S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

S e s s io n 1. Inv e nto ry Ma na g e me nt : O rd e r P la nn ing .

O bje c tiv e s :
Ide ntify types of inve ntory a nd how they a re assessed from the ir diffe re nt require me nts a nd impacts on the pla nning process . Describe orde r review methodologies a nd a pply the m to diffe re nt types of inve ntory a nd inve ntory strategies . Ide ntify lot- s izing techniques , including the effects of orde r- qua ntity constra ints a nd modifies .

1. De f in it io n o f Inve nto ry .
De fin itio n o f Inv e nto ry . - Thos e stocks o r ite ms us e d to s uppo rt productio n, s uppo rting a ctivitie s , a nd custome r s e rvice . - De ma nd fo r inve nto ry may be de pe nde nt o r inde pe nde nt. - Inve nto ry functio ns a re a nticipation, he dge , cycle , fluctua tion, tra ns po rtation, a nd s e rvice pa rts . - In the the o ry of constra ints . Inve nto ry is define d a s thos e ite ms purcha s e d fo r re s a le a nd include s finis he d goods , ra w ma te ria ls . Inve nto ry is a lways va lue d a t purcha s e d p rice a nd include s no va lue - a dde d costs , a s o ppos e d to the tra ditio na l cost a ccounting pra ctice of a dd ing dire ct la bo r a nd a lloca ting ove rhe a d a s wo rk in proce s s prog re s s tho ugh the p roduction proce s s . Ty pe s o f Inv e nto ry . - Raw Mate ria ls (RAW). RAW re p re s e nts a ny mate ria l inputs us e d in a ma nufa cturing p roce s s . This include s ma nufa cture d products fro m othe r compa nie s , refe rre d to a s finis he d goods a t s upplying compa ny. Ra w mate ria ls fo rm the lowe st leve l of a bill- of- mate ria l structure , a nd typica lly constitute the lo nge s t po rtio n of c u mulative le a d time .
- Wo rk in P roce s s (W IP).

While ra w ma te ria ls a re in va rious sta ge s of co mpletio n, the y a re refe rre d to a s wo rk- in- proce s s inve nto ry. The a mount of wo rk in proce s s diffe rs g re atly from co mpa ny to co mpa ny, de pe nding o n the pa rticula r prod uction proce s s . WIP fo rm the middle leve ls of a bill- of- mate ria l structure .

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

- Finis he d Goods (FG). Finis he d goods , o r e nd ite ms , ca n be a co mplete d product o r a s e rvice pa rt. A finis he d goods is a n ite m that is s old to a custome r o r tra nsfe rre d to a s iste r d ivis io n in a ve rtica lly inte g rate d co mpa ny. Ma nufa cturing compa nie s ma y ke e p a stoc k of finis he d goods a t the producing fa cility o r in a wa re ho us e o r d istribution ce nte r to re duce de live ry le a d time s . - Ma inte na nce , Re pa ir, a nd Ope rating Supplie s (MRO). O pe ratio n s upplie s a re ofte n low cost, but nume rous , a nd include office a nd ja nito ria l s upplie s . Ma inte na nce a nd s pa re pa rts a re ma inta ine d to s uppo rt uptime a nd ava ila bility
re quire me nts , a nd may include ite ms ra nging from ce nts to te ns of thousa nds of dolla rs .

Re ple nis hme nt is typica lly by vis ua l review, direct one- for- one re place me nt, or reo rde r point. C la s s ific a tio ns o f Inv e nto ry .
- This ca te go rie s re la te to time - fe nce s that cla s s ify inve nto rie s in stock in re la tions hip to the ir us efulne s s in s uppo rting the inve nto ry strate gy. - Cla s s ificatio ns .

