Manufacturing

Planning and Control

MPC 6th Edition
Chapter 6a

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Advanced Material
Requirements Planning
After the initial phase of Material
Requirements Planning (MRP) is
complete, advanced issues
become the new focus of the firm.

6a-2

Agenda

6a-3

Determining Manufacturing
Order Quantities
A number of quantity-determination (lot-sizing)
procedures have been developed
The primary consideration in MRP lot-sizing
procedures is the nature of the net requirements
data

Requirements

dont reflect the independent demand

assumption of constant uniform demand
Requirements are discrete
Requirements can be lumpy
6a-4

MRP Lot-Sizing
Assumptions
All requirements occur at the beginning of the
period
All future requirements must be met (no
backorders)
Ordering decisions occur at regular intervals
Requirements are appropriately offset for
manufacturing lead times
Component requirements are satisfied at a uniform
rate during each period

6a-5

Determining Order
Quantities

6a-6

Economic Order Quantity

(EOQ)
Simple, widely used technique
Assumes constant, uniform demand

May

require adjustment when demand is

lumpy

EOQ

2C p D
CH

C p Ordering Cost
D Average Demand per Period
C H Holding Cost

6a-7

Periodic Order Quantity

(POQ)
Uses EOQ formula to compute time between
orders (TBO)
Lot-size varies based upon the forecast
requirements for the coverage period
Doesnt allow for combining orders during
periods of light demand

6a-8

Part Period Balancing (PPB)

Attempts to equalize the costs of ordering
and holding inventory
Considers alternate coverage periods and the
scenario where ordering and inventory costs
are most nearly equal
Wont always identify the cost-minimizing
plan

6a-9

Wagner-Whitin Algorithm
Optimizing procedure to identify the costminimizing plan for a time-phased schedule
Requires much more computational effort
May not identify optimal plan under all
conditions

6a-10

Buffering against
Uncertainty

Buffering can be effective when uncertainty

is unavoidable
Buffering

should not be used to

accommodate a poorly performing MRP
system

Uncertainty has two main sources

Demandtiming

and quantity
Supplytiming and quantity
6a-11

Safety Stock and Safety

Lead Time

There are two basic ways to buffer uncertainty

Safety

stockadditional stock intended to

cover unanticipated requirements
Safety lead timereleasing orders earlier than
necessary to ensure receipt before the
required due date

6a-12

Performance of Safety Stock

vs. Safety Lead Time
Timing Uncertainty

Safety lead time

outperforms safety
stock under timing
uncertainty

Quantity Uncertainty

Safety stock
outperforms safety
lead time under
quantity uncertainty
6a-13

Other Buffering Techniques

Scrap allowancesuseful if scrap is significant and
unavoidable
Reduce uncertainty

Increase

forecast accuracy, improve system parameter

accuracy (BOM, inventory), reduce lead times, improve
product quality.

Provide system slack

Additional

production capacity to allow for unplanned

requirements
Slack costs money

6a-14

Nervousness
Nervousness occurs when even small changes
to higher-level MRP records or the master
production schedule leads to significant
changes in the MRP plans
Nervousness is most damaging in MRP systems
with many levels in the product structure
Some lot-sizing techniques (such as POQ) can
amplify the nervousness

6a-15

Reducing System
Nervousness

6a-16

Principles
MRP enhancements should be attempted only
after a basic MPC system is in place.
Discrete lot-sizing procedures can reduce inventory
costs, but the complexity shouldnt outweigh the
savings.
Safety stocks should be used when uncertainty is
related to quantity.
Safety lead times should be sued when uncertainty
is related to timing.

6a-17

Principles
MRP system nervousness can result from lotsizing rules, parameter changes, and other
causes. Precautions should be taken to
dampen the amplitude and impact.
Uncertainty needs to be reduced before
implementing complex procedures.
MRP system enhancements should follow the
development of ever more intelligent users.

6a-18

Quiz Chapter 6a
What is the primary consideration when
selecting a lot-sizing procedure?
In a situation where the main source of
uncertainty is due to timing of customer orders,
which buffering strategy would be expected to
perform best?
In a situation where the main source of
uncertainty is due to quantity of demand, which
buffering strategy would be expected to perform
best?

6a-19