Tuesday, March 1, 2011

Handling standard wastage (Shrinkage rate) in Oracle

Lets say we have a requirement where in every manufacturing job of 100 quantity ends up producing 80 quantity. You can define a shrinkage rate to describe expected scrap or other loss. Using this factor, the planning process creates additional demand for shrinkage requirements for the item to compensate for the loss and maintain supply.

For example, if you have a demand for 100 quantity and a discrete job of 40 quantity, the planning engine would suggest a planned order of 60 quantity. This would happen when there is no value populated in the "Shrinkage rate" field on Item Master (MPS/MRP planning tab)

Now going back to the business requirement mentioned above where every manufacturing job of 100 quantity ends up producing 80 quantity. If a shrinkage rate of 0.2 is entered in Item master, planning engine assumes that you lose 20% of any current discrete jobs and 20% of any suggested planned orders. 

Demand quantity  = 100
a. Discrete Job = 40
    Shrinkage = 20% of 40 = 8 quantity
    Net supply from Discrete Job = 40 minus 8 = 32 quantity

b. Net requirement balance: Demand qty - Net Supply = 100 minus 32 = 68
    Planning engine suggests a planned order = 68 divided by 0.2 = 85
Total Demand = 100 (original demand) + 8 (discrete job shrinkage) + 17 (planned order shrinkage) = 125
Total Supply = 40 (discrete job) + 85 (planned order suggested by planning engine) = 125

Shrinkage is the wastage that happens while manufacturing finished goods.


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