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Topic 3

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By the end of this topic, you should be able to: Define inventory;

State the functions and types of inventory;

List the requirements for effective inventorymanagement;

Identify inventory models for independent demand;

Explain dependent inventory model requirement;

Describe the MRP structure; and Determine lot-sizes in a MRP system.

2

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Inventory

Why do you think that Inventory isimportant for an organization?

Stored resource that is used tosatisfy current or future need iscalled inventory.

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Functions of Inventory

To provide a stock of goodsTo avoid shortages or stock-outs due to

bad weather, quality problems orimproper delivery.To reduce the cost of goods by

minimizing purchasing and inventory

costTo allow operations to continue smoothly

with the use of work-in-processinventory.

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Inventory

types

Raw materialWork-in-progress

(WIP)

Maintenance/

Repair/Operating

(MRO)

supply

Finished

good

5

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1010 2020 3030 4040 5050 6060 7070 8080 9090 100100Percentage of itemsPercentage of items

Percentageof

dollarv

alue

Percen

tageof

dollarv

alue

100100

9090

8080

7070

6060

5050

4040

3030

2020

1010

00

Class C

Class A

Class B

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ABC analysis - steps

1. Classify the items of inventories, determining theexpected use in units and the price per unit for eachitem.

2. Determine the total value of each item by multiplyingthe expected units by its units price

3. Rank the items in accordance with the total value,giving first rank to the item with highest total valueand so on.

4. Compute the ratios (percentage) of number of units ofeach item to total units of all items and the ratio oftotal value of each item to total value of all items.

5. Combine items on the basis of their relative value toform three categories: -A, B and C.

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ABC analysis - example

A firm has 7 different items in its inventory. The firm wishes tointroduce an ABC inventory system. Suggest a breakdown of theitems into A, B & C classifications

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ABC analysis - example

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Activity 8

Rank the itemsand assignthem to theA,B or C class

Item RM Value AnnualUsage

1 0.01 1200

2 0.03 1200003 0.45 100

4 1.00 44000

5 4.50 9006 0.90 350

7 0.30 70000

8 1.50 200

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Inventory models

Independent demandsdemands of various items

unrelated to each other

Dependant demandsneed of any one item is

the need for some other item

12

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Holding Cost cost associated with maintaining the inventory warehouse and

protecting

Setup Cost

arranging specific equipment setups, filling out the required papersand moving out the previous stock of material

Ordering Cost

clerical cost to prepare the purchase and production order such as

counting items and calculating order quantities

Shortage Cost

Associated with demand when stocks have been depleted. Whensales are lost because of stock-outs, the firm loses both profit marginon unmade sales and its customers good will. Some will even sufferwith lateness penalties.

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Inventory models

Fix-order Quantity/

EOQ model

Fixed-time Period/

Fixed Order

Interval System

Quantity Discount

14

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Notations

The following are the notation that will beused in developing the inventory models.

D = Annual demand

Q = Quantity ordered (in units)

S = Annual Setup/Ordering cost per order

H = Annual Holding Cost per unit

C = Total annual Cost

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HowHowMuch?Much?

When!When!

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Bird feeder container.Sales are 18 units/week.Supplier charges = $60/unitOrder cost = $45Annual holding cost = 25% of unit valueMuseum operates = 52weeks/yearManagement decision 390 unit lot sizeWhat is the annual cost?Would lot size 468 be better?

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1.1. Demand rate is constantDemand rate is constant

2.2. No constraints on lot sizeNo constraints on lot size3.3. Only relevant costs are holding andOnly relevant costs are holding and

ordering/setupordering/setup

4.4. Decisions for items are independentDecisions for items are independentfrom other itemsfrom other items

5.5. No uncertainty in lead time or supplyNo uncertainty in lead time or supply

AssumptionsAssumptions

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Inventory depletionInventory depletion

(demand rate)(demand rate)ReceiveReceive

orderorder

1 cycle1 cycle

On-h

an

dinventory(u

nits)

On-h

an

dinventory(u

nits)

TimeTime

QQ

AverageAverage

cyclecycle

inventoryinventory

QQ22

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Annualcost

(dollars)

Annua

lcost(dol

lars)

Lot Size (Lot Size (QQ))

Holding cost (Holding cost (HCHC))

Ordering cost (Ordering cost (OCOC))

Total cost =Total cost = HCHC++ OCOC

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Example 15.2Example 15.2

30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

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Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

