MIM 558 Comparative Operations Management

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MIM 558Comparative Operations Management

• Dr. Alan Raedels, C.P.M.

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What are the Functions of Inventory?
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What are the Costs of Inventory?
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Dependent Demand Systems

• Objectives of MRP
• To determine what, how much, and when to order
  and when to schedule delivery?
• To keep priorities current for inventory
  planning, capacity requirement planning and shop
  floor control
• Benefits of MRP
• Lower inventories
• Better customer service
• Better scheduling
• Early warning system for delivery
• Long range planning

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Mentor Graphics Example -Implementation Expenses

• Technical Computer 1988 1989
• HP 3000 computer 300,000 30,000
• ASK software 120,000 14,000
• Data Integrity
• Bills of material 30,000 30,000
• Routings work centers 10,000 --
• Inventory records 25,000 10,000
• Master Prod. Schedule 30,000 30,000
• People
• Education training 157,000 25,000
• Professional assistance 15,000 5,000
• MRP II Project Leader 150,000 --
• Total Costs 837,000 144,000

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Mentor Graphics Example -Benefits

• Assumptions 1988 1989
• European sales 50 million 60 million
• COGS 20 million 24 million
• Gross margin 60 60
• Burden rate 20 20
• Total purchases 16.7 million 20 million
• Invntry turns (w/o MRP) 2.5 2.5
• Cost of money 8 8
• Profit margin (before tax) 15 15

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Mentor Graphics Example

• Benefits 1988 1989
• Inventory Reduction 376,000 448,000
• Inventory _at_2.5 turns 8 million 9.6 million
• Inventory _at_ 6.0 turns 3.3 million 4.0 million
• Inventory reduction 4.7 million 5.6 million
• Benefit _at_ 8 return 376,000 448,000
• Freight cost reductions 125,000 150,000
• Telephone cost reductions 40,000 40,000
• Reduce obsolescence 254,000 304,000
• Obsolescence _at_ 4 2.5 turns 320,000 384,000
• Obsolescence _at_ 2 6.0 turns 66,000 80,000
• Reduced obsolescence costs 254,000 304,000
• 1 Purchase price reduction 167,000 200,000
• Customer service benefit 225,000 270,000
• 1 sales increase due to MRP 500,000 600,000
• Gross margin less 15 RD 225,000 270,000
• Total Benefits 1,187,000 1,412,000

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Mentor Graphics Example

• Progress History
• 1984 1987
• Inventory accuracy 25 99
• Bill of material accuracy ? 98
• WIP accuracy ? 100
• Inventory turns 2 7
• Order/delivery accuracy 60 99
• On-time shipments 50 90
• Accounts receivable 80 days 60 days
• Output/work week Doubled

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Six Phases of a Project

• 1. Unbridled enthusiasm
• 2. Disillusionment and disappointment
• 3. Panic
• 4. Search for the guilty
• 5. Punishment of the innocent
• 6. Praise and honor for nonparticipants

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Requirements for MRP

• Feasible master schedule
• Accurate inventory records
• Accurate bills-of-material
• Known lead times
• Unique part numbers

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Classes of MRPClass C MRP
Master Schedule
Inventory
MRP
BOM
Prod. Plan
Purch. Plan
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Classes of MRPClass B MRP
Capacity Requirements Planning
Master Schedule
Inventory
MRP
BOM
Prod. Plan
Purch. Plan
Shop Floor Control
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Classes of MRPClass A MRP
Order Entry
General Ledger
Capacity Requirements Planning
Master Schedule
Accts Rec
Inventory
MRP
BOM
Prod. Plan
Purch. Plan
Shop Floor Control
Accts Pay
Payroll