Exce s s . S urplus . Ina ctive . O bs olete . Cons ignme nt. Ve ndo r Ma na ge d. 1. Exce s s Inve nto ry. This is inve nto ry proc ure d o r ma nufa cture d in exce s s of curre nt ope rationa l ne e d. The definition of "curre nt ne e d " must be e sta blis he d by po licy fo r e a ch raw mate ria l. Exce s s inve nto ry may occur by pla n, s uch a s lot s izing rule s o r a nticipatio n builds , o r by a ccide nt. Re a s ons . : Inve nto ry re co rd e rro r. : O rde r ca nce llation. : Engine e ring s upe rs e dure s . 2. Surplus Inve nto ry. S urplus inve nto ry a pplie s to ite ms in de ma nd, but the a va ila ble ba la nce is we ll in e xce s s of ne e d. The compa ny co uld procure o r ma nufa cture this q ua ntity late r be ca us e the s upply is
longe r tha n the ite m's le a d time .

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inv e nto ry Ma na g e me nt : O rde r P la nning .

3. Ina ctive Inve nto ry.

Ina ctive inve nto ry is co ns ide re d a n a s s et fro m a n a ccounting pe rs pe ctive , but the re is no fo re s e e a ble de ma nd. It is the dire ct re s ult of s urplus inve nto ry tha t ha s not be e n us e d within 12 - 18 months a nd will not be us e d in fo re s e e a ble future . 4. Obs ole te Inve nto ry. O bs olete inve nto ry will neve r be us e d o r s o ld at full va lue be ca us e the products a re no longe r p roduce d o r s uppo rte d . Dis pos ing of the inve nto ry re duce s a compa ny's profit. 5. Cons ignme nt Inve nto ry. Cons ignme nt inve nto ry occurs whe n the s up plie r p hys ica lly give s the custo me r the inve nto ry fo r us e a nd the s upplie r reta ins the title of the product until us e d. The s upplie r pe riodica lly inve nto rie s the co ns igne d product a nd, a s a re s ult, bills the c usto me r a nd re ple nis he s the cons igne d inve nto ry. 6. Ve ndo r Ma na ge d. Ve ndo r ma na ge d inve nto ry diffe rs fro m co ns ignme nt in s eve ra l re s pe cts . The vis ibility of the custo me r's fo re ca sts , s uch a s p romotio ns a nd productio n ra te s , is s ha re d with the s upplie r. Vis ibility ca n be a chieve d with va rio us te c hnologica l a dva nta ge s s uc h a s point- of- s a le info rma tion o r EDI.

2 . O rde r Re v ie w Me tho do lo g ie s .
Ty pe s o f O rde r Re v ie w Me tho do lo g ie s . - Mate ria l Re q uire me nts Pla nning (MRP). - Time - Pha s e d O rde r Po int. - Re o rde r Po int. - Pe riodic Review. - Vis ua l Revie w. - Ka nba n.

O rde r Re v ie w
Me tho d MR P Re o rde r P o int Pe rio d ic Re v ie w V is ua l Re v ie w Ka n ba n

Ind e pe nde nt De m a nd

De pe nde nt De m a nd

MRO

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inv e nto ry Ma na g e me nt : O rde r P la nning .

W ha t T he y A ns w e r. - What is the ne t de ma nd a fte r a ccounting fo r ava ila ble inve nto ry a nd s che dule d re ce ipts ? - What is the a va ila ble ba la nce afte r a cco unting fo r s afety stock, a lloca tio ns , a nd yie ld a nd s c ra p a llowa nce s ? - What qua ntity will ne e d to be o rde re d afte r a cco unting fo r constra ints a nd mod ifie rs ? - Whe n will o rde rs ne e d to be re le a s e d to p rovide s ufficie nt time fo r proc ure me nt a nd ma nufa cturing ? - Whe n will o rde rs ne e d to be re ce ive d to s uppo rt re quire d date s ?

Ma te ria l Re q u ire m e nts P la nn ing (MR P ) - MRP is a proce s s , s uppo rte d by co mpute r logic, fo r ca lculating a n e ntire de ma nd ve rs us o rde ring p rofile through the pla nning ho rizon. - MRP's prima ry be nefit is its a bility to a ccommodate o rde ring strate gie s fo r pa rts with va ria ble de pe nde nt a nd inde pe nde nt de ma nd profile s . - This a bility a llows the pla nne r to e sta blis h pla ns a nd co ntrols by ite m cate go ry, a nd ite m a s re quire d, to a chieve the inve nto ry strate gy ta rgets . - S ome co ns ide ratio ns fo r MRP.

