Title: Inventory
1Inventory Master Production Schedule
2Lead 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
3Time-Phased Product Structure
4Set-up Order Costs
- Set-up Cost to prepare a machine or process for
an order - Order cost of supplies, forms, order processing
time, support. - Often combined together as S set up and ordering
cost
5Holding Cost
- Cost of Holding Inventory over time.
6Lot-Sizing TechniquesL4L
- Lot-for-lot techniques order just what is
required for production based on net requirements - May not always be feasible
- If setup costs are high, costs may be high as well
7Lot-for-Lot Example
Holding cost 1/week Setup cost 100
8Lot-for-Lot Example
No on-hand inventory is carried through the
system Total holding cost 0 There are seven
setups for this item in this plan Total setup
cost 7 x 100 700
Holding cost 1/week Setup cost 100
9Lot-Sizing Techniques
- Economic order quantity (EOQ)
- EOQ expects a known constant demand and MRP
systems often deal with unknown and variable
demand
10Basic EOQ Model
Important assumptions
- Demand is known, constant, and independent
- Lead time is known and constant
- Receipt of inventory is instantaneous and
complete - Quantity discounts are not possible
- Only variable costs are setup and holding
- Stockouts can be completely avoided
11Inventory Usage Over Time
Order quantity Q (maximum inventory level)
12Minimizing Costs
Objective is to minimize total costs
13An EOQ Example
Determine optimal number of items to order D 27
units per week S 100 per order H 1.00 per
unit per week
14EOQ Lot Size Example
Holding cost 1/week Setup cost 100 52
weeks Average weekly gross requirements 27
EOQ 73 units
15EOQ Lot Size Example
Annual demand 1,404 Total cost setup cost
holding cost Total cost (1,404/73) x 100
(73/2) x (1 x 52 weeks) Total cost 3,798 Cost
for 10 weeks 3,798 x (10 weeks/52 weeks) 730
Holding cost 1/week Setup cost
100 Average weekly gross requirements 27
EOQ 73 units
16Lot-Sizing TechniquesPPB
- Part Period Balancing (PPB) looks at future
orders to determine most economic lot size - Looking at total cost of placing orders
carrying inventory - Part period how long are you holding additional
units for and at what cost? - Keep adding subsequent weeks orders to initial
order until the inventory holding cost is as
close as possible to order cost (balances)
17PPB Example (Assume we hold inventory for ½ of
initial period)
Holding cost 1/week Setup cost 100
18PPB Example
19Lot-Sizing Summary
For these three examples
20Lot-Sizing Summary
- In theory, all lot sizes should be recomputed
whenever there is a lot size or order quantity
change - In practice, this results in system nervousness
and instability - Lot-for-lot should be used when economical
- Lot sizes can be modified to allow for scrap,
process constraints, and purchase lots
21Lot-Sizing Summary
- Use lot-sizing with care as it can cause
considerable distortion of requirements at lower
levels of the BOM - When setup costs are significant and demand is
reasonably smooth, PPB or EOQ should give
reasonable results
22Resource Requirements Profile
Figure 14.9
23Smoothing Tactics
- Overlapping
- Sends part of the work to following operations
before the entire lot is complete - Reduces lead time
- Operations splitting
- Sends the lot to two different machines for the
same operation - Shorter throughput time but increased setup costs
- Lot splitting
- Breaking up the order into smaller lots and
running part ahead of schedule