ISEN 315 Spring 2011 Dr. Gary Gaukler

1. ISEN 315Spring 2011Dr. Gary Gaukler

2. 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

3. 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”:

4. 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

5. Dependent Demand Effective use of dependent demand inventory models requires the following • Master production schedule • Bill of material (BOM) • Inventory availability • Purchase orders outstanding • Lead times

6. Master Production Schedule • 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

7. MPS Example Example: How to determine MPS?

8. Bill of Materials • 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

9. Level Product structure for “Awesome” (A) 0 A Std. 12” Speaker kit w/ amp-booster 1 B(2)Std. 12” Speaker kit C(3) 2 Std. 12” Speaker booster assembly E(2) E(2) F(2) Packing box and installation kit of wire, bolts, and screws D(2) D(2) G(1) 3 Amp-booster 12” Speaker 12” Speaker BOM Example

10. Level Product structure for “Awesome” (A) 0 A Std. 12” Speaker kit w/ amp-booster 1 B(2)Std. 12” Speaker kit C(3) 2 Std. 12” Speaker booster assembly E(2) E(2) F(2) Packing box and installation kit of wire, bolts, and screws D(2) D(2) G(1) 3 Amp-booster 12” Speaker 12” Speaker BOM Example Part 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 =

11. Lead Times • 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

12. Must have D and E completed here so production can begin on B Start production of D 1 week 2 weeks to produce D B 2 weeks E A 2 weeks 1 week E 1 week 2 weeks G C 3 weeks F 1 week D | | | | | | | | 1 2 3 4 5 6 7 8 Time in weeks Time-phased Product Structure

13. Determining Gross Requirements • 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”

14. 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)

15. 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

16. Gross Requirements Plan

17. gross requirements + allocations total requirements on hand scheduled receipts net requirements – + = available inventory The Logic of Net Requirements

18. Net Requirements Plan

19. Net Requirements Plan

20. 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

21. 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

22. 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

23. Lot Sizing For MRP Systems Given: Net requirements Determine: When and how much to produce / order

24. Simplest Lot Sizing: Lot-for-Lot

25. Lot Sizing For MRP Systems Assumptions: • Consider only one item • Demand known and deterministic • Finite horizon • No shortages • No capacity constraints

26. Lot Sizing For MRP Systems Problem formulation:

27. Lot Sizing For MRP Systems Does this look like an EOQ problem?

28. EOQ Lot Size Example Holding cost = $1/week; Setup cost = $100; Average weekly gross requirements = 27; EOQ = 73 units

29. How did we obtain EOQ?

30. 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: • Start in period 1. Calculate C(t): average per-period cost if all units for next t periods produced in period 1. • Select lowest t such that C(t)<C(t+1): t* • Produce t* in period 1 • Repeat, starting from period t*+1

31. Silver-Meal Example Assume net requirements are 18, 30, 42, 5, 20 Setup cost for production is $80 Holding cost $2 per unit per period