14

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14 Advanced MRP Topics

• Dr. Ron Tibben-Lembke
• pp. 478-

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MRP Priorities

• First
• Get installed, part of ongoing managerial
  process, get users trained
• Understand critical linkages with other areas
• Achieve high levels of data integrity
• Link MRP with front end, engine, back end
• Then
• Determine order quantities more exactly
• Buffering concepts
• Nervousness

3
Ordering Policies

• Dependent Demand
• Not independent demand
• Discrete not continuous
• Lumpy may have surges
• Complexity
• Reduces costs ordering holding
• Anything other than lot-for-lot Increases
  lumpiness downstream

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Assumptions

• All requirements must be available at start of
  period
• All future requirements must be met, and cant be
  backordered
• System operated on periodic basis (e.g. weekly)
• Requirements properly offset for LTs
• Parts used uniformly through a period
• Use average inventory levels for holding cost

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Example Demands

• Try several lot-sizing methods
• Economic Order Quantity
• Periodic Order Quantity
• Part Period Balancing
• Wagner Within
• Order cost 300 per order CP
• Inventory Carrying cost 2 / unit/ week CH
• Avg Demand 92.1 / wk D

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EOQ

• Minimizes total ordering holding costs
• Assumes demand same every period
• Definitely not always true for this use
• Avg. demand and holding cost need same time units
  (e.g. per week)

• Economic Lot Size
• Where
• D avg demand
• CP ordering cost
• CH holding cost

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EOQ

• Sqrt( 2 300 92.1 / 2) 166

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EOQ

• Ordering cost 6 300 1,800
• Inv carry cost 1,532.5 2 3,065
• Total 4,865

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Periodic Order Quantities

• EOQ
• Gave good tradeoff between ordering holding
• resulted in a lot of leftovers.
• Only order enough to get through a certain number
  of periods no leftovers
• How many? EOQ / avg. demand
• 166 / 92.1 1.805 2 weeks worth

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Periodic Order Quantities

• Ordering cost 6 300 1,800
• Inv carry cost 1,082.5 2 2,145
• Total 3,945

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Part Period Balancing

• Increase the quantity until holding costs equal
  the ordering cost
• Order 10 holding 10/22 10
• Order 20 holding 10 101.52 40
• Order 35 40 152.52 115
• Order 55 115 203.52 255
• Order 125 255 704.52 85

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Part Period Balancing

• Week 5
• Order 70 Holding 100.52 10
• Order 250 10 1801.52 550
• So I could
• Order 250 units, pay 300 in ordering and 540
  holding, for a total of 840,
• Order 70 now, 180 next week, and pay 600 in
  ordering and 10 1800.52180 in holding
  790
• Seems like the second option is best.

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Part Period Balancing

• When should we place a separate order? If
  1.52D gt 300. Dgt300/3 100
• Whenever demand is gt 100, we might as well place
  a separate order.
• What about week 9?
• Order 230 holding 2300.52 230
• Order 270 230 401.52 350
• Order 280 350 103.52 420

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Part Period Balancing
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Wagner-Within

• Mathematically optimal
• Work back from planning period farthest in the
  future
• Consider all possibilities
• Order for 5, 4 and 5, 3 and 4, then 5, etc.
• Uses dynamic programming similar to linear
  programming

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Simulation Experiments

• What is best under real-world conditions?
• Multiple levels to be concerned about
• Real-time changes

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Buffering concepts
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Nervousness