End- ite m de ma nd is ba s e d on a fo re ca st a nd/o r ma ste r s che dule . De ma nd tre nds to be lumpy a n dis continuo us if not s che dule d in da ily ba tc he s . This is mo re notice a ble at the lowe r bill of ma te ria l leve ls tha n a t the highe r one s . Lowe r leve l de ma nd is not fo re ca ste d if the re is a define d bill of mate ria l re latio ns hip ; it is ca lcula te d . Little o r no s a fety stock is ne e de d to e ns ure a 100 % s e rvice le ve l fo r thos e pa rts that a re s ubje ct to o nly de pe nde nt de ma nd , a nd that have s ufficie nt le a d time to me et s c he dule d re quire me nts . Re o rde r Po int - Definitio n of Re o rde r Point. A s et inve nto ry leve l whe re , if the tota l stock o n ha nd plus on o rde r fa lls to o r be low that po int, a ctio n is ta ke n to re ple nis h the stock. RO P = DDLT + S S whe re RO P = Re o rde r Point. . . DDLT = De ma nd During Le a d Time SS = Sa fe ty Stock.

- The re o rde r point te chnique a s s ume s tha t a re ple nis hme nt o rde r ca n be re le a s e d a nd re ce ive d befo re a stock- o ut occu rs . - Be ca us e this te chnique is typica lly us e d fo r inde pe nde nt de ma nd ite ms , a s afety stock is commo nly ma inta ine d. - An a s s umption of ste a dy de ma nd is a ls o re quire d, whe re the pa st is a n a de qua te ind icato r of the future .

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

Co ntinuous De ma nd a nd Inve nto ry Cha ra cte ristics The s a le s fo r this ite m a re fa irly re gula r o n a we e kly ba s is . As units a re withd rawn from inve nto ry to me et the de ma nds , the inve nto ry de cline s g ra dua lly until it be ca us e ze ro (o ut of stock). If re ple nis hme nt o rde rs a re pla ce d at judicious time s , the n a n inve nto ry re ce ipt of s o me p re dete rmine d qua ntity s hould come in at just a bout the time the inve nto ry would be de plete d. This bottom g ra ph, ofte n refe rre d to a s a s aw- toothe d g ra ph, is a cla s s ica l mode l of inve nto ry be ha vio r whe n us a ge is unifo rm a nd re la tive ly co ntinuous .

Fig u re 1. De ma nd a nd Inv e nto ry G ra phs

- Initia l Dete rmination of the Re o rde r Point

Fig u re 2 . A P re lim ina ry Re o rde r Po int

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

- The Effe cts of Unce rta inty Patte rns of de ma nd 1. De ma nd is exa ctly a s pre dicte d 2. De ma nd exce e ds the ave ra ge during the le a d time 3. De ma nd is le s s tha n fo re ca st

Fig u re 3 . The Effe c ts o f Unc e rta in De ma nd

- The Comple te Re o rde r Po int Mode l To avo id the stockout s ituatio n, s ome s afety stock co uld be a dde d to the d ia g ra m. The s afety stock is not expe cte d to be us e d if de ma nd fits the p re dicte d patte rn.

Fig u re 4 . The Co mp le te Re o rde r Po int Mo de l

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

T ime - Pha s e d O rde r Po int (T PO P). - An a pproa ch that us e s time pe riods , thus a llowing fo r lumpy withd ra wa ls inste a d of a ve ra ge de ma nd. - TPO P ha s a n a dva nta ge ove r re o rde r po int be ca us e it co mbine s de pe nde nt a nd inde pe nde nt de ma nd in a time - pha s e d ma nne r. - It ca n be us e d with MRP a s lo ng a s a n a dditiona l ste p is a dde d to combine inde pe nde nt with de pe nde nt de ma nd in the g ros s re quire me nt line . - The logic of TPO P illustrate d. Ste p 1. To dete rmine g ros s re quire me nts .
Technique Orde r Qua ntity Safety Stock Allocated Qty Le a d- Time Low Leve l Code : 600 : 80 : 0 : 2 : 4 Fixe d. Fixe d. Wee ks .

