5.2.1 Inventory Flow Model
pc/MRP's inventory control flow model can be clarified using a company that builds bicycles as an example. Assume the bicycle company has 100 completed bicycles and 600 pedals on hand and has just received an order for 500 bicycles.
Sales would enter a sales order for 500 bicycle assemblies as a sales order entry. Entering the sale as an order entry will cause the bicycle on demand quantity in inventory to be increased by 500. Please note, the quantity on demand did not increase for the individual parts that go into the bicycles (this is handled later by the purchasing consolidation report). Also note, if the sale had been entered as a "cash and carry" or "on account and carry" sale, pc/MRP would have automatically printed out an invoice (not a sales order) and decreased the on hand quantity of the bicycle in inventory by 500 (as the bicycles would have then been carried out of the plant).
Purchasing would run pc/MRP's purchasing consolidation report on a daily basis to find out what parts need to be ordered. It is this program that breaks the open sales order on demand quantities down into parts required to be ordered using the quantity available field in the part master. If there are not enough finished assemblies, sub-assemblies, and parts on order, the consolidation report will request purchasing to order the necessary parts to fill the open sales orders using the quantity available field in inventory to track the quantity available. In this case the pedals quantity on hand field will still show 600 but the quantity avail field will show -200 pedals on hand. The consolidation report listing all part numbers with negative quantity available fields will list 200 pedals required to be ordered.
Purchasing would then enter a purchase order for 200 pedals, which would increment the on order quantity of the pedals.
Receiving would enter a receiver for the 200 pedals when they arrive. This would decrease the on order quantity and increase the on hand quantity of the pedals in inventory by 200 giving a new on hand quantity of 800 pedals. This will be enough to build 400 bicycles in addition to the 100 finished bicycles on hand.
The Stock Room Module is used to convert the parts into assemblies by either issuing parts to manufacturing and then receive assemblies from manufacturing (2 steps) or converting parts to assemblies (1 step).
The first option decrements the on hand quantity and increments the WIP quantity of the parts using a sales or work order number to track the parts issued. When the assemblies are completed
and received from manufacturing this option decrements all parts issued to that work order number from WIP and the on hand quantity of the finished assemblies are incremented.
The second option, "Convert parts to assemblies", does not use WIP or work order numbers. Instead, it uses the BOM to convert parts to assemblies (decrementing the on hand quantity of the parts and incrementing the on hand quantity of the assemblies).
An invoice would be entered when the bicycles are ready to ship, which would decrement the quantity on demand for the bicycle assemblies by 500.
The following flow chart describes each step.