ISEN 315
Spring 2011
Dr. Gary Gaukler
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
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”:
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
Dependent Demand
Effective use of dependent demand inventory
models requires the following
1.
2.
3.
4.
5.
Master production schedule
Bill of material (BOM)
Inventory availability
Purchase orders outstanding
Lead times
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
MPS Example
Example:
How to determine MPS?
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
BOM Example
Level
Product structure for “Awesome” (A)
0
A
B(2) Std. 12” Speaker kit
1
E(2)
2
3
D(2)
C(3)
Std. 12” Speaker kit w/
amp-booster
E(2)
Packing box and
installation kit of wire,
bolts, and screws
F(2)
G(1)
Std. 12” Speaker
booster assembly
D(2)
Amp-booster
12” Speaker
12” Speaker
BOM Example
Level
Product structure for “Awesome” (A)
0
A
Part B:
2 x number of As =
Part
C: 12”3 Speaker
x number
B(2) Std.
kit of As =
1
Part D:
Part E:
3
2 x number of Bs
Part F:
2 x number of Cs =
Part G:
1 x number of Fs =
12” Speaker
F(2)
Std. 12” Speaker
booster assembly
2 x number of Bs
Packing box and
+ installation
2 x number
Cs
kit ofof
wire,
bolts, and screws
D(2)
Std. 12” Speaker kit w/
amp-booster
+ 2 x number of Fs = E(2)
E(2)
2
C(3)
=
G(1)
D(2)
Amp-booster
12” Speaker
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
Time-phased Product Structure
Must have D and E
completed here so
production can begin
on B
Start production of D
1 week
D
2 weeks to
produce
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 in weeks
5
Time
|
|
|
6
7
8
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”
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)
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
Gross Requirements Plan
1
A.
B.
C.
E.
F.
D.
G.
2
3
Week
4
5
6
Required date
Order release date
8 Lead Time
50
50
Required date
Order release date
1 week
100
100
Required date
Order release date
2 weeks
150
150
Required date
Order release date
200
200
Required date
Order release date
1 week
300
300
1 week
300
300
Required date
Order release date
Required date
Order release date
7
3 weeks
600
600
200
200
1 week
300
300
1 week
Table 14.3
The Logic of Net Requirements
gross
allocations
requirements +
total requirements
–
on
scheduled
hand + receipts
available inventory
net
= requirements
Net Requirements Plan
Net Requirements Plan
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
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
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
Lot Sizing For MRP Systems
Given:
Net requirements
Determine:
When and how much to produce / order
Simplest Lot Sizing: Lot-for-Lot
Gross
requirements
1
2
3
4
5
6
7
8
9
10
35
30
40
0
10
40
30
0
30
55
35
0
0
0
0
0
0
0
0
0
0
30
40
0
10
40
30
0
30
55
30
40
10
40
30
30
55
40
30
Scheduled
receipts
Projected on
hand
Net
requirements
35
Planned order
receipts
Planned order
releases
30
40
10
30
55
Lot Sizing For MRP Systems
Assumptions:
• Consider only one item
• Demand known and deterministic
• Finite horizon
• No shortages
• No capacity constraints
Lot Sizing For MRP Systems
Problem formulation:
Lot Sizing For MRP Systems
Does this look like an EOQ problem?
EOQ Lot Size Example
Gross
requirements
1
2
3
4
5
6
7
8
9
10
35
30
40
0
10
40
30
0
30
55
35
0
0
0
0
0
0
0
0
0
0
30
0
0
7
0
4
0
0
16
Scheduled
receipts
Projected on
hand
Net
requirements
35
Planned order
receipts
Planned order
releases
73
73
73
73
73
73
73
73
Holding cost = $1/week; Setup cost = $100;
Average weekly gross requirements = 27; EOQ = 73 units
How did we obtain EOQ?
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:
1. Start in period 1. Calculate C(t): average per-period
cost if all units for next t periods produced in period
1.
2. Select lowest t such that C(t)<C(t+1): t*
3. Produce t* in period 1
4. Repeat, starting from period t*+1
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