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Principles of Operations Management

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Presentation on theme: "Principles of Operations Management"— Presentation transcript:

1 Principles of Operations Management
Inventory for Dependent Demand Chapter 10

2 Learning Objectives Distinguish dependent from independent demand inventory Define material requirements planning State the benefits of MRP Identify the requirements of MRP Explain the inputs & outputs of MRP Compute order releases

3 Inventory Classifications

4 Dependent vs. Independent Demand

5 Material Requirements Planning (MRP)
Mfg. computer information system Determines quantity & timing of dependent demand items © 1995 Corel Corp.

6 MRP Requirements Computer system Mainly discrete products
Accurate bill-of-material Accurate inventory status 99% inventory accuracy Stable lead times © T/Maker Co.

7 MRP Benefits Increased customer satisfaction due to meeting delivery schedules Faster response to market changes Improved labor & equipment utilization Better inventory planning & scheduling Reduced inventory levels without reduced customer service

8 MRP & Production Planning Process
Aggregate Forecast & Resource Production Firm Orders Availability Planning Material Master Requirements Production Planning Scheduling No, modify CRP, MRP, or MPS Capacity Shop Requirements Realistic? Floor Yes Planning Schedules

9 MRP System Input & Output
What to make & when What items What is in make up stock the product Material Requirements Planning Sys. How long to What is on make items order What items to make & when

10 MRP System Input & Output
What to make & when What items What is in make up stock the product Material Requirements Planning Sys. How long to What is on make items order Planned Order & Other Reports

11 MRP System Input & Output

12 Master Production Schedule
Shows items to be produced End item, customer order, module Derived from aggregate plan Example

13 Bill-of-Material List of components & quantities needed to make product Provides product structure (tree) Parents: Items above given level Children: Items below given level Shows low-level coding Lowest level in structure item occurs Top level is 0; next level is 1 etc.

14 Bill-of-Material Product Structure Tree

15 Bill of Material Example
© 1995 Corel Corp.

16 Product Structure Thinking Challenge
The demand for product A is 50. How many of each component is needed to satisfy demand? Alone Group Class

17 Product Structure Solution*
50

18 MRP System Input & Output

19 Lead Time Wait Time Move Time Queue Time Setup Time Run Time Input
Output

20 Lead Times & Product Structure
Handle Bars 2 wk. Lead time 1 wk. Frame 2 wk. Bicycle 1 wk. 3 wk. Frame Assy Wheels Time (weeks)

21 MRP System Input & Output

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

23 MRP Formulas Available = On-hand - Safety stock - Allocated
On-hand is inventory physically present Allocated is inventory reserved for special orders On-hand = Prior period's on-hand Scheduled receipts Net requirement = Gross requirement Available

24 MRP Example Component B
A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component B. X A(1) B(1) Y A(1) C(3)

25 Component B Solution Planned Order Releases X Planned Order Releases Y
Gross Requirements B

26 Thinking Challenge Component C
A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component C. X A(1) B(1) Y A(1) C(3) Alone Group Class

27 Component C Solution* Planned Order Releases X
Planned Order Releases Y Gross Requirements C

28 Thinking Challenge Component A
A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component A. X A(1) B(1) Y A(1) C(3) Alone Group Class

29 Component A Solution* Planned Order Releases X
Planned Order Releases Y Gross Requirements A

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

31 MRP Solution An order of 7 must be started in week 2. Lead time is 3 weeks. 20 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

32 Safety stock decreases ‘Available’ inventory
Safety stock decreases ‘Available’ inventory. The amount physically on-hand is still the same (20). Safety Stock = 18 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 2 units.

33 Lot Size Lot: Batch of material that moves & gets processed together
Reduces setup & handling time & cost Techniques Lot-for-lot (LFL) Economic order quantity (EOQ) Part period balancing Wagner-Whitin algorithm

34 Lot Size Lot size is 5 or multiples (5, 10, 15 etc.). The quantities started (i.e., released) & completed are increased. 20 Lead Time = 3; Lot Size= 5 units (or Multiples); On-Hand = 20 Units; Safety Stock = 0 Units.

35 MRP Thinking Challenge 1
A master schedule calls for 200 units of product A in period 5. No stock of any components is on-hand or on order. All order sizes are lot-for-lot. Determine the amount & timing of all planned order releases. Alone Group Class

36 Product A Template

37 Component B Template

38 Component C Template

39 MRP Thinking Challenge 2
A master schedule calls for 50 units of F in week 6, & 60 in week 8. On-hand levels are F = 0, G = 20, & H = 60. Another 20 units of G are scheduled to be received in week 4. Order quantities are lot-for-lot except for H, which has a lot size of 50 or multiples of 50. Alone Group Class

40 Product F Template

41 Component G Template

42 Component H Template

43 MRP Management Issues System nervousness
Time fences: Portion of master schedule not scheduled Pegging: Tracing to parent in BOM Integration with Just-in-Time (JIT) Reduce time buckets to daily or hourly Use planned receipts to sequence orders Use kanban cards to move material Use back flushing to reduce inventory

44 Conclusion Distinguished dependent from independent demand inventory
Defined material requirements planning Stated the benefits of MRP Identified the requirements of MRP Explained the inputs & outputs of MRP Computed order releases


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