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

2. 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

3. Our Focus
Accommodating lead-time variability

4. 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

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

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

7. 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?

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

9. Example (page 427)

10. 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

11. Single Sourcing