Example 15.2Example 15.2

30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Bird feeder costs

C= (H) + (S)Q

2

D

Q

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units

C = $2925 + $108 = $3033

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30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

Bird feeder costs

C= (H) + (S)Q

2

D

Q

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units

C = $2925 + $108 = $3033

CurrentCurrentcostcost

CurrentCurrent

QQ

Example 15.2Example 15.2

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30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

Bird feeder costs

C= (H) + (S)Q

2

D

Q

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units

C = $2925 + $108 = $3033

CurrentCurrentcostcost

CurrentCurrent

QQ

Example 15.2Example 15.2

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30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

Bird feeder costs

C= (H) + (S)Q

2

D

Q

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 468468 units

CurrentCurrentcostcost

CurrentCurrent

QQ

Example 15.2Example 15.2

C = $3510 + $90 = $3600

HQ

SD

=

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EOQformula:

H

DSQ

H

DSQ

HQDS

HSS

2*

2

2

2

2

2

=

=

=

=

H

DSQ

H

DSQ

HQDS

HQ

SS

D

2*

2

2

2

2

2

=

=

=

=

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30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

CurrentCurrentcostcost

CurrentCurrent

QQ

Example 15.2Example 15.2

Bird feeder costs

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15

S= $45 Q= EOQ

C= (H) + (S)Q

2

D

QEOQ =

2DSH

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30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

CurrentCurrentcostcost

CurrentCurrent

QQ

Example 15.2Example 15.2

Bird feeder costs

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15

S= $45 Q= 75

C= (H) + (S)Q

2

D

QEOQ =

2DSH

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30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

CurrentCurrentcostcost

CurrentCurrent

QQ

Example 15.2Example 15.2

Bird feeder costs

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15

S= $45 Q= 75

C= (H) + (S)Q

2

D

QEOQ =

2DSH

C = $562 + $562 = $1124

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30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

CurrentCurrentcostcost

CurrentCurrent

QQ

Example 15.2Example 15.2

Bird feeder costs

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15

S= $45 Q= 75

C= (H) + (S)Q

2

D

QEOQ =

2DSH

C = $562 + $562 = $1124

LowestLowest

costcost

BestBest QQ

(EOQ)(EOQ)

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Example 15.2Example 15.2

30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

CurrentCurrentcostcost

CurrentCurrent

QQ

Bird feeder costs

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15

S= $45 Q= 75

C= (H) + (S)Q

2

D

QEOQ =

2DSH

C = $562 + $562 = $1124

LowestLowest

costcost

BestBest QQ

(EOQ)(EOQ)

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LowestLowest

costcost

BestBest QQ

(EOQ)(EOQ)

Example 15.2Example 15.2

30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

CurrentCurrentcostcost

CurrentCurrent

QQ

Bird feeder costs

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15

S= $45 Q= 75

C= (H) + (S)Q

2

D

QEOQ =

2DSH

C = $562 + $562 = $1124

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LowestLowest

costcost

BestBest QQ

(EOQ)(EOQ)

Example 15.2Example 15.2

30003000

20002000

10001000

00

| | | | | | | |

5050 100100 150150 200200 250250 300300 350350 400400

Lot Size (Lot Size (QQ))

Annualcost(d

ollars)

Annualcost(d

ollars)

Total cost = (Total cost = (HH) + () + (SS))DD

QQQQ

22

Holding cost = (Holding cost = (HH))QQ

22

Ordering cost = (Ordering cost = (SS))DDQQ

CurrentCurrentcostcost

CurrentCurrent

QQ

Bird feeder costs

D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15

S= $45 Q= 75

C= (H) + (S)Q

2

D

QEOQ =

2DSH

C = $562 + $562 = $1124

Time between orders

TBOEOQ

= = 75/936 = 0.080 yearEOQ

D

TBOEOQ = (75/936)(12) = 0.96 months

TBOEOQ = (75/936)(52) = 4.17 weeks

TBOEOQ = (75/936)(365) = 29.25 days

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Activity 9

A company that markets a product Z would liketo reduce its inventory cost by determining theoptimal number of Z to obtain per order. The

annual demand is 1960 units, thesetup/ordering cost is RM5 per order, and theholding cost per unit per year is RM1.

(a) Calculate the optimal number of units perorder.

(b) If a 260-day working per year, find thenumber of orders, N.

(c) Calculate the total inventory costs.

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HowHowMuch?Much?

When!When!

