CORE MRP II

1
CORE MRP II
MANUFACTURING RESOURCE PLANNING
2
INVENTORY MANAGEMENT AND LOT SIZING

• Functions And Costs Of Inventory
• Reactive Versus Proactive Systems
• Reactive Systems
• Economic Order Quantity
• Proactive Systems

3
WHY HAVE INVENTORY?

• Anticipation of demand surge
• Cycle stock to minimize setups/orders
• Buffering against uncertainty
• Pipeline inventory of goods in transit

4
LOT-SIZING

• Cycle stock inventories are determined by two
  interrelated decisions
• When to order/produce
• How much to order/produce
• Lot-sizing models attempt to provide answers
  which minimize the total cost over some period of
  time

5
RELEVANT COSTS

• Objective given demand, determine a schedule
  to minimize total costs over a specified period
  of time
• Cost components
• Cs -- Cost per setup/order (40)
• Ch -- Holding cost per unit per period
  (/unit/week) (0.50)

6
REACTIVE VERSUS PROACTIVE SYSTEMS

• Two basic types of inventory systems 
• Reactive systems
• Require little detailed knowledge of future
  demand
• Never look beyond the next purchase/production
  order
• Proactive systems
• Require detailed knowledge of demand
• Plan purchase/production orders far into the
  future

7
REACTIVE INVENTORY SYSTEMS

• Order Q more units when inventory drops below ROP
  
• Q -- Order quantity (lot size)
• ROP Reorder point
• LT -- Lead time (1 Period)
• T -- Reorder interval

8
REACTIVE INVENTORY SYSTEMS

• How should Q and ROP be determined?
• ROP expected demand during lead time safety
  stock

9
FINDING ROP

• D -- Average demand per period (40)
• If safety stock is zero, then
• ROP (D)(LT) (40)(1) 40

10
FINDING Q

• EOQ -- The best or most "economic" order quantity
  that minimizes the total cost per period
• Need to determine how Q affects holding and setup
  costs per period

11
ECONOMIC ORDER QUANTITY

• The total cost per period function TCQ can be
  written as a function of Q
• TCQ total holding cost total setup cost
•  
• TCQ (avg. inventory)Ch (setups/period)Cs
• TCQ ( ) Ch ( ) Cs

12
ECONOMIC ORDER QUANTITY

• TCQ ( ) Ch ( ) Cs

13
ECONOMIC ORDER QUANTITY
14
ECONOMIC ORDER QUANTITY

• Find EOQ using differential calculus

15
ECONOMIC ORDER QUANTITY

• Solution

16
ECONOMIC ORDER QUANTITY
17
PROACTIVE INVENTORY SYSTEMS

• If we have a detailed forecast for the part or
  product . .
• A lot-sizing decisions can be planned in advance
• A proactive, rather than reactive approach

18
LOT FOR LOT

• Simplest lot-sizing rule
• Make as much as you need each period 
• Maximizes total setup cost
• Minimizes total holding cost
•  

19
LOT FOR LOT

• Simplest lot-sizing rule
• Make as much as you need each period 
• Maximizes total setup cost
• Minimizes total holding cost
•  

20
LOT FOR LOT

• Simplest lot-sizing rule
• Make as much as you need each period 
• Maximizes total setup cost
• Minimizes total holding cost
•  

21
LOT FOR LOT

• Simplest lot-sizing rule
• Make as much as you need each period 
• Maximizes total setup cost
• Minimizes total holding cost
•  

22
LOT FOR LOT

• Simplest lot-sizing rule
• Make as much as you need each period 
• Maximizes total setup cost
• Minimizes total holding cost
•  

23
ECONOMIC ORDER QUANTITY

• EOQ can also be modified for use in a proactive
  system
• Some EOQ assumptions are violated
• Use average demand for EOQ formula

24
ECONOMIC ORDER QUANTITY

• EOQ can also be modified for use in a proactive
  system
• Some EOQ assumptions are violated
• Use average demand for EOQ formula

25
ECONOMIC ORDER QUANTITY

• EOQ can also be modified for use in a proactive
  system
• Some EOQ assumptions are violated
• Use average demand for EOQ formula

26
ECONOMIC ORDER QUANTITY

• EOQ can also be modified for use in a proactive
  system
• Some EOQ assumptions are violated
• Use average demand for EOQ formula

27
ECONOMIC ORDER QUANTITY

• EOQ can also be modified for use in a proactive
  system
• Some EOQ assumptions are violated
• Use average demand for EOQ formula

28
ECONOMIC ORDER QUANTITY

• EOQ can also be modified for use in a proactive
  system
• Some EOQ assumptions are violated
• Use average demand for EOQ formula

29
PERIODIC ORDER QUANTITY

• POQ modifies the EOQ for discrete demand
• Assumes a single best reorder interval (number of
  periods covered by a single lot)

30
PERIODIC ORDER QUANTITY

• POQ modifies the EOQ for discrete demand
• Assumes a single best reorder interval (number of
  periods covered by a single lot)

31
PERIODIC ORDER QUANTITY

• POQ modifies the EOQ for discrete demand
• Assumes a single best reorder interval (number of
  periods covered by a single lot)

32
PERIODIC ORDER QUANTITY

• POQ modifies the EOQ for discrete demand
• Assumes a single best reorder interval (number of
  periods covered by a single lot)

33
PERIODIC ORDER QUANTITY

• POQ modifies the EOQ for discrete demand
• Assumes a single best reorder interval (number of
  periods covered by a single lot)

34
PERIODIC ORDER QUANTITY

• POQ modifies the EOQ for discrete demand
• Assumes a single best reorder interval (number of
  periods covered by a single lot)