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tity (POQ) 44 Example: LotSizing Decision The requirements for a material from an MRP schedule are: It costs $400 to change over the machines for this material in the affected work center. It costs $ per unit when one unit of this material must be carried in inventory from one week to the next. Identify the lotsizing method that results in the least carrying and changeover costs for the 8week schedule. NET REQUIREMENTS 1000 1 0 1300 2 3 4 800 1200 6 5 0 1300 7 WEEK 800 8 45 Example: LotSizing Decision ? LotforLot Method Carrying Cost = 0($.40) = $0 Changeover Cost = 6($400) = $2,400 Total = $2,400 NET REQUIREMENTS BEGINNING INVENTORY PRODUCTION LOTS ENDING INVENTORY 1000 0 1000 0 1 0 0 0 0 0 1300 1300 0 2 3 4 800 0 0 0 0 0 1300 1200 800 0 0 1200 6 5 0 1300 0 0 7 WEEK 800 0 800 0 8 46 Example: LotSizing Decision ? Economic Order Quantity (EOQ) Method S = $ D = [(Net Req. for 8 wks)/8 weeks)](50 weeks/year) = (6400/8)(50) = 40,000 C = ($ per week)(50 weeks/year) = $ 2 D S 2 ( 4 0 , 0 0 0 ) ( 4 0 0 )E O Q = = = 1 2 6 5C 2 047 Example: LotSizing Decision ? Economic Order Quantity (EOQ) Method Carrying Cost = 4855($.40) = $1,942 Changeover Cost = 6($400) = $2,400 Total = $4,342 NET REQUIREMENTS BEGINNING INVENTORY PRODUCTION LOTS ENDING INVENTORY 1000 0 1265 265 1 265 0 265 0 230 1265 1300 265 2 3 4 800 725 760 695 695 230 1265 1265 1265 0 725 1200 6 5 0 1300 725 760 7 WEEK 1265 1190 800 725 8 48 Example: LotSizing Decision ? Period Order Quantity (POQ) Method POQ = ( Weeks/year)/( Orders/year) = 50/(D/EOQ) = 50/(40,000/1,265) = or 2 weeks 49 Example: LotSizing Decision ? Period Order Quantity (POQ) Method Carrying Cost = 2900($.40) = $1,160 Changeover Cost = 4($400) = $1,600 Total = $2,760 NET REQUIREMENTS BEGINNING INVENTORY PRODUCTION LOTS ENDING INVENTORY 1000 0 1000 0 1 0 0 0 0 800 2100 1300 0 2 3 4 800 0 1300 0 0 800 0 2500 0 800 800 1200 6 5 0 1300 0 1300 7 WEEK 0 0 800 800 8 50 Example: LotSizing Decision ? Summary Carrying . Total Method Cost Cost Cost LFL 0 2,400 2,400 EOQ 1,942 2,400 4,342 POQ 1,160 1,600 2,760 51 Issues in MRP ? LotSizing ? Useful at lower levels but may drive excess inventory when applied at higher levels ? Net Change versus Regenerative MRP ? Net change may generate too many action notices ? Regenerative more costly to run but appears to be easier to manage ? . . . more 52 Issues in MRP ? Safety Stock ? Use depends on uncertainty of demand..... more uncertain the greater the need for safety stock ? AssembletoOrder Firms ? MPS and MRP treated separately from Final Assembly Schedule(FAS) ? Use Modular Bill of Material 53 MRP I to MRP II ? MRP I simply exploded demand (MPS) into required materials ? MRP II became Manufacturing Resource Planning which provides a closedloop business management system ? Financial management ? Shop floor control ? Operations management ? Simulation capability 54 Evaluation of MRP ? Most beneficial to processfocused systems that have long processing times and plex multistage production steps ? Lead times must be reliable ? Must freeze MPS for some time before actual production... certain demand ? Difficult to implement 55 Capacity Requirements Planning (CRP) 56 Capacity Requirements Planning (CRP) ? Tests MPS for feasibility ? Utilizes routings to determine labor/machine loads ? If schedule feasible, remends freezing ? If schedule overloads resources, points out processes that are overscheduled 57 Load Schedules ? Compares actual labor and machine hours against available hours ? Offsets schedules between successive stages of production by lead times ? Provides feasible MPS and economically loaded work centers ? Promotes system operating efficiency ... lowers costs! 58 WrapUp: WorldClass Practice ? Lead times respond to conditions ? Product development as levels of product structure tree ? Lead times that adjust to load ? MRP reports shared with customers and suppliers ? All of the above results in bias towards smaller batches and shorter lead times 59 End of Chapter 15