© 1997 prentice-hall, inc. 10 - 1 principles of operations management inventory for dependent...

© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.

10 - 10 - 11

Principles of Principles of Operations ManagementOperations Management

Principles of Principles of Operations ManagementOperations Management

Inventory for Dependent DemandInventory for Dependent DemandChapter 10Chapter 10


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Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

Distinguish dependent from Distinguish dependent from independent demand inventoryindependent demand inventory

Define material requirements planningDefine material requirements planning State the benefits of MRPState the benefits of MRP Identify the requirements of MRPIdentify the requirements of MRP Explain the inputs & outputs of MRPExplain the inputs & outputs of MRP Compute order releasesCompute order releases


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Inventory

ProcessStage

DemandType

Number& Value

Other

Raw Mat'lWIP

Fin. Goods

IndependentDependent

A ItemsB ItemsC Items

Mainten.Repair

Operating

Inventory

ProcessStage

DemandType

Number& Value

Other

Raw Mat'lWIP

Fin. Goods

IndependentDependent

A ItemsB ItemsC Items

Mainten.Repair

Operating

Inventory ClassificationsInventory ClassificationsInventory ClassificationsInventory Classifications


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Dependent vs. Dependent vs. Independent DemandIndependent Demand

Dependent vs. Dependent vs. Independent DemandIndependent Demand

Item Materials WithIndependent Demand

Materials WithDependent Demand

DemandSource

Company Customers Parent Items

MaterialType

Finished Goods WIP & Raw Materials

Method ofEstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod

EOQ & ROP MRP

Item Materials WithIndependent Demand

Materials WithDependent Demand

DemandSource

Company Customers Parent Items

MaterialType

Finished Goods WIP & Raw Materials

Method ofEstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod

EOQ & ROP MRP


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1 2 3 4 5

Gross Requirements 2 20 25 15

Scheduled Receipts 5 30

Available 25 23 33 33 8

Net Requirements 7

Planned Order Receipts 7

Planned Order Releases 7

Material Requirements Material Requirements Planning (MRP)Planning (MRP)

Material Requirements Material Requirements Planning (MRP)Planning (MRP)

Mfg. computer information system Mfg. computer information system Determines quantity & timing of Determines quantity & timing of

dependent demand itemsdependent demand items

© 1995 Corel Corp.


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MRP RequirementsMRP RequirementsMRP RequirementsMRP Requirements

Computer systemComputer system Mainly discrete productsMainly discrete products Accurate bill-of-materialAccurate bill-of-material Accurate inventory statusAccurate inventory status

99% inventory accuracy99% inventory accuracy

Stable lead timesStable lead times© 1984-1994 T/Maker Co.


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MRP BenefitsMRP BenefitsMRP BenefitsMRP Benefits

Increased customer satisfaction due to Increased customer satisfaction due to meeting delivery schedules meeting delivery schedules

Faster response to market changesFaster response to market changes Improved labor & equipment utilizationImproved labor & equipment utilization Better inventory planning & schedulingBetter inventory planning & scheduling Reduced inventory levels without Reduced inventory levels without

reduced customer servicereduced customer service


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MRP & Production MRP & Production Planning ProcessPlanning ProcessMRP & Production MRP & Production Planning ProcessPlanning Process

Forecast &Firm Orders

MaterialRequirements

Planning

AggregateProductionPlanning

ResourceAvailability

MasterProductionScheduling

ShopFloor

Schedules

CapacityRequirements

PlanningRealistic?

No, modify CRP, MRP, or MPSNo, modify CRP, MRP, or MPS

YesYes


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MRP System MRP System Input & OutputInput & OutputMRP System MRP System

Input & OutputInput & Output

What to make& whenWhat items

make upthe product Material

RequirementsPlanning Sys.

