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The net requirements data is subjected lot sizing Lot sizes developed can satisfy the net requirements for one or more weeks The basic trade-off involves the elimination of one or more setups at the expense of carrying inventory longer Lot sizing problem is basically one of converting requirements into a series of replenishment orders Lot sizing problem generally considered in a local level; that is, only in terms of the one part and not its components
Table 2. Lot-for-lot technique Week 1 2 3 4 5 6 7 8 9 10 11 12 Net 10 10 15 20 70 180 250 270 230 40 requirements Planned order 10 10 15 20 70 180 250 270 230 40 0 releases The relevant cost calculation It is assumed that carrying cost is incurred for the end of the period inventory Total order cost = 11*300=Rs 3300 Total carrying cost = 0 Total cost = Rs 3300
13 0 10
14 10
2 RC o = H
This lot size applied to the requirement planning problem in Table 1 is as follows Table 3. Economic order quantity example Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Net 10 10 15 20 70 180 250 270 230 40 0 10 requirements Projected available 156 146 131 111 41 27 0 0 0 126 126 116 inventory Planned 166 223 270 230 166 order 166 releases Total ordering cost = Rs 1,800 Total inventory carrying cost = (156+146+131+111+41+27+126+126+116) 2 = Rs 1960 Total cost = Rs 3760 The average weekly requirement is used for EOQ that ignores much of the other information in the requirements schedule This results in Carrying excess inventory from week to week for example 41 units are carried over into week 8 when a new order is received Increase the order quantity in those periods where the requirements exceed the economic lot size plus the amount of inventory carried over into the period
The fixed number of periods is determined as the economic time between orders This is equal to EOQ divided by mean demand rate The time between order for requirements data in Table 1 is 1.8 2 weeks (166/92.1=1.8) Table 4. Periodic order quantity example Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Net 10 10 15 20 70 180 250 270 230 40 0 10 requirements Projected available 10 0 20 0 180 0 270 0 40 0 0 0 inventory Planned order 20 35 250 520 270 10 releases Total setup cost = 6*300 = Rs 1800 Total Carrying cost = (10+20+180+270+40) 2 = Rs 1040 Total cost = Rs 2840 POQ allows lot sizes to vary Replenishment orders are constrained to occur at fixed time intervals, thereby ruling out the possibility of combining orders during period of light product demand
11, 12, 14
Table 6. Part Period Balancing Example Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Net 10 10 15 20 70 180 250 270 230 40 0 10 requirements Projected available 45 35 20 0 0 0 0 0 50 10 10 0 inventory Planned order 55 70 180 250 270 280 releases Total order cost = 6*300 = Rs 1800 Total carrying cost = (45+35+20+50+10+10) 2 = Rs 340 Total cost = Rs 2140 PPB procedure permits both lot size and time between orders to vary Thus, in periods of low requirements, it yields smaller lot sizes and longer time intervals between orders than occur in high demand periods Although this procedure can produce low-cost plans, it may miss the minimum cost, since it does not evaluate all possibilities for ordering material to satisfy demand in each week of the requirements schedule All these procedures can be used in general for purchasing as well as manufacturing lot sizing. Next procedures are particularly suitable for lot sizing of purchase requirements when purchase discounts exists
Look-Ahead Feature
After the initial lot size has been determined, look-ahead feature performs a check to see whether the cost of carrying an additional periods requirement (or the remainder
of a period whose requirements are split) is less than the cost of the setup required to supply the periods requirements in a separate order.
