Advanced Concepts in Material Requirements Planning Chapter 11

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Advanced Concepts in Material Requirements Planning Chapter 11

Advanced Concepts in Material Requirements Planning Chapter 11

Determining Manufacturing Order Quantities—Concepts l Nature of net requirements data • Demand is not

Determining Manufacturing Order Quantities—Concepts l Nature of net requirements data • Demand is not constant, uniform. • Requirements are discrete (in periods). • Requirements are lumpy. l Problems • Inventory cost reductions require complex procedures. • Component lumpiness may increase due to lot-sizing method used with the “parent. ”

Determining Manufacturing Order Quantities—Concepts l Assumptions • Quantities are available at the beginning of

Determining Manufacturing Order Quantities—Concepts l Assumptions • Quantities are available at the beginning of the period. • Future requirements must be met/can’t be backordered. • Ordering decisions occur at regular time intervals (day/week). • Requirements are properly offset for manufacturing lead time. • Component requirements are satisfied at a uniform rate during the period—hence use average inventory level to compute inventory carrying costs.

Determining Manufacturing Order Quantities—Methods l Ordering as required (lot-for-lot) l Economic order quantities (EOQ).

Determining Manufacturing Order Quantities—Methods l Ordering as required (lot-for-lot) l Economic order quantities (EOQ). Periodic order quantities (POQ). Part-period balancing (PPB). Mc. Laren’s order moment (MOM). Wagner-Whitin algorithm. Simulation experiments. l l l

Economic Order Quantities (EOQ) l l See Figure 11. 2, p. 442. (EOQ =

Economic Order Quantities (EOQ) l l See Figure 11. 2, p. 442. (EOQ = 166 units. ) Evaluation: • Fixed EOQ lot sizes don’t match requirements —excess inventory may be carried forward from period to period. • Must increase order size when requirements exceed EOQ. • Using average period requirements to compute EOQ ignores lumpiness in demand.

Periodic Order Quantities (POQ) l l l See Figure 11. 3, p. 443. (POQ

Periodic Order Quantities (POQ) l l l See Figure 11. 3, p. 443. (POQ = 2 weeks) Use EOQ to calculate an economic time between orders—which determines the number of period-requirements to meet. The POQ equals the requirements in that number of periods. Evaluation: • Improves inventory cost (from EOQ). • Ignores lumpiness of demand.

Part-Period Balancing (PPB) • See Figure 11. 4, p. 444. l l Approximately balances

Part-Period Balancing (PPB) • See Figure 11. 4, p. 444. l l Approximately balances ordering costs and inventory carrying costs. A part-period is one unit of inventory carried for one period. • Test ordering alternatives: Period 1 only; Periods 1 and 2; Periods 1, 2, and 3, etc. Evaluation: • Reduces inventory carrying costs (from POQ). • PPB permits both lot size and time between orders to vary.

Purchasing Discount Problem l l Price discounts may be available for ordering large quantities

Purchasing Discount Problem l l Price discounts may be available for ordering large quantities or for transportation savings for shipping fulltruckloads. Issues: • Carrying costs based on period-ending rather than period-average inventory. • Calculations based on “all units” versus “additional units” discounts.

Least Unit Cost (LUC) l Calculate cost/unit (Figure 11. 9, p. 451). • Order

Least Unit Cost (LUC) l Calculate cost/unit (Figure 11. 9, p. 451). • Order the quantity that provides least unit cost. • Aggregate requirements through an integral number of periods until the quantity to be ordered qualifies for the discount. • Determine whether the discount should be accepted based on LUC. • Evaluate ordering a quantity exactly equal to the quantity discount.

Least Period Cost (LPC) l Cost calculation same as LUC (see Figure 11. 10,

Least Period Cost (LPC) l Cost calculation same as LUC (see Figure 11. 10, p. 452). • Except, use the cost/period instead of the cost/unit to choose the order quantity.

Categories of Uncertainty

Categories of Uncertainty

Safety Stock and Safety Lead Time l l Safety stock. (Figure 11. 16, p.

Safety Stock and Safety Lead Time l l Safety stock. (Figure 11. 16, p. 458) • Specify a quantity that will provide a desired level of customer service. • Usually excluded from the initial inventory balance when determining projected available balance. Safety lead time. (Figure 11. 16, p. 458) • Plans order releases earlier than indicated by requirements plan and schedules receipt earlier than required due date.

Other buffering Mechanisms l Reduce uncertainty in the system. • Increase forecast accuracy, improve

Other buffering Mechanisms l Reduce uncertainty in the system. • Increase forecast accuracy, improve MPS planning processes, freeze the MPS for some time periods, develop an effective shop-floor priority system, improve data accuracy, implement JIT. l Provide slack in the production system. • Additional time, labor, machine capacity, etc.

Nervousness l Sources of MRP nervousness. l Reducing MRP system nervousness. • Significant changes

Nervousness l Sources of MRP nervousness. l Reducing MRP system nervousness. • Significant changes in MPS and MRP plans. • Reduce causes of change to MRP plan. • Stabilize the MPS through freezing and time fences. • Selectively use lot-sizing procedures. • Use fixed-order quantity at top level; either fixed • order quantity or lot-for-lot at the intermediate level; POQ at the bottom level. Firm planned orders in MRP (or MPS) records.

Other Advanced MRP Concepts l Timing conventions. l Bucketless systems. l Phantom assemblies. l

Other Advanced MRP Concepts l Timing conventions. l Bucketless systems. l Phantom assemblies. l Scrap allowances. l Automatic updating.

Concluding Principles l MRP enhancements should be done after a basic MRP system is

Concluding Principles l MRP enhancements should be done after a basic MRP system is in place. l Discrete lot-sizing procedures for manufacturing can reduce inventory-associated costs. But the complexity should not outweigh the savings. l Selecting the appropriate lot-sizing procedure for purchasing should consider quantity discounts. l Safety stocks should be used when uncertainty is of the quantity category.

Concluding Principles l Safety lead times should be used when uncertainty is of the

Concluding Principles l Safety lead times should be used when uncertainty is of the timing category. l MRP system nervousness can result from lotsizing rules, parameter changes, and other causes. The MPC professional should take precautions to dampen the amplitude and impact. l MRP system enhancements should follow the development of ever more intelligent users.

Chapter 11 Assignments l Problems 3(a) and 15. l Due Thursday, October 10.

Chapter 11 Assignments l Problems 3(a) and 15. l Due Thursday, October 10.