PART X 1 100 2 100 50 3 120 4 100 140 Pe rio ds . 5 6 100 100 20 30 30 80 5 20 205 5 10 125 7 100 8 100 10 9 125

S a le Fo re c a s t. Inte rpla nt Orde rs . S pe c ia l Eng ine e ring Ne e ds . Cha rity Do natio ns . S pe c ia l Pro motio n.
S afe ty S to c k Inc re a s e . A ntic ipatio n build up .

De pe nde nt de ma nd . Gro s s Re quire me nts .

Orde r Qua ntity Safety Stock Allocated Qty Le a d- Time Low Leve l Code : 600 : 80 : 0 : 2 : 4 Tec hnique Fixed. Fixed. Wee ks .

40 170

30 190

10 130

20 280

50 180

40 160

0 125

Gros s Re quire me nt. S c he dule d Re ce ipts . Proje cte d Ava ila ble . 370 Ne t Re quire me nts . Planne d Orde r Re ce ipts . Planne d Orde r Re le as e .

1 170

2 190 600

3 130

4 280

Pe rio ds . 5 6 180 160

7 205

8 125

9 125

Ste p 2. To ca lculate the time - pha s e d o rde r po int(s ).

Orde r Qua ntity Safety Stock Allocated Qty Le a d- Time Low Leve l Code : 600 : 80 : 0 : 2 : 4 Tec hnique Fixed. Fixed. Wee ks .

Gros s Re quire me nt. S c he dule d Re ce ipts . Proje cte d Ava ila ble . 370 Ne t Re quire me nts . Planne d Orde r Re ce ipts . Planne d Orde r Re le as e .

1 170 200

2 190 600 610

3 130 480

4 280 200

Pe rio ds . 5 6 180 160 620 60 600 460

7 205 255

8 125 130

9 125 605 75 600

600

600

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

Pe rio d ic Re v ie w . - Known a s a fixe d- inte rva l o rde r syste m, o r fixe d re o rde r cyc le inve nto ry mode l. - This is a fo rm of inde pe nde nt de ma nd ma na ge me nt mode l in which a n o rde r is pla ce d eve ry n time units . - The o rde r qua ntity is va ria ble a nd e s s e ntia lly re pla ce s the ite ms cons ume d du ring the cu rre nt time pe riod. - The o rde rs qua ntity mode l be come s mo re co mplicate d whe ne ve r the re ple nis hme nt le a d time exceeds the review inte rva l, be ca use outsta nding o rde rs the n have to fa cto red into the equation. - M - x mode l. M = DD ( L + R ) + S S Q= M - x - O whe re M = Maximum inve nto ry le ve l. DDL = De ma nd during le a d time . DDR = De ma nd during revie w pe riod. S S = Sa fety stock. Q = O rde r q ua ntity. x = Inve nto ry V is ua l Re v ie w . - The inve nto ry re o rde ring is ba s e d on a ctua lly loo king a t the a mount of inve nto ry on ha nd. - This methodology is us ua lly us e d fo r low- va lue ite ms . - A commo n te chnique is to e sta blis h minimum a nd maximum leve ls . Ka nba n . - Ka nba n is a s igna l fo r re ple nis hme nt. - The qua ntity fo r re ple nis hme nt is dete rmine d fro m the rate - ba s e d MRP a s a fixe d- o rde r q ua ntity, o rde r po int method . - In a ma nufa cturing e nviro nme nt the upstre a m sta tion doe s not sta rt producing pa rts until it re ce ive s a s igna l s uch a s a n e mpty bin, o r e mpty floo r s pa ce de s igne d a s a ka nba n.

