Shrinkage Rate

For a particular inventory item, 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 of 100 and a discrete job for 60, the planning process would suggest a planned order for 40 to meet the net requirements, assuming no shrinkage rate exists.
With a shrinkage rate of .2 (20%), Oracle Master Scheduling/MRP and Supply Chain Planning assumes you lose 20% of any current discrete jobs and 20% of any suggested planned orders. In this example, since you have a discrete job for 60, assume you lose 20% of that discrete job, or 60 times 20%, or 12 units. The net supply from the discrete job is 48. Since you have a total demand of 100 and supply of 48, you have a net requirement of 52 units. Instead of suggesting a planned order for 52, the planning process has to consider that 20% of that planned order is also lost to shrinkage.

The planning process creates additional demand called shrinkage demand to create an increased suggested planned order to provide for the lost supply. The planning process inflates the planned order of 52 by dividing 52 by (1 - .2) = 65.
inflated planner order = demand / (1 - shrinkage rate)
shrinkage demand = [demand / (1 - shrinkage rate)] x shrinkage rate
With the a shrinkage rate of .2, the planning process would result in:
total demand = original demand + discrete job shrinkage + planned order shrinkage
125 = 100 + 12 + 13
total supply = discrete job + planned order
125 = 60 + 65

Component Yield

Component yield is the percentage of a component on a bill of material that survives the manufacturing process. A yield factor of 0.90 indicates that only 90% of the usage quantity of the component on the bill actually survives to be incorporated into the finished assembly. To account for the loss, the planning process inflates the demand quantities for the component (similar in concept to shrink factor). To increase demand, the usage quantity is divided by the yield factor.

For example, when you define the component usage quantity as 2 and the component yield as 0.90, the usage is recalculated as 2 divided by 0.90, or 2.22.
new component usage = usage / yield factor

The difference between a shrink rate and component yield is that Oracle Master Scheduling/MRP and Supply Chain Planning applies the same shrink rate to every use of an item on a bill, whereas you can vary the component yield factor you assign to each occurrence of an item on a bill. Another difference is that shrinkage demand is calculated at the parent assembly level and passed down to components. Component yield is calculated at the component level.

Notes:
Shrinkage is the wastage happens while makeing a finished good. Example when you make paper of 10Kg, 1kg paper goes as waste.
Shrinkage rate S (between 0 to 1) is given to a finished good or subassembly so that to satisfy a demand of quantity X the system would suggest (MPS) a supply of X/(1-S) and that increment in percentage goes down to all the child items and each components in the bill of the Finished Good/Sub Assembly demand increases correspondingly by explosion.

Component yield is the percentage of a component on a bill of material that survives the manufacturing process. Example for making 1kg of paper we need 100 bamboos but when we use 100 bamboos in making the paper during the process we loose 10 bamboo, so the component yield of babmoo = 90/100 = 0.9

Safety Stock

Safety stock is a quantity of stock you plan to remain in inventory to protect against fluctuations in demand or supply. Safety stock is sometimes referred to as  over planning, forecast, or a market hedge. In the context of master scheduling, safety stock refers to additional inventory planned as protection against forecast errors or short term changes in the backlog. You can specify safety stock days together with safety stock percent as item attributes in Oracle Inventory. You establish the default use of safety stock calculation when you define your planning parameters. You can override this option for individual material plans when you generate an MRP or MPS using the Launch window.

When launching the planning process, you can choose whether to calculate safety stock when generating suggested planned orders and repetitive schedules in the Plan Options window. If you choose to run the planning process with the safety stock option, Oracle Master Scheduling/MRP looks at each item to determine the method of safety stock calculation. You can define safety stock methods for each item using in Oracle Inventory.

MRP Planned Percent
If you choose a safety stock method of MRP planned percent for an item, safety stock is dynamically calculated during the planning process.
For discretely manufactured items, the safety stock quantity is dynamically calculated by multiplying the safety stock percentage you define by the average of gross requirements for a period of time defined by the safety stock days.
For repetitively manufactured items, the planning process multiplies the percentage you define by the average daily demand for a given repetitive planning period. The planning process recalculates the safety stock quantity for each repetitive period in the planning horizon.

Inventory Methods
Oracle Inventory provides several different methods for calculating safety stock.
The following methods are available within Oracle Inventory for calculating safety stock and are used during the planning process if your safety stock method is Non-MRP planned:
Mean absolute Calculate safety stock as the mean absolute deviation (MAD) deviation (MAD).
User-defined Calculate safety stock using the percentage you percentage define times the average monthly demand.
User-defined Use a fixed safety stock quantity you define. quantity Safety stock quantities generated in Oracle Inventory according to effectivity dates are included in planning. Instead of manually changing the user-defined safety stock quantity each time a change is needed, the user can now set effectivity dates for when a change in quantity takes place.