35 10 16
Solution
Period GR SR PAB 2 NR Trial Period 2 3 4 5 Requirements 14 30 35 10 1 10 20 12 2 18 8 14 3 30 8 30 Carrying Cost 0 4 35 8 35 5 10 8 10 6 16 8 16 Cost/ Unit 13.57 11.477 10.766 10.792
5 6
10 16
Purchase Total Cost Cost 14x10 140+50 =140 =190 44 30x0.5 44x10 440+50+15 =15 =440 =505 79 15+35x2x0.5 79x9.5 750.5+50+50 =50 =750.5 =850.5 89 50+10x3x0.5 89x9.5 845.5+50+65 =65 =845.5 =960.5 Combine the requirements of period 2,3 & 4 as a single order. 10*10 100+50 10 0 =100 =150 26 16*0.5=8 26*10 =260 260+50+8 =318
Cumulative requirement 14
15 12.23
Combine the requirements of period 5 & 6. The inventory record of the item is as follows. Period GR SR 1 10 20 2 18 3 30 4 35 5 10 6 16
PAB POR
12 79
73
43
8 26
24
Buffering Concepts
Buffering methods are used to protect against uncertainties Buffering is not the way to make up for a poorly operating MRP system
Categories of Uncertainty
See tables
Two basic ways to buffer uncertainty in an MRP system Safety stock and Safety lead time Safety lead time is the preferred technique when uncertainty in timing exists Safety stock is preferred under conditions of quantity uncertainty Rather than living with uncertainty, an alternative is to reduce it to an absolute minimum In fact, this is one of the objectives of MPC systems Uncertainty transmitted to the MRP system can be reduced with the following method Increasing demand forecasts accuracy and developing effective procedures for transmitting demand for products into master schedules Freezing the master schedule for some time period achieves reduction in uncertainty Developing an effective priority system for moving parts and components through the shop reduces the uncertainty in lead times Procedure that improve the accuracy of the data in the MRP system reduce uncertainty regarding on-hand inventory levels Aspects of JIT manufacturing reduce lead time, improve quality, and decrease uncertainty Some examples:
Another way to deal with uncertainty in MRP system is to provide for slack in the production system in one way or another Production slack is created by having additional time, labour, machine capacity, and so on over what is specifically needed to produce the planned amount of product This extra production capacity could be used to produce an oversized lot to allow for that lots shrinkages through the process
The slack also could be used for production of unplanned lots or for additional activities to speed production through the shop Providing additional capacity in the shop allows to accommodate greater quantities than planned in a given time period or expedite jobs through the shop But slack costs money
Nervousness
MRP system nervousness is commonly defined as significant changes in MRP plans, which occur even with only minor changes in higher-level MRP records or the master schedule Changes can involve the quantity or timing of planned orders or scheduled receipts The example shows how the changes caused by a relatively minor shift in the master schedule is amplified by use of the periodic order quantity lot-sizing procedure Nervousness creating activities (minor changes) include planned order released prematurely or an unplanned quantity, unplanned demand, shifts in MRP parameter values, and use of some lot sizing techniques A nervous system is one where small changes at higher levels induce large changes at lower levels First approach is to reduce causes of changes to the MRP plan Introduce stability into master schedule through freezing and time fences Reduce the incidents of unplanned demands by incorporating spare parts forecasts into MRP record gross requirements Follow the MRP plan with regard to the timing and quantity of planned order releases Control the introduction of parameter changes
Second guideline involves selective use of lot-sizing procedures That is, if nervousness still exists after reducing the preceding causes, we might use different lot-sizing procedures at different product structure levels One approach is to use fixed order quantities at the top level, using either fixed order quantities or lot-for-lot at intermediate levels, and using periodic order quantities at the bottom level Third guideline use firm planned orders in MRP records
Nervousness in the MRP plan VS Nervousness in the execution of MRP system plans
If the system users see the plans changing, they may make arbitrary or defensive decisions leads to aggravated changes in plans in lower level
One way to deal with execution issue is simply to pass updated information to system users less often An alternative is simply to have intelligent and educated users Shortages result when items produced are unsuitable to fill the net requirement; this is called yield loss Yield loss rate is determined from rates for defects, scrap, and damaged goods To account for yield loss, the planned order release amount (Q) is computed as
NR Q= 1 L
Where,
Eg:
If NR = 300 units and L = 2 %, Then Q = 306 units The difference 6 units is the scarp allowance The yield loss should be accounted in the planned receipt Shortages from yield loss can also be handled with Safety Stock (SS)
Q Q 1 L
is
If LFL lot sizing is used and the NR amount is variable, then the SS must be large enough to offset yield losses for the largest anticipated NR quantity As L represents an average yield loss, the planned order quantity adjusted for L will sometime fall short of the NR quantity If scrap losses occur, they must be planned for and buffered, and tight control can lead to performance improvements