Dr. S. S. Bhakar Director, PIMG. ‘‘ I often feel like the director of a cemetery. I have a lot...
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Transcript of Dr. S. S. Bhakar Director, PIMG. ‘‘ I often feel like the director of a cemetery. I have a lot...
Lot size decision
impacts on
• Inventory levels
• Setup & ordering costs
• Capacity requirement
• Availability
Lot Size Decision is
Impacted By
• Number of Level in BOM
• Cost of setup or purchase order
• Cost of carrying an item in inventory
• Low level code of an item
Lot sizing decision – impacts on Determined
Lot Sizing & Safety Stock
Lot SizeItem quantity
that is made or purchased.
SafetyStock
Quantity of Stock planned to be in
inventory to protect against fluctuations in demand and / or
supply
Lot Sizing TechniquesFixed Order Quantity (FOQ)
Economic Order Quantity (EOQ)
Lot-for-lot (LRL)
Periods of Supply (POS)
Period Order Quantity (POQ)
Least Unit Cost (LUC)
Least Total Cost (LTC)
Part Period Balancing (PPB)
Fixed Order Quantity (FOQ)
Specify a Number of Units arbitrarily to be ordered each time an order is placed for a particular item
Quantity may be arbitrary or EOQ
Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement 130 160 120 260 130 120 185 115
Scheduled Receipts
Projected available 370 240 80 460 200 570 450 265 150
Planned Receipts 500 500
Planned Order Release
500 500
Economic Order Quantity (EOQ)• A type of fixed order quantity that determines the
amount of an item to be purchased or made at one time• Goal= minimize the combined cost of ordering
(acquiring) and carrying inventory
• EOQ =√2D*CO /CH
• D= Annual demand for the item• Q = Order quantity • CO= Cost of order preparation or setup cost• CH=Inventory carrying cost per unit per year
Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement 130 160 120 260 130 120 185 115
Scheduled Receipts
Projected available 370 240 80 610 350 220 100 565 450
Planned Receipts 650 650
Planned Order Release
650 650
Avg. Demand=152.5/wk EOQ=√2CO D/CH = √2(10)(7,93) / 0.25 x 1.50=650
D=152`52 wks/yr =7,930
Lot-for-Lot (LFL)
Also called discrete order quantity. It generates planned orders in quantities equal to the net requirements in each period
No extra on–hand inventory used for perishable food items or items for which the market fluctuates widely
Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement
130 160 120 260 130 120 185 115
Scheduled Receipts
130 160
Projected available 80 80 80 80 80 80 80 80 80Planned Receipts 120 260 130 120 185 115Planned Order Release
120 260 130 120 185 115
Periods of Supply (POS)
Lot size will be equal to the net requirements for a given number of periods (e.g. weeks) into the future
Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement
130 160 120 260 130 120 185 115
Scheduled ReceiptsProjected available
370 240 80 470 210 80 380 195 80
Planned Receipts 510 420Planned Order Release
510 420
Period order quantity (POQ)
Uses EOQ to calculate a fixed number of period requirements to include in each order
POQ = EOQ / Avg. Period Usages In case of fraction, round to the nearest number
order Quantity POQ Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement
130 160 120 260 130 120 185 115
Scheduled ReceiptsProjected available 370 240 80 590 330 200 80 ? ?Planned Receipts 630Planned Order Release
630
Avg Week Use = 152.5 :POQ =650/152.5 =4.26>>4
Example –POQ
Least Unit Cost (LUC)
A dynamic lot sizing technique that Adds ordering cost & Inventory carrying cost for
each trial lot sizeDivides by the numbers of units in the lot sizeThen Picking the lot size with the lowest unit cost
Carrying Cost
Future Reqmnt
In Period
Cum Order Qty
Excess Inv
Week Carried
Order Cost
This Period
Cum Cost
Total Cost
Unit Cost
120 3 120 0 0 10 0.00 0 10 0.083
260 4 380 260 1 10 1.88 1.88 11.88 0.031
130 5 510 130 2 10 1.88 3.75 13.75 0.027
120 6 630 120 3 10 2.60 6.35 16.35 0.026
185 7 815 185 4 10 5.34 11.68 21.68 0.027
115 8 930 115 5 10 4.15 15.83 25.83 0.028
Inventory carrying cost = (25%) ($1.50/52) =$0.007212/unit /wk
*=Carrying cost- (260) (0.007212) (1wk) = 1.875: (1.85) (0.007212) (4 Wks) =5.337 115)(0.007212) (5wks) =4.147
Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement
130 160 120 260 130 120 185 115
Scheduled ReceiptsProjected available 370 240 80 590 330 200 80 ? ?Planned Receipts 630Planned Order Release
630
Least Total Cost (LTC)
Dynamic lot sizing technique that calculates the order quantity by Comparing the carrying cost and the cost of ordering for various lot sizes
Selects the lot where these costs are most nearly equal
For dependent demand, total cost is discrete and the minimum total cost over the planning period usually occurs at the point closest to the balance of carrying cost & ordering costs.
Carrying Cost
Future Reqmnt
In Period
Cum Order Qty
Excess Inv
Week Carried
Order Cost
This Period
Cum Cost
Total Cost
120 3 120 0 0 10 0.00 0 10
260 4 380 260 1 10 1.88 1.88 11.88
130 5 510 130 2 10 1.88 3.75 13.75
120 6 630 120 3 10 2.60 6.35 16.35
185 7 815 185 4 10 5.34 11.68 21.68
115 8 930 115 5 10 4.15 15.83 25.83
Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement
130 160 120 260 130 120 185 115
Scheduled ReceiptsProjected available 370 240 80 775 515 385 265 80 ?Planned Receipts 815 ?Planned Order Release
815 ?
Part Period Balancing (PPB)Variation of LTC With Look Ahead/ look back StepsCompute the economic part period (EPP)
EPP= (Ordering cost) / Caring cost / unit /period)
Example: EPP= 10/0.0072=1389Add requirements period by period until the generated part
periods approximate the EPPPart Periods: Number of units of inventory held for a period.
Part PeriodFuture Reqmnt
In Period Cum Order Qty
Excess Inv
Week Carried
This Period Cum Cost
120 3 120 0 0 0 0
260 4 380 260 1 260 260
130 5 510 130 2 260 520
120 6 630 120 3 360 880
185 7 815 185 4 740 1620
115 8 930 115 5 575 2195
Safety Stock =80
Lead Time =2 Weeks
Week1 2 3 4 5 6 7 8
Gross Requirement
130 160 120 260 130 120 185 115
Scheduled ReceiptsProjected available 370 240 80 775 515 385 265 80 ?Planned Receipts 815 ?Planned Order Release
815 ?