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

3 . Fa c to rs in Lo t- S iz ing De c is io ns .
O rde r Q ua ntity Co ns t ra ints a nd Mo d ifie rs . - O rde r qua ntity co nstra ints p rovide uppe r a nd lowe r ma c roa djustme nt limits to the ca lcula te d q ua ntity. - They co nstra in the fina l qua ntity betwe e n inclus ive maximum a nd minimum limits . - Uppe r a nd lowe r limits . Uppe r limits : They re strict the day's s upply o r do lla rs fo r a ny o rde r. Lowe r limits : They pre ve nt numbe ro us o rde rs fo r inexpe ns ive pa rts from be ing pla ce d. - O rde r qua ntity modifie rs p rovide a mic roa djustme nt me cha nis m fo r fine - tuning ca lculate d q ua ntitie s . This ca n be us e d to a djust the qua ntity to s upplie r o r co mpa ny- s pe cifie d o rde r multiple s , o r to ta ke a dva nta ge of price bre a ks . - Sc ra p a nd yie ld fa cto rs a re mod ifie rs .

Fig u re 5 . O rd e r Q ua ntity Mo d ifie rs .

- O rde r Qua ntity Constra ints . Minimum qua ntity ca n be us e d to me et a s upplie r minimum, o r e ns ure that a t le a st a pa rticula r price bre a k le ve l is me t. Maximum q ua ntity ca n be s et to re cognize sto ra ge o r tra ns po rt limits (e .g., ta nk ca r). Minimum dolla r ca n be us e d to o rde r at le a st a s upplie r- o r purcha s ing- e sta blis he d minimum purcha s e o rde r c ha rge . Maximum dolla r ca n be us e d to limit inve nto ry inve stme nt leve ls a nd day's s upply, o r limit ce rta in ite m to co rre s po nd with s igna tu re a utho rization leve ls . Minimize da y's s upply ca n be us e d to pre ve nt multiple o rde rs fo r the s a me pe riods a s ca n occ ur with lot- fo r- lot o rde rs in a co ntra ct e nvironme nt, o r limit the numbe r of s ma ll but fre que nt o rde rs which ca n incu r ino rdina te ha ndling a nd fre ight costs . Maximum day's s upply is us e d to s uppo rt inve nto ry turns a nd ta rgets , a nd to re cognize s he lf- life co ns ide ra tio ns .

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

- O rde r Qua ntity Mod ifie rs . A price bre a k qua ntity ca n be e ns ure d on a n individua l o rde r ba s is by s etting o ne of the price bre a k qua ntitie s a s the s upplie r minimum. Ro unding qua ntitie s ca n be us e d to me et conta ine r multiple s , s imple numbe rs , a nd to s implify the cycle counting proce s s . Minimum de ma nd qua ntity re cognize s tha t ce rta in ite ms a re s ubje ct to la rge is s ue s . A minimum de ma nd qua ntity e ns ure s that no s ma ll re mna nts a re left p rio r to re ce ipt of the next o rde r fo r floo rstock a nd othe r bulk- is s ue ite ms . O rde r qua ntity mod ifie r a cco unts fo r p roce s s yie ld o r s c ra p conditio ns , which must be a cco unte d fo r in the sta rting inve nto ry qua ntity to a chieve the re quire d e nding qua ntity. The Co s t As s o c ia te d w ith O rde r Q ua ntity De c is io ns . - The cost to Ca rry Inve nto ry. Sto ra ge fa c ility costs . Counting, tra ns po rting, a nd ha ndling costs . Ris k of obs o le s ce nce due to e ngine e ring cha nge s o r s poila ge . Ins ura nce a nd ta xe s . Ris k of los s d ue to pilfe ra ge . O ppo rtunity costs . : Typica lly the la rge st po rtio n of the ca rrying costs . : The cost of ca pita l re pre s e nts the rate of return tha t the compa ny co uld e a rn fro m its be st inve stme nt o ppo rtunitie s . - The cost of Pla cing O rde rs . The cost of pla cing o rde rs diffe r betwe e n o rde rs pla ce d by purcha s ing to o uts ide s upplie rs a nd o rde rs pla ce d in a fa cto ry fo r prod uction of the ne e de d p roduct. This cost pa ra mete r is us ua lly expre s s e d a s the cost to pla ce a s ingle pa rt in a bs o lute dolla rs . P rod uction co ntro l costs : Is s uing a nd clos ing o rde rs , s che duling, loa ding, dis pa tching, a nd expe d iting. Setup a nd te a rdown costs . Lost ca pa city cost : The time ta ke n to s et up is lost, pa rticula rly impo rta nt a nd costly with bottle ne ck wo rk ce nte rs . Purcha s e o rde r cost : O rde r pre pa ratio n, follow- up, expe diting, re ce iving, a utho rizing payme nt, a nd the a cco unting cost of re ce iving a nd paying the invoice .

