Purchasing Topics in class DRP -- Distribution Requirements Planning MRP -- Material Requirements Planning Lead-Time Uncertainty Sourcing

DRP Assumption You understand MRP Inputs Output Finished goods requirements forecast Bill of materials Lead Times Lot sizes Output Schedule of planned production/purchases for all components

Our Focus Accommodating lead-time variability

DRP Release Time Purchase order released to vendor If it arrives too soon? E - cost per unit per day before required If it arrives too late? L - cost per unit per day after required Lead time distribution Lead time is a random variable

What are the issues? Trade off the expected costs of early and late arrival Choose T* to minimize… Where have you seen this before?

Solution... Choose T* so that E*Prob(T<T*) = L*Prob(T>T*) Prob(T<T*) = L/(E+L)

Example (page 410) If we hold up production: If we hold inventory: $500 per item per day If we hold inventory: $5 per item per day Choose T* so that probability lead-time is less than T* is 500/505 = .99 Comments: Are the costs reasonable?

Sourcing Many suppliers (sites), many destinations Include purchase cost AND transportation costs

Example (page 427)

Single Sourcing Only one supplier per destination Reduces management of transportation Where does the next shipment come from? Effect on total delivered cost? Harder problem to solve Mixed Integer Linear programming

Single Sourcing