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Definition
Definition
Raw materials are allocated to manufacture orders at the start of the job. If this setting is unchecked, manufacture orders will be propagated through the bill of material (BOM) explosion.
Use case and explanation
Use case and explanation
When a recommended order quantity (ROQ) is calculated against a finished good (FG) item, a planner can raise a manufacture order/work order (WO) knowing that the raw material (RM) has been planned by the app so that manufacturing can commence immediately.
For this to be possible, the app uses the bill of material (BOM) links and ratio from the FG to each RM directly linked to it, to calculate the BOM forecast against the RMs and then from those items to each RM below that, level by level to the lowest level in the BOM.
NOTE: This calculation applies to each replenishment cycle (RC) over the demand horizon of every stocked FG item. In this manner, RM items with a long lead time can be optimally planned.
This parameter is relevant to the two approaches in which raw materials are managed when a manufacture order is raised.
Manufacturing approach 1 - Raw materials are allocated (consumed) at the start of the job
In the first approach, when a WO is raised against the FG for the quantity to be manufactured, a kit of components is allocated/issued to the manufacture order and the RM stock on hand quantities are reduced at that point.
When the manufacturing process is completed, the WO is closed and the FG item’s stock on hand is increased.
In approach 1, the parameter in question must be enabled.
When enabled, because the components have been consumed, there is no need for the WO quantity to create demand (BOM forecast) against the RM. It is ignored by the bill of materials calculation.
If the WO quantity was less than the ROQ, the shortfall quantity will create a BOM forecast.
For example, suppose the ROQ was for 100 units and the WO is for 70. Assuming nothing else has changed, the ROQ will have dropped to 30. The ROQ of 30 will create demand against the components.
Manufacturing approach 2 - In this approach, the kit is issued to the WO without reducing the RM stock on hand quantities.
When the WO is complete and the actual component consumption can be identified, the quantities consumed are ‘back-flushed’ to reduce the RM stock on hand.
The WO is closed and the FG stock on hand is increased.
In approach 2, this parameter must NOT be enabled.
The FG item’s ROQ is reduced by the WO quantity as described above.
Because the components have NOT been consumed in this approach, the demand for the components must still be recognized.
When this setting is not enabled, the WO quantity is used to create demand (BOM forecast) against the RM in addition to a possible shortfall quantity when the WO quantity is less than the original ROQ.