What is instock

What items tomake & when

How long tomake items

What is onorder


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What to make& whenWhat items

make upthe product Material


What is instock

How long tomake items

What is onorderPlanned Order

& OtherReports


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Master Master Production ScheduleProduction Schedule

Master Master Production ScheduleProduction Schedule

Item/Week Oct 3 Oct 10 Oct 17 Oct 24

Drills 300 200 310 300

Saws 300 450 310 330

Item/Week Oct 3 Oct 10 Oct 17 Oct 24

Drills 300 200 310 300

Saws 300 450 310 330

Shows items to be producedShows items to be produced End item, customer order, moduleEnd item, customer order, module

Derived from aggregate planDerived from aggregate plan ExampleExample


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Bill-of-MaterialBill-of-MaterialBill-of-MaterialBill-of-Material

List of components & quantities List of components & quantities needed to make product needed to make product

Provides product structure (tree)Provides product structure (tree) Parents: Items above given levelParents: Items above given level Children: Items below given levelChildren: Items below given level

Shows low-level codingShows low-level coding Lowest level in structure item occursLowest level in structure item occurs Top level is 0; next level is 1 etc.Top level is 0; next level is 1 etc.


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Bill-of-Material Bill-of-Material Product Structure TreeProduct Structure Tree

Bill-of-Material Bill-of-Material Product Structure TreeProduct Structure Tree

Bicycle(1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assy (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004

Bicycle(1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assy (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004


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Bill of MaterialBill of MaterialExampleExample

Bill of MaterialBill of MaterialExampleExample

Bill of Material

P/N: 1000 Name: BicycleP/N Desc Qty Units Level

1001 Handle Bars 1 Each 11002 Frame Assy 1 Each 1 1003 Wheels 2 Each 2 1004 Frame 1 Each 2

© 1995 Corel Corp.


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Product Structure Product Structure Thinking ChallengeThinking ChallengeProduct Structure Product Structure

Thinking ChallengeThinking Challenge

The demand for product A is 50. How many The demand for product A is 50. How many of each component is needed to satisfy of each component is needed to satisfy demand?demand?

A

B(2) C(3)

D(2)

E(1)E(3) F(2)

D(2)G(1)

A

B(2) C(3)

D(2)

E(1)E(3) F(2)

D(2)G(1)

AloneAlone GroupGroup Class Class


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Product Structure Product Structure Solution*Solution*

Product Structure Product Structure Solution*Solution*

A

B(2) C(3)

D(2)

E(1)E(3) F(2)

D(2)G(1)

A

B(2) C(3)

D(2)

E(1)E(3) F(2)

D(2)G(1)

5050


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MasterProductionScheduleBill of

MaterialsMaterial


InventoryStatus

Planned Order& OtherReports

Item MasterPurchasing

Data


MaterialsMaterial


InventoryStatus



Data


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Lead TimeLead TimeLead TimeLead Time

InputInput

MoveMoveTimeTime

QueueQueueTimeTime

SetupSetupTimeTime

RunRunTimeTime

OutputOutput

WaitWaitTimeTime


10 - 10 - 2020

Lead Times & Lead Times & Product StructureProduct Structure

Lead Times & Lead Times & Product StructureProduct Structure

1 2 3 4 5 6 7 81 2 3 4 5 6 7 8

2 wk.2 wk.

2 wk.2 wk.

1 wk.1 wk.

1 wk.1 wk.3 wk.3 wk.

FrameFrame

WheelsWheels

Handle BarsHandle Bars

BicycleBicycle

Frame Frame AssyAssy

Time (weeks)Time (weeks)

Lead timeLead time


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MaterialsMaterial


InventoryStatus



Data


MaterialsMaterial


InventoryStatus



Data


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MRP ReportMRP ReportMRP ReportMRP Report

1 2 3 4 5



Available 25 23 33 33 8

Net Requirements 7



1 2 3 4 5



Available 25 23 33 33 8

Net Requirements 7



Lead time = 3; lot policy = lot-for-lot (LFL); Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.on-hand = 20 units; safety stock = 0 units.

20202020


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MRP FormulasMRP FormulasMRP FormulasMRP Formulas

Available = On-hand - Safety stockAvailable = On-hand - Safety stock - Allocated - Allocated On-hand is inventory On-hand is inventory physicallyphysically present present Allocated is inventory reserved for special Allocated is inventory reserved for special

ordersorders

On-hand = Prior period's on-handOn-hand = Prior period's on-hand + Scheduled receipts + Scheduled receipts

Net requirement = Gross requirementNet requirement = Gross requirement - Available - Available


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MRP Example MRP Example Component BComponent BMRP Example MRP Example Component BComponent B

A master schedule calls for A master schedule calls for starting (planned order starting (planned order release) release) 22 units of product units of product XX in in week 1week 1, , 20 20 in in week 2week 2, & , & 10 10 in in week 4week 4. The planned . The planned order releases for product order releases for product YY are are 15 15 in in week 4week 4,, and and 15 15 in in week 5week 5. Determine the . Determine the gross requirements for gross requirements for componentcomponent BB. .

