Advanced Concepts in Material Requirements Planning

1. Advanced Concepts inMaterial Requirements Planning Chapter 11

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

3. Determining Manufacturing Order Quantities—Concepts • 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.

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

5. Economic Order Quantities (EOQ) • 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.

6. Periodic Order Quantities (POQ) • 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.

7. Part-Period Balancing (PPB) • See Figure 11.4, p. 444. • 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.

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

9. Least Unit Cost (LUC) • 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.

10. Least Period Cost (LPC) • 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.

11. Categories of Uncertainty

12. Safety Stock and Safety Lead Time • 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.

13. Other buffering Mechanisms • 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. • Provide slack in the production system. • Additional time, labor, machine capacity, etc.

14. Nervousness • Sources of MRP nervousness. • Significant changes in MPS and MRP plans. • Reducing MRP system nervousness. • 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.

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

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

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

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