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

O rde r Q ua ntity Co s t Co m pa ris o n .

Fig u re 6 . Co s t o f C a rry ing v s . P la c ing O rde rs .

4 . Lo t S iz e Te c hn iq ue s .
Ec o no m ic O rde r Q ua ntity (EOQ ). - The EOQ co nce pt is prima rily us eful a s a te c hnique fo r dete rmining the re latio ns hip betwe e n ca rrying a nd o rde ring costs . - The EOQ fo rmula . EOQ = 2A S Ci whe re A = Annua l Us a ge . C = Cost of Ite m. - Ca rrying, O rde r, a nd Tota l Cost. Ca rrying cost. CC = O rde r cost. OC = A S Q Q Ci + 2 A S Q Q Ci 2 S = Cost pe r O rde r. i = Annua l Cost to Ca rry.

Tota l cost = Ca rrying cost + O rde r cost. TC =

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

Fix e d- O rd e r Q ua ntity . - Us e of a fixe d- o rde r qua ntity is us ua lly dicta te d by s ome co ndition re la te d to s hipping, ha ndling, o r line re ple nis hme nt. - Re ga rdle s s of de ma nd va ria bility, s upplie rs re ce ive cons iste nt o rde rs with co ns iste nt o rde r q ua ntitie s , but a va ria ble fre que ncy. - It may be dete rmine d ve ry info rma lly, s uch a s a s e at- of- the - pa nts e stimate , o r it might be ba s e d on s o me fo rm of ca lcula tio n, s uch a s EOQ. - The fixe d o rde r qua ntity is s hown in :
Orde r Qua ntity Safety Stock Allocate d Qty Lea d- Time Low Leve l Code : 600 : 80 : 0 : 2 : 4 Tec hnique Fixed. Fixed. Wee ks .

Pe rio ds . 1 130 240 2 160 80 3 120 460 120 500 500 4 260 200 5 130 570 10 500 6 120 450 7 185 265 8 115 150 85 500 500 9 125

Gross Requirement. Scheduled Receipts . Projected Available. 370 Net Requirements. Planned Order Receipts. Planned Order Release.

500

Fig u re 7 . Fix e d- O rde r Q ua ntity . Pe rio d- O rde r Q ua ntity . - Pe riod o rde r qua ntity rule s a re s imila r to pe riod- of- s upply, exce pt that the o rde r cycle is dete rmine d mo re s cie ntifica lly. - The a pp roa c h us e s a fo rmula ba s e the EOQ but is s o lve d fo r the optimum numbe r of pe riods to be cove re d by e a c h o rde r rathe r tha n fo r the optimum qua ntity. - Thus , the o rde r cycle is ca lcula te d a s we ll a s the o rde r qua ntitie s , whic h cove r the ne e ds fo r a dis c rete numbe r of pe riods .

Safety Stock = 80 Orde r Qua ntity = POQ Lead Time = 2 Forecast De ma nd Scheduled Rece ipts Projected Ava ila ble Y Pla nned Rece ipts Pla nned Orde r Re leases

Pe rio d s
1 130 370 240 630 2 160 80 3 120 590 630 4 260 330 5 130 200 ? 6 120 80 7 185 ? ? 8 115 ?