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Inventory

models

Master

Production

Schedule

(MPS)

Bill of

Material

(BOM)

Accurate

Inventory

Records

Purchase

Order

Standing

Lead Time

for each

component

38

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Bills ofmaterials

Engineeringand process

designs

Inventorytransactions

Inventoryrecords

Othersources

of demand

Authorizedmaster production

schedule

Materialrequirements

plan

MRPMRP

explosionexplosion

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Seat cushion

Seat-frameboards

Frontlegs A

Ladder-backchair

Backlegs

Leg supports

Back slats

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J (4)Seat-frame

boards

I (1)

Seatcushion

H (1)

Seatframe

G (4)

Backslats

F (2)

Backlegs

C (1)Seat

subassembly

D (2)Frontlegs

B (1)Ladder-backsubassembly

E (4)Leg

supports

AALadder-backLadder-back

chairchair

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Ladder-back chair

Kitchen chair

Desk chair

1 2

April May

3 4 5 6 7 8

Aggregateproduction planfor chair family

200

670670

200

150

120

200

150

200

120

670670

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements

1 2 3 4 5 6 7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

Week

150150

230230

00

00

00

00

120120

00 00

150150

00

120120

00 00

37

0000

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

Explanation:Gross requirements are the total demand forthe two chairs. Projected on-hand inventoryin week 1 is 37 + 230 150

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

Explanation:Gross requirements are the total demand forthe two chairs. Projected on-hand inventoryin week 1 is 37 + 230 150 = 117 units.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

Projected on-handinventory balanceat end of week t

Inventory onhand at endof week t - 1

Grossrequirements

in week t

Scheduledor plannedreceipts in

week t

= +

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 33 33 153153 273273 273273

Projected on-handinventory balanceat end of week t

Inventory onhand at endof week t - 1

Grossrequirements

in week t

Scheduledor plannedreceipts in

week t

= +

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 33 33 153153 273273 273273

Explanation:

Without a new order in week 4,there will be a shortage of threeunits: 117 + 0 + 0 120 = 3units.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

Explanation:Adding the planned receiptbrings the balance to117 + 0 + 230230 120 = 227 units.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

Explanation:Adding the planned receiptbrings the balance to117 + 0 + 230230 120 = 227 units.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

230230

Explanation:Offsetting for a two-week lead timeputs the corresponding plannedorder release back to week 2.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

230230

Explanation:Offsetting for a two-week lead timeputs the corresponding plannedorder release back to week 2.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

230230

227227 7777 4343

Explanation:The first planned order lastsuntil week 7, when projectedinventory would drop to 43.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

230230

227227 7777

230230

Explanation:Adding the second plannedreceipt brings the balance to77 + 0 + 230230 120 = 187.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

230230

227227 7777

230230

Explanation:Adding the second plannedreceipt brings the balance to77 + 0 + 230230 120 = 187.

187187

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

230230

227227 7777

230230

187187

230230

Explanation:The corresponding plannedorder release is for week 5.

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Item: CDescription: Seat subassembly

Lot Size: 230 unitsLead Time: 2 weeks

Grossrequirements 150150

1

230230

117117

00

2

00

00

3

00

120120

4

00

5

00

150150

6

00

120120

7

00

8

00Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

0000

117117 117117 227227

230230

230230

227227 7777

230230

187187

230230

187187

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Grossrequirements

1 2 3 4 5 6 7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

Week

150150

230230

117117

120120 150150 120120

37 117117 117117

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

POQlot

size

Gross requirementsfor weeks4, 5, and 6

Inventory atend of week 3=

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

(120 + 0 + 150)

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

(120 + 0 + 150) 117

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

(120 + 0 + 150) 117 = 153 units

153153

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

(120 + 0 + 150) 117 = 153 units

153153

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

(120 + 0 + 150) 117 = 153 units

153153

150150

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Item: C

Description: Seat subassembly

Lot Size: P= 3

Lead Time: 2 weeks

Gross

requirements150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-handinventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

(120 + 0 + 150) 117 = 153 units

153153

150150

153153

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Item: CDescription: Seat subassembly

Lot Size: P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

(120 + 0) 0 = 120 units

153153

150150

153153

150150 00 00 00

120120

120120

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Item: CDescription: Seat subassembly Lot Size:P= 3Lead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

