1. MIM 558 Comparative Operations Management
Dr. Alan Raedels, C.P.M.

2. What are the Functions of Inventory?

3. What are the Costs of Inventory?

4. Dependent Demand Systems
Objectives of MRP
To determine what, how much, and when to order and when to schedule delivery?
To keep priorities current for inventory planning, capacity requirement planning and shop floor control
Benefits of MRP
Lower inventories
Better customer service
Better scheduling
Early warning system for delivery
Long range planning
Notes

5. Mentor Graphics Example - Implementation Expenses
Technical Computer
HP 3000 computer $300,000 $30,000
ASK software $120,000 $14,000
Data Integrity
Bills of material $ 30,000 $ 30,000
Routings & work centers $ 10,
Inventory records $ 25,000 $ 10,000
Master Prod. Schedule $ 30,000 $ 30,000
People
Education & training $157,000 $ 25,000
Professional assistance $ 15,000 $ 5,000
MRP II Project Leader $150,
Total Costs $837,000 $144,000

6. Mentor Graphics Example - Benefits
Assumptions
European sales $50 million $60 million
COGS $20 million $24 million
Gross margin 60% 60%
Burden rate 20% 20%
Total purchases $16.7 million $20 million
Invntry turns (w/o MRP)
Cost of money 8% 8%
Profit margin (before tax) 15% 15%

7. Mentor Graphics Example
Benefits
Inventory Reduction $376,000 $448,000
turns $8 million $9.6 million
6.0 turns $3.3 million $4.0 million
Inventory reduction $4.7 million $5.6 million
8% return $376,000 $448,000
Freight cost reductions $125,000 $150,000
Telephone cost reductions $ 40,000 $ 40,000
Reduce obsolescence $254,000 $304,000
4% & 2.5 turns $320,000 $384,000
2% & 6.0 turns $ 66,000 $ 80,000
Reduced obsolescence costs $254,000 $304,000
1% Purchase price reduction $167,000 $200,000
Customer service benefit $225,000 $270,000
1% sales increase due to MRP $500,000 $600,000
Gross margin less 15% R&D $225,000 $270,000
Total Benefits $1,187,000 $1,412,000

8. Mentor Graphics Example
Progress History
Inventory accuracy 25% 99%
Bill of material accuracy ? 98%
WIP accuracy ? 100%
Inventory turns
Order/delivery accuracy 60% 99%
On-time shipments 50% 90%
Accounts receivable 80 days 60 days
Output/work week Doubled

9. Six Phases of a Project 1. Unbridled enthusiasm
2. Disillusionment and disappointment
3. Panic
4. Search for the guilty
5. Punishment of the innocent
6. Praise and honor for nonparticipants

10. Requirements for MRP Feasible master schedule
Accurate inventory records
Accurate bills-of-material
Known lead times
Unique part numbers
Notes

11. Classes of MRP Class C MRP
Master
Schedule
Inventory
BOM
MRP
Prod.
Plan
Purch.
Plan

12. Classes of MRP Class B MRP
Capacity
Requirements
Planning
Master
Schedule
Inventory
BOM
MRP
Prod.
Plan
Purch.
Plan
Shop
Floor
Control

13. Classes of MRP Class A MRP
Order
Entry
General
Ledger
Capacity
Requirements
Planning
Master
Schedule
Accts
Rec
Inventory
BOM
MRP
Prod.
Plan
Purch.
Plan
Shop
Floor
Control
Accts
Pay
Payroll