This article discusses planned order and the terms related to it. Like, the role of planned order in MRP, for example, and how it is different from a purchase requisition.
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.
What is it in details
It is a term used in the MRP glossary, which reflects the projected shortage of materials, assemblies, or subassemblies against a safety stock value.
An MRP generated for procuring required materials to replenish inventories is termed as a planned order.
It is known the number of units ordered firmly, at the beginning of a productive time fence, 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 easier and has assisted production managers in scheduling purchases, keeping a tab on the materials required and that 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 system of inventory management 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 that is put to use 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,
- Based on the expenditure within a specific time fence.
- Based on the consumption rate of the past periods.
No other requirement than a certain range of projected available balance can trigger an automated planned order.
In 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 along with 10 more units.
This makes the projected available balance for the next week in the negative (-10). Now, as the projected balance is negative, an MPS is released, of 60 units which makes the balance 50. This MPS released is known as a planned order release.
Now this week, there is a demand for 40units. This 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?
As such, there is no difference between the planned order and purchase requisition. A planned order or production order is the predecessor to a purchase requisition.
A properly investigated and rightly generated planned order later matures into 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 has to be dealt with carefully.