153153

150150

153153

150150 00 00 00

120120

120120

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements

1 2 3 4 5 6 7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

Week

150150

230230

117117

120120 150150 120120

37 117117 117117

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

L4Llot

size

Gross requirementsin week 4

Inventory balanceat end of week 3=

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

= 120 117 = 3L4Llot

size

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

3

= 120 117 = 3L4Llot

size

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

3

3

0

= 120 117 = 3L4Llot

size

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventory

Plannedreceipts

Planned orderreleases

37

Week

117117 117117

3

3

0 00

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventoryPlannedreceipts

Planned orderreleases

37

Week

117117 117117

3

3

0

150

00

150

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventoryPlannedreceipts

Planned orderreleases

37

Week

117117 117117

3

3

0

150

00

150

0

120

120

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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventoryPlannedreceipts

Planned orderreleases

37

Week

117117 117117

3

3

0

150

00

150

0

120

120

0

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The FOQ rule generates high averageThe FOQ rule generates high averageinventory because it creates remnants.inventory because it creates remnants.

The POQ rule reducesThe POQ rule reduces

average on-hand inventoryaverage on-hand inventory

because it does a betterbecause it does a better

job of matching orderjob of matching order

quantity to requirements.quantity to requirements. The L4L rule minimizesThe L4L rule minimizes

inventory investmentinventory investment

but maximizes the number of orders placed.but maximizes the number of orders placed.

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Material requirements plan

Action notices Releasing new orders Adjusting due dates

Priority reports Dispatch lists Supplier schedules

Capacity reports Capacity requirements planning Finite capacity scheduling Input-output control

Manufacturing resources plan

Performance reportsCost andprice data

Routingsand time

standards

MRPMRPexplosionexplosion

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J (4)Seat-frame

boards

H (1)Seat

frame

I (1)Seat

cushion

C (1)Seatsubassembly

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Item: Seat subassemblyLot size: 230 units

Leadtime: 2 weeks

Gross

requirements 150150

1

230230

117117

2 3

120120

4 5

150150

6

120120

7 8

Scheduledreceipts

Projectedon-hand

inventoryPlannedreceipts

Planned orderreleases

37

Week

117117 117117

0 00 0

00 00 000 00 0

227 227 77 187 187

230230

230230

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Item: Seat subassemblyLot size: 230 units

Leadtime: 2 weeks

Grossrequirements

150150

1 2 3

120120

4 5

150150

6

120120

7 8

Plannedreceipts

Plannedorderreleases

Week

0 00 0

230

230

230

230

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Item: Seat subassemblyLot size: 230 units

Leadtime: 2 weeks

Grossrequirements

150150

1 2 3

120120

4 5

150150

6

120120

7 8

Plannedreceipts

Plannedorderreleases

Week

0 00 0

230

230

230

230

Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

1

00

2 3 4 5 6 7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

40

Week

00

00

00300 00 0

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

1

00

2 3 4 5 6 7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

0

Week

00

00

000 00 0

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Item: Seat subassemblyLot size: 230 units

Leadtime: 2 weeks

Grossrequirements 150150

1 2 3

120120

4 5

150150

6

120120

7 8

Plannedreceipts

Plannedorderreleases

Week

0 00 0

230

230

230

230

Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

0

1

0

2 3 4 5 6 7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

40

Week

230

0 0 0300 00 0

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

0

1

0

2 3 4 5 6 7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

0

Week

230

0 0 00 00 0

Usage quantity: 1Usage quantity: 1 Usage quantity: 1Usage quantity: 1

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Item: Seat subassemblyLot size: 230 units

Leadtime: 2 weeks

Grossrequirements 150150

1 2 3

120120

4 5

150150

6

120120

7 8

Plannedreceipts

Plannedorderreleases

Week

0 00 0

230

230

230

230

Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

00

1

00

2 3

00

4 5 6 7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

40

Week

230 2300

00 00 00300 00 0

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

00

1

00

2 3

00

4 5 6 7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

0

Week

230 2300

00 00 000 00 0

Usage quantity: 1Usage quantity: 1 Usage quantity: 1Usage quantity: 1

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Item: Seat subassemblyLot size: 230 units

Leadtime: 2 weeks

Grossrequirements 150150

1 2 3

120120

4 5

150150

6

120120

7 8

Plannedreceipts

Plannedorderreleases

Week

0 00 0

230

230

230

230

Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

00

1

00

4040

2 3

00

4 5

00

6

00

7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

40

Week

110110 110110

230 2300 0

00 00 00300 00 0

110 180 180 180 180

300

300

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

00

1

00

00

2 3

00

4 5

00

6

00

7 8

Scheduled

receipts

Projectedon-handinventory

Plannedreceipts

Plannedorderreleases

0

Week

00 00

230 2300 0

00 00 000 00 0

0 0 0 0 0

230

230

230

230

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Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

