MRP Systems. Thus far, planned order releases were based solely on the net requirements, and offset by the lead time. What if setup costs are significantly greater than carrying inventory? Or, what about leveling production?. MRP Systems. EOQ strategy – Ex. 8.5 Setup cost (A) = $100
Thus far, planned order releases were based solely on the net requirements, and offset by the lead time.
What if setup costs are significantly greater than carrying inventory? Or, what about leveling production?
EOQ strategy – Ex. 8.5
Setup cost (A) = $100
Holding cost (h) = $.10/unit/week
The following MPS:
Demand = 117 + 145 + 175 + 128 + 211 + 74 + 242
= 1092 units / 10 weeks
Recalling the Economic Order Quantity Equation (EOQ):
Using the EOQ results in the following planned order release.
Another common strategy is to produced at periodic intervals. This strategy uses a periodic order quantity (POQ).
In the previous example, using the EOQ, an order was placed about every 4 weeks. Therefore using a 4 week POQ, orders will be placed in week 1, 5, and 9 as follows:
Week 1 = 145 + 175 + 128 – 111 = 337
Week 5 = 211 + 74 = 285
Structural Limitations of MRP:
Discrete time buckets - MRP assumes all parts that will be used in a time period must be available at the start of the time period. In reality, parts will be consumed throughout the time period. Therefore if time buckets are large then WIP is increased. If time buckets are small, lead time variability may hamper the ability to complete orders in time.
Structural Limitations of MRP – cont.:
Lead time variability – lead time in practice are variable. To account for this variation, order sizes are increased as a safety factor, thus leading to increased WIP.
Accurate data – MRP systems require accurate inventory levels. Because counts are difficult to maintain, cycle counters are required to periodically count inventory and adjust the MRP system accordingly. This adds labor cost.