MPR Lot Sizing Rules (L4L)

· Lot-for-Lot (L4L) ordering

· The order or run size is set equal to the
demand for that period
· Minimizes investment in inventory

· It results in variable order quantities

· A new setup is required for each run

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 MPR Lot Sizing Rules (EOQ)

· Economic Order Quantity (EOQ)

· Also called fixed order quantity (FOQ)

· Can lead to minimum costs if usage of

item is fairly uniform
· This may be the case for some lower-level
items that are common to different ‘parents’
· Less appropriate for ‘lumpy demand’ items
because inventory remnants often result

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 MPR Lot Sizing Rules (POQ)

· FixedPeriod Ordering (POQ)

· Provides coverage for some
predetermined number of periods
· When an order is planned (i.e., planned
order receipts), it should be sufficient to
cover the next P periods (e.g., p=3)

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Example MRP

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Example MRP: L-4-L ordering

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Example MRP: EOQ

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 Lead Time Offsetting

• Gross to net explosion shows how much of

each part is required, but not when
• Timing requires consideration of two factors
– Lead times–how long does it take to obtain the
component or sub-assembly
– Precedent relationships–the order in which parts
must be assembled
• MRP considers both factors when developing
the plan
 Scheduling Logic
• Two common approaches to scheduling exist
– Front schedule–schedule each step as early as
possible. This approach is simple, but parts are
scheduled (and finished) earlier than need be, thus
increasing WIP inventory.
– Back schedule–schedule each step as late as
possible. This approach will reduce WIP, minimize
storage (and time) of completed parts, reserve
flexibility (postpone the commitment or raw
materials to specific products), but it requires
accurate BOM data and lead time estimation.
 Scheduling Logic and MRP
• MRP combines back scheduling and
performs the gross requirements to net
requirements explosion.
– Reduced inventories
– Minimized storage time
Back Scheduling

Top handle assembly

has the longest
duration of any sub-
assembly
Scoop assembly must
be complete before
final assembly can
begin

Only when all sub-

assemblies and
components are
available can final
assembly begin
 Planned order release for
MRP Records top handle assembly
becomes gross requirement
for top handle component
and nail (note 2 nails
required per assembly)

Lot-for-lot order policy

exactly matches supply
to net requirements

Fixed lot size order policy

requires orders in multiples
of lot size
 MRP Technical Issues
• Processing frequency–recalculating all records and
requirements is called regeneration
– This is a computationally intensive process so it is often run in
the background and during periods of low system demand
• Net change approach only recalculates those records that
have experienced changes
• Less frequent processing results in an out-of-date
picture
• More frequent processing increases computer costs and
may lead to system nervousness
 Safety Stock & Safety Lead Time
Theoretically, MRP systems should not require safety stock
Variability may necessitate the strategic use of safety stock
A bottleneck process or one with varying scrap rates may
cause shortages in downstream operations
Shortages may occur if orders are late or fabrication or
assembly times are longer than expected
When lead times are variable, the concept of safety lead
time is often used
Safety Lead Time (see Fig. 6.9)
– Scheduling orders for arrival or completion
sufficiently ahead of their need that the probability
of shortage is eliminated or significantly reduced
 Safety Stock & Safety Lead Time
• Safety stock is buffer stock over and above the
quantity needed to satisfy gross requirements
– Used when quantity uncertainty is the issue
• Safety lead time changes both the release and
due date of shop and/or purchase orders to
provide a margin for error
– Used when timing of orders is the issue
– Safety lead time is not just an inflated lead time
 Pegging
• Pegging provides a link between demand
(order releases, customer orders, etc.) and the
gross requirements for parts
– Pegging records include the specific part numbers
associated with a gross requirement
– Pegging information can track the impact of a
problem (e.g. material shortage) back to the
order(s) it will affect
 Firm Planned Orders
• Regeneration of the MRP records can lead to
large numbers of planned order changes
• To avoid this, a planned order can be
converted to a firm planned order (FPO)
– An FPO is not the same as a scheduled delivery,
but can’t be changed by the MRP system
– Temporarily overrides the MRP system to provide
stability or to solve problems
 Planning Horizon

