Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

12.8 Scenarios and Exercises

Intended learning outcomes: Calculate projected available inventory. Determine net requirements and planned release using the MRP technique. Differentiate between order point technique and MRP technique.



12.8.1 Projected Available Inventory Calculation

Complete the grid in Figure 12.8.1.1.

Fig. 12.8.1.1       Projected available inventory calculation

a.    What is the available inventory without any restrictions along the time axis?

b.    What is the additional available inventory after order 102 9538?

c.    Which receipt could be deferred?

d.    Furthermore, the following orders are planned:

  • Customer order ID 104 2158 of 500 units on January 20
  • Stock replenishment order ID 104 3231 of 500 units on January 22

Does this situation lead to a problem? If so, how can it be solved?

Solutions:

a.    50
b.    300 (= 350 – 50)
c.    Stock replenishment order ID 101 2897 could be deferred to Jan. 14.
d.    Yes, there will not be enough available inventory on Jan. 20. Expedit­ing order ID 104 3231 by at least two days could solve this problem.


12.8.2 MRP Technique: Determining Net Requirements and Planned Release

Following the example in Figure 12.3.2.2, determine net requirements and planned releases for item ID 4711. Assume an optimum order interval (or optimum length of order cycle) of 3 periods. The production or procurement lead time for item ID 4711 is 2 periods.

Given data or assumptions: a physical inventory of 700 (no safety stock) and the planned gross requirements by period of time as in Figure 12.8.2.1.

Fig. 12.8.2.1       Gross requirements.

As for the planned available inventory, please enter the result, including the planned receipts in each period.

Solution:


12.8.3 Order Point Technique versus MRP Technique

Section 12.3 presents the MRP technique. It is clear why, in the comparison in Figure 6.5.2.1, the MRP is rated to be complicated with regard to the order point technique or the Kanban technique. Section 12.3.1 explained why discontinuous demand is a main reason for the need of the MRP technique for determining stochastic dependent demand (or quasi­deterministic demand). We created an example that will give you a sense of how discontinuity or lumpiness of the demand influences the sum of carrying costs and setup and ordering costs, comparing the MRP technique with the order point technique. You can view the animation at the following URL:

Note that to compare the two techniques a safety stock of the same size as for the order point technique has been introduced for the MRP technique. It is correct to do so, because in the quasi-deterministic case, a safety demand has to be introduced for the independent demand at the end product level (see Section 10.5.5). Through the MRP algorithm, this safety demand is — in fact — always present at some stage on the value chain, just as the safety stock is present in the order point technique for a specific component. Therefore, for comparison of the two techniques, we can assume the safety demand on the component — like a safety stock.

Now, find out how the shape of the of the inventory curve according to the two techniques changes for continuous and less continuous demand (running your cursor over the gray icon shape bar will execute your input choice).

Try out different parameters to calculate the lot size or choose a different initial inventory or service level. Running the cursor over the gray icon either leads you to a specific window where you can enter your input data or executes your input choice.

The “costs” icon opens a window with the carrying costs as well as the setup and ordering costs for the two techniques. Discuss whether for the given demand pattern with less continuous demand there is sufficient reason to prefer the MRP technique. Consider that the calculated costs do not take into account either the batch-size-dependent unit costs — which is the same for both techniques, but generally by far higher than the sum of carrying, setup, and ordering costs or the administration costs for the implementation and use of the specific materials management technique.

Try out other demand values. Observe the effect of issue quantities on the order of the production or procurement batch size. Again, use the “calculate” icon to execute your input choice. The initial demand values are automatically re-entered by touching the gray demand icon. Note what happens with the curves as you continue to enter sequences of two or more periods with zero demand, interrupted by one or two periods with very high demand. You will see that the order point technique will not be able to handle this demand pattern. The projected available inventory level will sometimes fall below zero, engendering opportunity costs that we did even not consider in the costs comparison.




Course 12: Sections and their intended learning outcomes

  • Course 12 – Deterministic Materials Management

    Intended learning outcomes: Produce an overview on demand and available inventory along the time axis. Describe deterministic determination of independent demand. Explain in detail the deterministic determination of dependent demand (Material Requirements Planning, MRP). Differentiate various lot sizing techniques. Disclose how to analyze the results of the MRP.

  • 12.1 Demand and Available Inventory along the Time Axis

    Intended learning outcomes: Explain the projected available inventory and its calculation. Describe scheduling and cumulative projected available inventory calculation. Produce an overview on operating curves for stock on hand.

  • 12.2 Deterministic Determination of Independent Demand

    Intended learning outcomes: Present the customer order and distribution requirements planning (DRP). Disclose the consumption of the forecast by actual demand.

  • 12.3 Deterministic Determination of Dependent Demand

    Intended learning outcomes: Describe characteristics of discontinuous dependent demand. Explain material requirements planning (MRP) and planned orders. Disclose the determination of the timing of dependent demand and the load of a planned order.