Ta b le 5 Pe rio ds O rde r Q ua ntity

* Ave rage pe r pe riod = 130 + 160 + 120 + 260 + 130 + 120 + 185 + 115 8 = 152.5

.* A = 152.5 52 = 7930 .* E OQ = 2A S = C i 27930 10 = 650 1. 500 . 25 = 650 152.5 = 4.26 = 4

* POQ =

EOQ Ave ra ge Pe riod Usage

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

Lo t- fo r- Lo t. - One definition of lot fo r lot is the s um of re quire me nts fo r a pe riod. With MRP re pla nning nightly, pe riods ca n be a s s ho rt a s one day. - Co mpa nie s that must o rde r a nd s e g re gate inve nto ry s e pa ra te ly fo r e a c h c usto me r o rde r o r contra ct ta ke the lot- fo r- lot te chnique furthe r. - To a ccount fo r the costs of e a ch o rde r, a nd to e liminate o r minimize a ny re s idua ls , ite ms a re o bta ine d o nly fo r e a ch o rde r. - No e xplos io n proce s s is re quire d. - Eve n though, the re a re a dva nta ge s of us ing MRP fo r this o rde ring proce s s . A common co mpute r syste m is us e d fo r a ll pla nning a nd o rde ring. The s a me ite m may be s ubje ct to lot- fo r- lot o rde ring fo r ce rta in type s of o rde rs , a nd re gula r pe riod o r othe r type of o rde ring te chnique fo r othe r o rde rs . Re s idua ls may exist due to a minimum purc ha s e on a nothe r o rde r, a n o rde r ca nce llation which le ft inve nto ry in stock, a nd s o o n. The s e re s idua ls will be a pplie d a utomatica lly by MRP prio r to trigge ring a new o rde r.
Safety Stock = 80 Orde r Qua ntity = L4L Lead Time = 2 Forecast De ma nd Scheduled Rece ipts Y Projected Ava ila ble Pla nned Rece ipts Pla nned Orde r Re leases 120 260 80 1 130 130 80 2 160 160 80 80 120 130 80 260 120 80 130 185 80 120 115 80 80 185 115 3 120

Pe rio ds
4 260 5 130 6 120 7 185 8 115

Ta b le 6 . Lo t- fo r- Lo t

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

Pe rfo rma nc e Che c k.

1. Which of the fo llowing a re cha ra cte rist ics of the time - pha s e d o rde r point (TPO P) me thod ? . Accommoda te lumpy de ma nd patte rns . . Us e s a re o rde r po int . . S hows the timing of pla nne d re ple nis hme nt o rde rs . A. . B. , C. , D. , , .

2. If ca rrying costs we re a djuste d fo r a ll ite ms , with a ll othe r pa ra mete rs re ma ining the s a me , e cono mic o rde r qua ntitie s would te nd do which of the following ? A. De c re a s e s lightly fo r o ne o rde ring cycle o nly. B. Inc re a s e fo r eve ry o rde ring cycle until the ca rrying cost is revis e d downwa rd a ga in. C. De c re a s e fo r e ve ry o rde ring cycle until the ca rrying cost is revis e d downwa rd a ga in. D. Not be a ffe cte d at a ll.

3. Which of the fo llowing is a va lid re a s on to o rde r a qua ntity othe r tha n tha t s ugge ste d by the EOQ fo rmula , give n tha t a ll othe r co nditions fo r us e of the fo rmula a re met ? . Ina de quate s e lf s a pce . . Ite m s ubje ct to s po ila ge . . Cost of the ite m. A. B. , C. , D. , ,

4. A s che dule d re ce ipt is A. An o pe n o rde r. C. A firm pla nne d o rde r. B. A pla nne d o rde r. D. A re ce ive d o rde r.

5. The compa ny ha d ma de a majo r e ngine e ring de s ign cha nge to the ir most po pula r prod uct line . This ha s re s ulte d in the tota l re pla ce me nt a nd pha s e d- out of a numbe r of pu rcha s e d ite m. The re is no futu re de ma nd fo r a ny of the s e ite ms . Which of the fo llowing a ctions a re a pp ropriate in o rde r to e ns u re that the pla nne r doe s not re ce ive a ction me s s a ge s from MRP fo r the s e ite ms ? A. Cha nge the low leve l code to ze ro . B. Cha nge the pla nne r ID to a non- existe nt pla nne r. C. No a ctio n is re quire d by the pla nne r. D. Add a la rge qua ntity to a de s igne d "s u rplus " loca tion s o no o rde r a ction is eve r re quire d.