• Total amount of time included in MRP

calculations
– Longer planning horizon increases computational
requirements
– Shorter planning horizon may result in less-
effective plans if significant future demand is not
visible
– At a minimum, should cover the cumulative lead
time for all finished goods items
 Scheduled Receipts vs. Planned Order Releases

• Scheduled receipts represent an actual commitment

(purchase order, production order, etc.)
• Planned orders are only the current plan and can be
changed more easily
• Scheduled receipts for production orders already have
component materials assigned
– Scheduled receipts do not impact gross requirements
• Planned order releases do not have component materials
assigned
– Planned order releases do impact gross requirements
 MRP Processing Example

Note: Component D is required by two parents.

MRP Processing Example
 MRP Planner Tasks
• Purchase orders
Release • Shop floor (production) orders

Reschedule • Change due dates of existing orders (when desirable)

• Set lot sizes and lead times

Analyze and Update • Adjust scrap allowances and safety stocks

Reconcile • Identify errors and inconsistencies and eliminate their root causes

Identify Problems • Take action now to prevent future crises

Solve Shortages • Adjust records and system parameters to prevent recurrence

Enhance • Identify system enhancements to improve performance

 Exception Codes

Separating the vital few from the

trivial many
Requirements
Part numbers that cannot be
Orders with
with planned satisfied
unsatisfactory
orders in the within system
timing or
immediate parameters
quantity
period (management
input needed)
 Bottom-Up Replanning
• Using pegging data to guide efforts to solve
material shortages
– Pegging data allows the planner to take action
only when actual customer orders are impacted
MRP System Output
Part number and description MRP system data

MRP planning data

Exception messages
 MRP System Dynamics

MRP System Issues

Procedural
Rescheduling– Complex
Transactions inadequacies–
moving the transactions–
during a situations the
due date of inventory
period– system
an order to adjustments,
unexpected wasn’t
an earlier or service parts,
changes designed to
later date etc.
handle
 System Dynamics
An MRP is not a static document
As time goes by
Some orders get completed
Other orders are near completion
New orders will have been entered
Existing orders will have been altered
Quantity changes
Delays
Missed deliveries
– See Figure 6.11,6.12,6.13
 Principles

• Effective use of an MRP system allows development of a

forward-looking approach to managing material flows.
• The MRP system provides a coordinated set of linked product
relationships, which permits decentralized decision making for
individual part numbers.
• All decisions made to solve problems must be implemented
within the system, and transactions must be processed to reflect
the resultant changes.
• Effective use of exception messages allows attention to be
focused on the “vital few” rather than the “trivial many.”
 10. XYZ Company
Item A; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?

Period 1 2 3 4 5 6 7 8 9 10

Gross Requirements 71 46 49 55 52 47 51 48 56 51

Scheduled Receipts

Proj. Available Bal. 150

Planned Order Rel.

Item B; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?

Period 1 2 3 4 5 6 7 8 9 10

Gross Requirements 77 83 90 22 10 10 16 19 27 79

Scheduled Receipts

Proj. Available Bal. 150

Planned Order Rel.

 10. XYZ Company
Item A; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?
Period 1 2 3 4 5 6 7 8 9 10

Gross Requirements 71 46 49 55 52 47 51 48 56 51

Scheduled Receipts

Proj. Available Bal. 150

Planned Order Rel.

Item B; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?

Period 1 2 3 4 5 6 7 8 9 10

Gross Requirements 77 83 90 22 10 10 16 19 27 79

Scheduled Receipts

Proj. Available Bal. 150

Planned Order Rel.

 14. ABC Manufacturing Company
a. Component C (Q=40, LT=2, SS=0)

1 2 3 4 5 6

Gross Requirements

Scheduled Receipts

Projected Available Balance

Planned Order Release

b. Component C (Q=40, LT=2, SS=0)

1 2 3 4 5 6

Gross Requirements

Scheduled Receipts

Projected Available Balance

Planned Order Release