X

A(1) B(1)

Y

A(1) C(3)


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Component B SolutionComponent B SolutionComponent B SolutionComponent B Solution

X Y

A(1) B(1) A(1) C(3)

WeekQty

12

220

3 4 5 1 2 3 4 5151510

Week 1 2 3 4 5Qty 2 20 10

WeekQty

X Y

A(1) B(1) A(1) C(3)

WeekQty

12

220

3 4 5 1 2 3 4 5151510

Week 1 2 3 4 5Qty 2 20 10

WeekQty

Gross Requirements BGross Requirements B

Planned Order Releases XPlanned Order Releases X Planned Order Releases YPlanned Order Releases Y


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Thinking Challenge Thinking Challenge Component CComponent C

Thinking Challenge Thinking Challenge Component CComponent C

A master schedule calls for A master schedule calls for starting (planned order starting (planned order release) 2 units of product X release) 2 units of product X in week 1, 20 in week 2, & 10 in week 1, 20 in week 2, & 10 in week 4. The planned in week 4. The planned order releases for product Y order releases for product Y are 15 in week 4, and 15 in are 15 in week 4, and 15 in week 5. week 5. Determine the Determine the gross requirements for gross requirements for component Ccomponent C. .

X

A(1) B(1)

Y

A(1) C(3)



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Component C Solution*Component C Solution*Component C Solution*Component C Solution*

X Y

A(1) B(1) A(1) C(3)

WeekQty

12

220

3 4 5 1 2 3 4 5151510

Week 1 2 3 4 5Qty 4545

WeekQty

X Y

A(1) B(1) A(1) C(3)

WeekQty

12

220

3 4 5 1 2 3 4 5151510

Week 1 2 3 4 5Qty 4545

WeekQty

Gross Requirements CGross Requirements C



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Thinking Challenge Thinking Challenge Component AComponent A

Thinking Challenge Thinking Challenge Component AComponent A

A master schedule calls for A master schedule calls for starting (planned order starting (planned order release) 2 units of product X release) 2 units of product X in week 1, 20 in week 2, & 10 in week 1, 20 in week 2, & 10 in week 4. The planned in week 4. The planned order releases for product Y order releases for product Y are 15 in week 4, and 15 in are 15 in week 4, and 15 in week 5. week 5. Determine the Determine the gross requirements for gross requirements for component Acomponent A. .

X

A(1) B(1)

Y

A(1) C(3)



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Component A Solution*Component A Solution*Component A Solution*Component A Solution*

X Y

A(1) B(1) A(1) C(3)

WeekQty

12

220

3 4 5 1 2 3 4 5151510

Week 1 2 3 4 5Qty 2 20 1525

WeekQty

X Y

A(1) B(1) A(1) C(3)

WeekQty

12

220

3 4 5 1 2 3 4 5151510

Week 1 2 3 4 5Qty 2 20 1525

WeekQty

Gross Requirements AGross Requirements A



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MRP SolutionMRP SolutionMRP SolutionMRP Solution

1 2 3 4 5



Available

Net Requirements

Planned Order Receipts

Planned Order Releases

1 2 3 4 5



Available

Net Requirements

Planned Order Receipts

Planned Order Releases

20202020

Lead time = 3; lot policy = lot-for-lot (LFL); Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.on-hand = 20 units; safety stock = 0 units.


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MRP SolutionMRP SolutionMRP SolutionMRP Solution

1 2 3 4 5



Available 25 23 33 33 8

Net Requirements 7



1 2 3 4 5



Available 25 23 33 33 8

Net Requirements 7



Lead time = 3Lead time = 3; lot policy = lot-for-lot (LFL); ; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.on-hand = 20 units; safety stock = 0 units.

20202020

An order of 7 must be started in week 2. Lead time is 3 weeks.

