Presented by: Mike Foerster Ellen Grace Amber Jones Jennifer Jones

2. Presented by: Mike Foerster Ellen Grace Amber Jones Jennifer Jones

3. Objectives: • Explain the importance of dependent inventory • Discuss Material Requirements Planning (MRP) • Discuss Master Production Schedule (MPS) • Discuss Lot Sizing • Hands-On Demonstration • Review

4. Dependent Demand: any demand that is caused by an independent demand, or is necessary to the satisfaction of the independent demand.

5. Material Requirements Planning (MRP): a production system that was specifically designed to handle dependent demand inventory items. Begun around 1960 an as computerized approach to purchasing and production scheduling by Joseph Orlicky, Oliver Wight, and others.

6. The major objectives of an MRP system are to simultaneously: • Ensure the availability of materials, components, and products • for planned production and for customer delivery. • Maintain the lowest possible level of inventory. • Plan manufacturing activities, delivery schedules, and purchases • activities.

7. Two basic characteristics of MRP: • 1. MRP derives demand for components, subassemblies, material, • etc., from demand for and production schedules of parent items. • MRP offsets replenishment orders (purchase orders or • production schedules) relative to the date when replenishment is • needed.

8. Information Needed for MRP: • Demand for all products. • Lead times for all finished goods, components, parts and raw materials • Lot sizing policies for all parts • Opening inventory levels • Safety stock requirements

9. Information Obtained from MRP: • Planned orders • Order release notice • Action notices • Action notices • Priority reports • Any orders previously placed but which haven’t arrived yet • Inventory status information • Performance reports such as inactive items, actual lead times, • late orders, etc.

10. MRP Inputs: • Master Production Schedule • Product Structure

11. Inventory Levels Favorable environments for MRP: • batch manufacturing environment • stable demand • limited number of products • large number of bill-of-materials levels • large lot sizes • Some conditions which are less favorable for MRP • Process-focused environments • Just-In-Time environments

12. Master Production Schedule (MPS): A detailed plan that states how many END ITEMS (the final product sold to the customer) will be available for sale or distribution during specific periods Short time frame: 1-3 months

13. Purposes of the Master Production Schedule: - to set due dates for the availability of end items - to provide information regarding resources and material required to support the aggregate plan - as an input to Materials Requirements Planning, which will set specific production schedules for parts and components used in end items

14. What the Master Production Schedule is NOT: a sales forecast (MPS summarizes production to meet sales forecasts) a manufacturing schedule (MPS tells when wend items are available for sale, but not when the end items or their component parts will be manufactured)

15. Inputs to MPS: • Market requirements • Production Plan from Aggregate Planning • Resources available

16. Constraints: - Quantities of individual items must equal aggregate quantities from the Production Plan - Demand which must be met - Capacity available

17. Output: An MPS showing end items available every month (or period) that is feasible with respect to demand and capacity. At this point we know when we need units available so we can plan when to produce or order using MRP.

18. Bill of Materials Records (BOM): contains information on every item or assembly required to produce end items. Information on each item, such as part number, description, quantity per assembly, next higher assembly, lead times, and quantity per end item, must be available. Inventory Status Records: contain the status of all items in inventory, including on hand inventory and scheduled receipts. These records must be kept up to date, with each receipt, disbursement, or withdrawal documented to maintain record integrity.

19. Lot Sizing: Determining the lot size (order quality or production quantity) of an item

20. Static lot sizing rule: A decision rule that orders the same quantity each time an order is placed. Tend to generate higher average on-hand inventory because they create inventory remnants.

21. Static Lot-sizing Rules: • Fixed order quantity (FOQ) • - Order (or produce) a fixed quantity or a multiple of that • fixed quantity. • Economic Order Quantity (EOQ) • - Order (or produce) the economic order quantity, plus any • additional items needed to replenish safety stock it if has • fallen below its desired level. • - Yields minimum total setup/ordering plus holding costs. • - Assumes relatively constant demand

22. Dynamic lot sizing rule: • A decision rule that changes the order quantity with each order, • typically so that each order is just large enough to prevent • shortages over a specified time period. • - Tend to cause instability by tying lot-size to gross requirements. • Lower-level components may not be able to respond sufficiently • fast to changes in requirements.

23. Dynamic Lot-sizing Rules: Lot-for-Lot (L4L) Order (or produce) exactly the quantity required in each period to satisfy gross requirements and to maintain safety stock at its required level. Periodic Order Quantity (POQ): Order/produce a quantity equal to the gross requirements for P periods minus any items in on-hand inventory plus any additional items needed to replenish safety stock if it has fallen below its desired level.

24. DSS-POW Simulation

25. Production Time

26. What is the difference between independent and dependent demand?

27. Independent is concerned with final goods, where as dependent is the inventory of raw materials during production.

28. What does MRP stand for?

29. Material Requirements Planning

30. What is a major objective of MRP?

31. Ensure the availability of materials, components, and • products for planned production and for customer delivery. • 2. Maintain the lowest possible level of inventory. • Plan manufacturing activities, delivery schedules, and • purchases activities.

32. What does MPS stand for?

33. Master Production Schedule

34. What is the Bill of Materials?

35. What is one of the four rules of lot sizing?

36. Fixed order quantity (FOQ) • Economic order quantity (EOQ • Lot-for-Lot (L4L) • Periodic order quantity (POQ)