ISEN 315Spring 2011

Dr. Gary Gaukler

Hierarchy of Planning • Forecast of aggregate demand over time horizon

• Aggregate Production Plan: determine aggregate production and workforce levels over time horizon

• Master Production Schedule: Disaggregate the aggregate plan and determine per-item production levels

• Materials Requirements Planning: Detailed schedule for production/replenishment activities

Push and Pull Production Control

The inventory control methods covered so far are useful for “independent demand” situations:

Now, introduce methods to deal with “dependent demand”:

Push and Pull Production Control

“Push” system: Determines when and how much to produce based on forecasts of future demands

“Pull” system: Initiates production of an item only when the item is requested

1. Master production schedule2. Bill of material (BOM)3. Inventory availability4. Purchase orders outstanding5. Lead times

Effective use of dependent demand inventory models requires the following

Dependent Demand

Specifies what is to be made and when MPS is established in terms of specific

products The MPS is a statement of what is to be

produced, not a forecast of demand

Master Production Schedule

MPS Example

Example:

How to determine MPS?

List of components, ingredients, and materials needed to make product

Provides product structure Items above given level are called parents Items below given level are called children

Bill of Materials

B(2) Std. 12” Speaker kit C(3)

Std. 12” Speaker kit w/ amp-booster1

E(2)E(2) F(2)

Packing box and installation kit of wire,

bolts, and screws

Std. 12” Speaker booster assembly

2

D(2)

12” Speaker

D(2)

12” Speaker

G(1)

Amp-booster

3

Product structure for “Awesome” (A)

A

Level

0

BOM Example

B(2) Std. 12” Speaker kit C(3)

Std. 12” Speaker kit w/ amp-booster1

E(2)E(2) F(2)

Packing box and installation kit of wire,

bolts, and screws

Std. 12” Speaker booster assembly

2

D(2)

12” Speaker

D(2)

12” Speaker

G(1)

Amp-booster

3

Product structure for “Awesome” (A)

A

Level

0Part B: 2 x number of As =

Part C: 3 x number of As =

Part D: 2 x number of Bs

+ 2 x number of Fs =

Part E: 2 x number of Bs

+ 2 x number of Cs =

Part F: 2 x number of Cs =

Part G: 1 x number of Fs =

BOM Example

The time required to purchase, produce, or assemble an item For purchased items – the time between the

recognition of a need and the availability of the item for production

For production – the sum of the order, wait, move, setup, store, and run times

Lead Times

| | | | | | | |

1 2 3 4 5 6 7 8Time in weeks

F

2 weeks

3 weeks

1 week

A

2 weeks

1 weekD

E

2 weeks

D

G

1 week

1 week

2 weeks to produce

B

C

E

Start production of DMust have D and E completed here so

production can begin on B

Time-phased Product Structure

Starts with a production schedule for the end item – 50 units of Item A in week 8

Using the lead time for the item, determine the week in which the order should be released – a 1 week lead time means the order for 50 units should be released in week 7

This step is often called “lead time offset” or “time phasing”

Determining Gross Requirements

From the BOM, every Item A requires 2 Item Bs – 100 Item Bs are required in week 7 to satisfy the order release for Item A

The lead time for the Item B is 2 weeks – release an order for 100 units of Item B in week 5

The timing and quantity for component requirements are determined by the order release of the parent(s)

Determining Gross Requirements

The process continues through the entire BOM one level at a time – often called “explosion”

By processing the BOM by level, items with multiple parents are only processed once, saving time and resources and reducing confusion

Determining Gross Requirements

Table 14.3

Week

1 2 3 4 5 6 7 8 Lead Time

A. Required date 50Order release date 50 1 week

B. Required date 100Order release date 100 2 weeks

C. Required date 150Order release date 150 1 week

E. Required date 200 300Order release date 200 300 1 week

F. Required date 300Order release date 300 3 weeks

D. Required date 600 200Order release date 600 200 1 week

G. Required date 300Order release date 300 1 week

Gross Requirements Plan

available inventory

net requirements

on hand

scheduled receipts+– =

total requirements

gross requirements allocations+

The Logic of Net Requirements

Net Requirements Plan

Net Requirements Plan

Starts with a production schedule for the end item – 50 units of Item A in week 8

Because there are 10 Item As on hand, only 40 are actually required – (net requirement) = (gross requirement - on- hand inventory)

The planned order receipt for Item A in week 8 is 40 units – 40 = 50 - 10

Net Requirements Plan

Following the lead time offset procedure, the planned order release for Item A is now 40 units in week 7

The gross requirement for Item B is now 80 units in week 7

There are 15 units of Item B on hand, so the net requirement is 65 units in week 7

A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5

Net Requirements Plan

A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5

The on-hand inventory record for Item B is updated to reflect the use of the 15 items in inventory and shows no on-hand inventory in week 8

Net Requirements Plan

Lot Sizing For MRP Systems

Given:

Net requirements

Determine:

When and how much to produce / order

1 2 3 4 5 6 7 8 9 10

Gross requirements 35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand 35 35 0 0 0 0 0 0 0 0 0

Net requirements 0 30 40 0 10 40 30 0 30 55

Planned order receipts 30 40 10 40 30 30 55

Planned order releases 30 40 10 40 30 30 55

Simplest Lot Sizing: Lot-for-Lot

Lot Sizing For MRP Systems

Assumptions:• Consider only one item• Demand known and deterministic• Finite horizon• No shortages• No capacity constraints

Lot Sizing For MRP Systems

Problem formulation:

Lot Sizing For MRP Systems

Does this look like an EOQ problem?

1 2 3 4 5 6 7 8 9 10

Gross requirements 35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand 35 35 0 0 0 0 0 0 0 0 0

Net requirements 0 30 0 0 7 0 4 0 0 16

Planned order receipts 73 73 73 73

Planned order releases 73 73 73 73

Holding cost = $1/week; Setup cost = $100;

Average weekly gross requirements = 27; EOQ = 73 units

EOQ Lot Size Example

How did we obtain EOQ?

Lot Sizing: Silver-Meal Heuristic

In any given period, produce to cover demand in a future period as long as the average cost per period is reduced by doing so

Algorithm:1. Start in period 1. Calculate C(t): average per-period

cost if all units for next t periods produced in period 1.

2. Select lowest t such that C(t)<C(t+1): t*3. Produce t* in period 14. Repeat, starting from period t*+1

Silver-Meal Example

Assume net requirements are 18, 30, 42, 5, 20Setup cost for production is $80Holding cost $2 per unit per period