300

300

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

230

230

230

230

00 00 00 00230 2300 000 00 00 00230 2300 0

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Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

300

300

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

230

230

230

230

00 00 00 00230 2300 000 00 00 00230 2300 0

Grossrequirements

1

00

2 3 4 5 6 7 8

Scheduled

receipts

Plannedreceipts

Plannedorderreleases

200

Week

00 00 000 00 0

Projectedon-handinventory

Item: Seat-frame boardsLot size: 1500 units

Leadtime: 1 week

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Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

300

300

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

230

230

230

230

00 00 00 00230 2300 000 00 00 00230 2300 0

Grossrequirements

00

1

00

2 3

12001200

4 5

00

6

00

7 8

Scheduled

receipts

Plannedreceipts

Plannedorderreleases

200

Week

0 00 0

00 00 000 00 0

Projectedon-handinventory

Item: Seat-frame boardsLot size: 1500 units

Leadtime: 1 week

Usage quantity: 4Usage quantity: 4

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Item: Seat framesLot size: 300 units

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

300

300

Item: Seat cushionLot size: L4L

Leadtime: 1 week

Grossrequirements

1 2 3 4 5 6 7 8

Plannedreceipts

Plannedorderreleases

Week

230

230

230

230

00 00 00 00230 2300 000 00 00 00230 2300 0

Grossrequirements

00

1

00

200200

2 3

12001200

4 5

00

6

00

7 8

Scheduled

receipts

Plannedreceipts

Plannedorderreleases

200

Week

200200 200200

0 00 0

00 00 000 00 0

500 500 500 500 500

1500

1500

Projectedon-handinventory

Item: Seat-frame boardsLot size: 1500 units

Leadtime: 1 week

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Authorizedproduction

plan

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Authorizedproduction

plan

Prospective masterproduction

schedule

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Are resourcesavailable?

Authorizedproduction

plan

Prospective masterproduction

schedule

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NoNoAre resources

available?

Authorizedproduction

plan

Prospective masterproduction

schedule

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No

YesYes

Are resourcesavailable?

Authorizedproduction

plan

Prospective masterproduction

schedule

Authorized master

production schedule

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NoNo

YesYes

Are resourcesavailable?

Authorizedproduction

plan

Prospective masterproduction

schedule

Materialrequirements

planning

Authorized master

production schedule

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MPS quantityMPS quantity

(0 for week 1)(0 for week 1)Inventory =Inventory = + =+ =

55 chairs55 chairs

currently incurrently in

stockstock

38 chairs already38 chairs already

promised forpromised for

delivery in week 1delivery in week 1

1717

chairschairs

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MPS quantity(0 for week 1)

Inventory = + =55 chairs

currently instock

38 chairs alreadypromised for

delivery in week 1

17chairs

Item: Ladder-back chair

MPS start

MPS quantity

Projected on-handInventory

Customer orders(booked)

Forecast

QuantityOn Hand:

April

55 1 2

30 30

38 27

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MPS quantity(0 for week 1)

Inventory = + =55 chairs

currently instock

38 chairs alreadypromised for

delivery in week 1

17chairs

Explanation:Forecast is less than bookedorders in week 1; projectedon-hand inventorybalance = 55 + 0 38 = 17.

Item: Ladder-back chair

MPS start

MPS quantity

Projected on-handInventory

Customer orders(booked)

Forecast

QuantityOn Hand:

April

55 1 2

30 30

38 27

17

0

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MPS quantity(0 for week 1)

Inventory = + =55 chairs

currently instock

38 chairs alreadypromised for

delivery in week 1

17chairs

Explanation:Forecast exceeds booked orders inweek 2; projected on-hand inventorybalance = 17 + 0 30 = 13. Theshortage signals a need to schedule anMPS quantity for completion in week 2.

Explanation:Forecast is less than bookedorders in week 1; projectedon-hand inventorybalance = 55 + 0 38 = 17.

Item: Ladder-back chair

MPS start

MPS quantity

Projected on-handInventory

Customer orders(booked)

Forecast

QuantityOn Hand:

April

55 1 2

30 30

38 27

17 -13

0 0

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Item: Ladder-back chair Order Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17

0

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Item: Ladder-back chair Order Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17

0

137137

150

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Item: Ladder-back chair Order Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17

0

137137

150

Explanation:

On-hand inventory balance= 17 + 150 30 = 137137. TheMPS quantity is needed toavoid a shortage of 30 17 = 13chairs in week 2.

