Category Archives: Inventory Systems for Dependent Demand

Setup or Ordering Costs

Setup or Ordering Costs

These are fixed cost- usually associated with the production of a lot internally or the placing of an order externally with a vendor. In other words. these costs are independent of the number of units that are requested. Setup costs are related to the amount of time needed to adjust the equipment to perform a specific task. This would include the alignment of special tooling such as jigs and fixtures. Order costs pertain to the costs involved in placing an order a vendor. These may include telephone charges, a delivery fee, expediting costs, and the time required to process a purchase order.

Lot Sizing in MRP Systems

Lot Sizing in MRP Systems

The determination of lot sizes in an MRP system is a complicated and difficult problem. Lot sizes are the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule. For parts produced in house. lot sizes are the production quantities or batch sizes. For purchased parts. these are the quantities ordered from the supplier. Lot sizes generally meet part requirements for one or more periods. Most lot-sizing techniques deal with how to balance the setup or order costs and holding costs associated with meeting the net requirements generated by the MRP planning process. Many MRP systems have options for computing lot sizes based on some of the more commonly used techniques. It should be obvious, though. that the use of lot-sizing techniques increases the complexity in generating MRP schedules. When fully exploded, the number of parts scheduled can be enormousThere are four lot-sizing techniques that are commonly used with MRP systems:  (a) lot-for-lot (L4L), (b) economic order quantity (EOQ). (e) least total cost (LTC), and(d) least unit cost (LUC). Lot-for-lot (L4L) is the most common technique; it

• Sets planned orders to exactly match the net requirements.
• Produces exactly what is needed each period with none carried over into future periods. .
• Minimizes carrying cost.
• Does not take into account setup costs or capacity limitations.

MRP in Services

MRP in Services

In general, MRP systems have not made significant inroads in service operations. This is due, in part, to the belief that MRP is strictly a manufacturing tool. However, modified versions of MRP are used in service operations where an actual product is manufactured as part of the service delivery process. Examples of these quasi-manufacturing services. as
stated in an earlier chapter, include restaurants and bakeries where food is prepared on-site. In these types of service operations, the inventory management system usually consists of one or more point-of-sale (POS) terminals (or cash registers) that are connected to a central computer. This computer can be located either on-site at the retail operation or at a  remote regional or headquarters location.The POS terminals are designed for single-item pricing, where the cashier simply pushes a single key on the terminal that represents a specific item on the menu. The computer system then automatically posts the price of that item. At the same time, within the.central computer system, is the bill-of-materials (or recipe) for the item that has just been old. All of the ingredients that go into that item are subtracted out from the inventory records file. The computer inventory files are then compared against the actual physical inventories  on a periodic basis. Typically these systems have reorder points built into them that will automatically signal when a specific item is running low.Some of these service operations also use this modified MRP system to order raw  ingredients to meet future sales, in a manner similar to that of an MRP system in a manufacturing environment. First, a forecast of end items to be sold is generated (for example,  hamburgers). The forecasted demand for these items is then "exploded" against the bills of materials (or recipes) for the end items to determine the gross requirements. Finally these requirements are compared to on-hand inventories to determine the actual amounts of raw. ingredients to be ordered and the delivery dates for when they are needed.

FURNITURE MANUFACTURER USES MRP II TO CUT DELIVERY TIME

FURNITURE MANUFACTURER USES MRP II  O CUT DELIVERY TIME 

In 1988, Harpers, Inc., an office furniture manufacturer  located in Cali1omia, was expenencmq sustained growth in
sales, but profits continued to fall. To reverse the downward  trend in profits, management determined that it would have to reduce manufacturing costs by 15 percent, reduce product delivery y times from six weeks (which was the industry 'standard) to three weeks, and reduce the new product time-to-market from three years to six months. At the same time, Harpers recognized the need to focus its efforts on one segment of the office furnitLjre market, which was "custom furniture solutions. To this, Harper needed a flexible manufacturing system that would allow customers to change the features of any furniture configuration. The heart of its manufacturing system was centered  around an MRP n system that would "integrate our.enqineenng,  and simultaneously engineer and deliver those custom products," said Joe-Wisniewsl< and general manager afHarpers. The system was installed and running by 1990, and by the end of 1991, 20 percent of the company's furniture was shipping within two weeks, with the remaining orders shipping in four weeks.

resources. The S&OP review process is typically performed on a monthly basis, with a  rolling planning horizon of 18 to 24 months. The outputs of the S&OP process include (a) revised sales plan, (b) production plan, (c) inventory levels, and (d) customer lead times or backlogs. A key goal of the S&OP process is to balance the firm's resources with customer demand. which frequently involves the decoupling of demand from supply. As we learned in the chapter on aggregate planning, a firm can manufacture products in different volumes  nd time periods than that requested by the customer in order to maximize the overall efficiency  of the process. Therefore, in decoupling supply from demand, some of the decisions to be made include (a) producing to order or to inventory, (b) adjusting customer lead times or backlogs, and (c) changing capacity. such as working overtime or adding another shift.

Manufacturing Resource Planning (MRP II

Manufacturing Resource Planning (MRP II

Earlier in thi chapter, our discussion of MRP focused only on the materials requirements rhar resulted from an explosion of the master schedule. We did not include the needs of all the other types of resources, such as staffing, facilities. and tools. In addition. while we discussed capacity requirements planning. we did this somewhat externally to the !vIRP system.  In this section we discuss the logic of more advanced versions of MRP that include a wider range of resource and outputs.

MRPII

An expansion of the materials requirements planning program to include other portions of the production system was natural and to be expected. One of the fir t to be included was  the purchasing function. At the same time, there was a more detailed inclusion of the production Stern itself-e-on the shop floor, in dispatching, and in the detailed scheduling control. MRP already had included work center capacity limitations. so it was obvious the name materials requirements planning no longer adequately de cried the expanded system. Someone (probably MRP pioneer Ollie Wight) introduced the name manufacturing re source planning (MRP II) to reflect the idea that more and more of the firm was becoming involved in the program, To quote Wight.

The fundamental manufacturing equation is:
What are we going to make')
What does it take to make it?
What do we have?
What do we have to get?'

The initial intent for MRP II was to plan and monitor all the resources of a manufacturing firm- manufacturing, marketing, finance. and engineering-through a closed-loop system generating financial figures. The second important intent of the MRP II concept wa that it simulate the manufacturing system. It is generally conceived now as being a total. companywide system that allows everyone (buyers. marketing staff. production. accounting)to work with the same game plan and use the same numbers and i capable of simulation to plan and test alternative strategies. (See the OM in Practice on Furniture Manufacturer U es MRP II to Cut Delivery Time.)

Sales and Operations Planning2

Sales and operations planning (S&OP) is an extension of ARP II that goe out ide of the manufacturing function, aligning cut timer demand with both in-how e and supplier.