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

6. The buye r ha s notice d that ce rta in ite ms a t bill of mate ria l leve l 1- 3 a re o rde re d individ ua lly fo r e a ch custome r o rde r, but tha t multiple price bre a k a re ava ila ble if the o rde rs a re combine d. Which o ne of the fo llowing s ugge stions s ho uld be ma de to ma na ge me nt fo r co ns ide ratio ns ? A. Cha nge the bill of mate ria l leve l fo r the se ite ms to leve ls 4- 6 a nd continue to va lue by a ctua l cost. B. Us e lot- fo r- lot o rde ring a nd va lue the ite ms a t sta nda rd cost, ba s e d on the most favo ra ble p rice bre a k. C. Us e multi- line ite m o rde rs to inte rna lly tra c k ite m qua ntity to custo me r o rde r numbe r, a nd va lue e a ch ite m by a ctua l coat ba s e d o n tota l o rde r cost. D. Ide ntify the custome r o rde r numbe r o n the purcha s e o rde r to the s upplie r a s "combine d " a nd have the s upplie r cha rge a ctua l cost ba s e d o n the o rde r qua ntity.

7. A s upplie r ha s e sta blis he d a minimum qua ntity of 50 units of a pa rticula r ite m a nd a rounding qua ntity of 10. The Fulbright Compa ny o nly ne e ds 10 units fo r a custom e ngine e ring prod uct. Whic h of the following a ctio ns s hould be ta ke n ? A. O rde r the rounding qua ntity of 10. B. O rde r the minimum qua ntity of 50. C. O rde r 50 a nd reje ct 40 in re ce iving ins pe ction ba ck to the s upplie r. D. O rde r 50 a nd dis pos e of 40 in re ce iving befo re the re ce ipt is p roce s s e d.

8. The compa ny ha s a prima ry a nd ba ckup s upplie r fo r a pa rticula r ite m. The p rima ry s upplie r ha s no rounding qua ntity but the ba ckup s upplie r us e s a proce s s tha t produce s ba tc he s of 10. The re quire o rde rs in multiple s of 10. Whic h of the following a ctio ns s hould the co mpa ny ta ke ? A. Igno re the ro unding qua ntity fo r both s upplie rs a nd o nly o rde r from the p rima ry. B. Esta blis h s e pa rate round ing qua ntitie s fo r both s upplie rs . C. Esta blis h a sta nda rd rounding q ua ntity of 10 to s implify o rde ring re ga rdle s s of the s upplie r. D. O rde r what is re quire d re ga rdle s s of s upplie r a nd a cce pt a ny exce s s from the ba ckup s upplie r.

9. The compa ny us e s a ca rrying cost va lue of 0.25. which of the fo llowing is the most effe ctive wa y fo r a pla nne r to re duce a ctua l ca rrying costs ? A. Re duce the ca rrying cost us e d in o rde r qua ntity ca lc ulatio ns to ze ro. B. Us e a n o rde r qua ntity te chnique that is not ba s e d o n ca rrying cost. C. Bypa s s ce ntra l sto re s a nd stock re ce ive d mate ria l ne a r the po int of us e . D. Esta blis h a days s upply co nstra ints to limit la rge o rde r qua ntitie s .

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S pecia l Lecture

: Deta iled Scheduling a nd Pla nning

Inve nto ry Ma na ge me nt : Orde r P la nning .

10. The co mpa ny ha s just ne gotiate d to ha ve a ll of the e le ctro nic compo ne nts purcha s e d fro m a loca l distributo r cha nge d to co ns ignme nt. Which of the fo llowing a ctio ns ne e d to be ta ke n p rio r to the next re ce ipt fo r the existing inve nto ry ? A. Co nve rt the ba la nce s to co ns ignme nt to sta nda rdize o n the inve nto ry cla s s ification. B. Is s ue the ba la nce s to wo rk in proce s s to ze ro out raw mate ria l inve nto ry. C. Re co rd the ba la nce s a s co mpa ny- owne d inve nto ry s o costs ca n be s e g re gate d. D. Re d uce the unit costs to ze ro to e liminate payme nts to the s upplie r upo n is s ue .

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