Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Manufacturing Planning and Control

MPC 6th Edition

Chapter 6a

6a-2

Advanced Material Requirements Planning

After the initial phase of Material Requirements Planning (MRP) is complete, advanced issues become the new focus of the firm.

6a-3

Agenda

6a-4

Determining Manufacturing Order Quantities

A number of quantity-determination (lot-sizing) procedures have been developed

The primary consideration in MRP lot-sizing procedures is the nature of the net requirements dataRequirements don’t reflect the independent

demand assumption of constant uniform demandRequirements are discreteRequirements can be lumpy

6a-5

MRP Lot-Sizing Assumptions

All requirements occur at the beginning of the period

All future requirements must be met (no backorders)

Ordering decisions occur at regular intervals Requirements are appropriately offset for

manufacturing lead times Component requirements are satisfied at a

uniform rate during each period

6a-6

Determining Order Quantities

6a-7

Economic Order Quantity (EOQ)

Simple, widely used technique Assumes constant, uniform demand

May require adjustment when demand is lumpy

CostHoldingC

PeriodperDemandAverageD

CostOrderingC

C

DCEOQ

H

p

H

p

2

6a-8

Periodic Order Quantity (POQ)

Uses EOQ formula to compute time between orders (TBO)

Lot-size varies based upon the forecast requirements for the coverage period

Doesn’t allow for combining orders during periods of light demand

6a-9

Part Period Balancing (PPB)

Attempts to equalize the costs of ordering and holding inventory

Considers alternate coverage periods and the scenario where ordering and inventory costs are most nearly equal

Won’t always identify the cost-minimizing plan

6a-10

Wagner-Whitin Algorithm

Optimizing procedure to identify the cost-minimizing plan for a time-phased schedule

Requires much more computational effort May not identify optimal plan under all

conditions

6a-11

Buffering against Uncertainty

Buffering can be effective when uncertainty is unavoidableBuffering should not be used to

accommodate a poorly performing MRP system

Uncertainty has two main sourcesDemand–timing and quantitySupply–timing and quantity

6a-12

Safety Stock and Safety Lead Time

There are two basic ways to buffer uncertaintySafety stock–additional stock intended to

cover unanticipated requirementsSafety lead time–releasing orders earlier than

necessary to ensure receipt before the required due date

6a-13

Performance of Safety Stock vs. Safety Lead Time

Timing Uncertainty Quantity Uncertainty

Safety lead time outperforms safety stock under timing uncertainty

Safety stock outperforms safety lead time under quantity uncertainty

6a-14

Other Buffering Techniques

Scrap allowances–useful if scrap is significant and unavoidable

Reduce uncertaintyIncrease forecast accuracy, improve system parameter

accuracy (BOM, inventory), reduce lead times, improve product quality.

Provide system slackAdditional production capacity to allow for unplanned

requirementsSlack costs money

6a-15

Nervousness

Nervousness occurs when even small changes to higher-level MRP records or the master production schedule leads to significant changes in the MRP plans

Nervousness is most damaging in MRP systems with many levels in the product structure

Some lot-sizing techniques (such as POQ) can amplify the nervousness

6a-16

Reducing System Nervousness

6a-17

Principles

MRP enhancements should be attempted only after a basic MPC system is in place.

Discrete lot-sizing procedures can reduce inventory costs, but the complexity shouldn’t outweigh the savings.

Safety stocks should be used when uncertainty is related to quantity.

Safety lead times should be sued when uncertainty is related to timing.

6a-18

Principles

MRP system nervousness can result from lot-sizing rules, parameter changes, and other causes. Precautions should be taken to dampen the amplitude and impact.

Uncertainty needs to be reduced before implementing complex procedures.

MRP system enhancements should follow the development of ever more intelligent users.

6a-19

Quiz – Chapter 6a

What is the primary consideration when selecting a lot-sizing procedure?

In a situation where the main source of uncertainty is due to timing of customer orders, which buffering strategy would be expected to perform best?

In a situation where the main source of uncertainty is due to quantity of demand, which buffering strategy would be expected to perform best?