case of a specific time fence, the available stock or on-hand inventory, along with the scheduled receipts, are considered for calculating whether a planner order release is required or not.

In the case of consumption-based requirement planning, the past expenditure of materials, production costs, on-time deliveries, and customer service level are considered for generating a planned order within a particular time fence.

Let us consider an example,

 Suppose an on-hand inventory present at a given moment is 40, and a demand for the first week is 50.

Now, as the demand is more than the projected balance, the entire balance is used up with ten more units.

That makes the projected available balance for the next week negative (-10). So now, as the projected balance is negative, an MPS is released of 60 units which makes the balance 50. This MPS release is known as a planned order release.

Now, this week, there is a demand for 40units. That makes the projected available as 15. As the projected availability is now positive, it does not require any MPS to be released.

Hence, MPS is 0. With a zero MPS, the MRP does not release order and moves into the next time fence.

How are purchase requisitions different from planned orders?

Planned order

There is no difference between the planned order and purchase requisition. A planned order or production order is the predecessor to a purchase requisition.

An adequately investigated and rightly generated planned order later becomes a purchase requisition. This order gives the appropriate controls to a business to make purchases on the ground of business requirements.

Hence a planned order is never arbitrarily generated based on assumptions; it must be handled carefully.

Conclusion

Planned order is a part of MRP. It is used to set up the production plan for raw materials and work-in-process inventory in an assembly line process. It identifies how many units will be needed at each stage of operation of the manufacturing process and when these items need to be produced.

In other words, it’s a schedule of what needs to happen on which day, given certain input factors such as demand forecasts or availability from suppliers.

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