An order of 7 must be started in week 2. Lead time is 3 weeks.


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Safety Safety StockStock

Safety Safety StockStock

1 2 3 4 5



Available 23 21 31 31 6

Net Requirements 9



1 2 3 4 5



Available 23 21 31 31 6

Net Requirements 9



Lead time = 3; lot policy = lot-for-lot (LFL); Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; on-hand = 20 units; safety stock = 2 unitssafety stock = 2 units..

1818181820 - 2 =20 - 2 =20 - 2 =20 - 2 =

Safety stock decreases ‘Available’ inventory. The amount physically on-hand is still the same (20).

Safety stock decreases ‘Available’ inventory. The amount physically on-hand is still the same (20).


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Lot SizeLot SizeLot SizeLot Size

Lot: Batch of material that moves & Lot: Batch of material that moves & gets processed togethergets processed together

Reduces setup & handling time & costReduces setup & handling time & cost TechniquesTechniques

Lot-for-lot (LFL)Lot-for-lot (LFL) Economic order quantity (EOQ)Economic order quantity (EOQ) Part period balancingPart period balancing Wagner-Whitin algorithmWagner-Whitin algorithm


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Lot SizeLot SizeLot SizeLot Size

1 2 3 4 5



Available 25 23 33 33 8

Net Requirements 7Planned Order Receipts 10


Lead Time = 3; Lead Time = 3; Lot Size= 5 units (or Multiples)Lot Size= 5 units (or Multiples); ; On-Hand = 20 Units; Safety Stock = 0 Units.On-Hand = 20 Units; Safety Stock = 0 Units.

20202020

Lot size is 5 or multiples (5, 10, 15 etc.). The quantities started (i.e., released) & completed are increased.

Lot size is 5 or multiples (5, 10, 15 etc.). The quantities started (i.e., released) & completed are increased.


10 - 10 - 3535

MRP MRP Thinking Challenge 1Thinking Challenge 1


A(1)LT = 1

B(2)LT = 2

C(4)LT = 3

A(1)LT = 1

B(2)LT = 2

C(4)LT = 3

A master schedule calls A master schedule calls for for 200200 units of product units of product A A in in period 5period 5. . No stock No stock of any components is of any components is on-hand or on order. All on-hand or on order. All order sizes are order sizes are lot-for-lot-for-lotlot. Determine the . Determine the amount & timing of all amount & timing of all planned order releases.planned order releases.



10 - 10 - 3939



A master schedule calls for A master schedule calls for 50 50 units of units of F F in in week 6week 6, & , & 60 60 in in week 8week 8. On-hand levels . On-hand levels are are F = 0F = 0, , G = 20G = 20, & , & H = 60H = 60. . Another Another 2020 units of units of G G are are scheduled to be received in scheduled to be received in week 4.week 4. Order quantities Order quantities are are lot-for-lot lot-for-lot except for except for H,H, which has a lot size of which has a lot size of 5050 or or multiplesmultiples of 50. of 50.

F(1)LT = 2

G(1)LT = 1

H(1)LT = 2

H(4)LT = 2



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MRP MRP Management IssuesManagement Issues

MRP MRP Management IssuesManagement Issues

System nervousnessSystem nervousness Time fences: Portion of master schedule not Time fences: Portion of master schedule not

scheduledscheduled Pegging: Tracing to parent in BOMPegging: Tracing to parent in BOM

Integration with Just-in-Time (JIT)Integration with Just-in-Time (JIT) Reduce time buckets to daily or hourlyReduce time buckets to daily or hourly Use planned receipts to sequence ordersUse planned receipts to sequence orders Use kanban cards to move materialUse kanban cards to move material Use back flushing to reduce inventory Use back flushing to reduce inventory


10 - 10 - 4444

ConclusionConclusionConclusionConclusion

Distinguished dependent from Distinguished dependent from independent demand inventoryindependent demand inventory

Defined material requirements planningDefined material requirements planning Stated the benefits of MRPStated the benefits of MRP Identified the requirements of MRPIdentified the requirements of MRP Explained the inputs & outputs of MRPExplained the inputs & outputs of MRP Computed order releasesComputed order releases

© 1997 prentice-hall, inc. 10 - 1 principles of operations management inventory for dependent...

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