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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17

0

137137

150

Explanation:The time needed to assemble

150150 chairs is one week. Theassembly department muststart assembling chairs in week1 to have them ready by week 2.

150

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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17 137 107

0 150 0

150 0

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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17 137 107 77

0 150 0 0

150 0 0

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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17 137 107 77 42

0 150 0 00

150 0 00

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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17 137 107 77 42 7

0 150 0 00 0

150 0 00 0

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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17 137 107 77 42 7 122

0 150 1500 00 0

150 1500 00 0

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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders(booked)

Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantityon Hand:

55

17 137 107 77 42 7 122 87

0 150 1500 00 0 0

150 1500 00 0 0 0

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Item: Ladder-back chairLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders

(booked)Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantity

on Hand: 55

17 137 107 77 42 7 122 87

0 150 1500 00 0 0

150 1500 00 0 0

Available-to-promise (ATP)inventory

0

Item: Ladder-back chairOrder Policy: 150 units

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Item: Ladder back chairLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders

(booked)Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantity

on Hand: 55

17 137 107 77 42 7 122 87

0 150 1500 00 0 0

150 1500 00 0 0

Available-to-promise (ATP)inventory

1717

0

Explanation:The total of customer ordersbooked until the next MPS

receipt is 38 units. The ATP =55 (on-hand) + 0 (MPSquantity) 38 = 1717.

Item: Ladder-back chairOrder Policy: 150 unitsL d Ti 1 k

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Item: Ladder back chairLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders

(booked)Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantity

on Hand: 55

17 137 107 77 42 7 122 87

0 150 1500 00 0 0

150 1500 00 0 0

Available-to-promise (ATP)inventory

1717 9191

0

Explanation:The total of customer orders

booked until the next MPSreceipt is 27 + 24 + 8 = 59units. The ATP = 150 (MPSquantity) 59 = 9191units.

Item: Ladder-back chairOrder Policy: 150 unitsL d Ti 1 k

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Item: Ladder back chairLead Time: 1 week

Forecast

1

3838

3030

2

2727

3030

3

2424

3030

4

88

5

00

3535

6

00

3535

7

00

8

00

Customerorders

(booked)Projectedon-handinventory

MPS quantity

MPS start

35353535

April May

3030

Quantity

on Hand: 55

17 137 107 77 42 7 122 87

0 150 1500 00 0 0

150 1500 00 0 0

Available-to-promise (ATP)inventory

1717 9191 150

0

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Week

1 2 3 4 5 6 7 8 9 10

0 150 0 0 0 0 150 0 0 0MPSquantity

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WeekWeek

1 2 3 4 5 6 7 8 9 10

0 150 0 0 0 0 150 0 0 0MPSquantity

DemandDemandtimetime

fencefence

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Item: AOrder Policy: 50 unitsLead Time: 1 week

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Lead Time: 1 week

Forecast

Customerorders

(booked)Projectedon-handinventory

MPS quantity

MPS start

WeekQuantity

on Hand: 5

Available-to-promise (ATP)inventory

1

3030

1010

2

2020

4040

3

55

1010

4

88

5

00

00

6

22

4040

7

00

8

00

2020002020

25

50

3030

7

00

8

00

1010

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Manufacturing resource planCost and

financial data

Purchasingreports

Financial/accounting

reports

Sales andmarketing

reports

Humanresourcereports

Manufacturingreports

Inventory recordsInventory transactions

Bills of materialsRoutings

Time standards

MRPMRP

explosionexplosion

Master production schedule

Customer orders Forecasts

Material requirements plan

ProductionProduction

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PlanPlanTru-RainbowTru-Rainbow

CompanyCompany

15001500

12501250

10001000

750750

500500

250250

00

| | | |

11 22 33 44QuarterQuarter

Pai

nt(t

housandsof

gallons)

Paint(t

housandsof

gallons)

RequirementsRequirements

ProductionProduction

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PlanPlanTru-RainbowTru-Rainbow

CompanyCompany

15001500

12501250

10001000

750750

500500

250250

00

| | | |

11 22 33 44QuarterQuarter

Pai

nt(t

housandsof

gallons)

Paint(t

housandsof

gallons)

Production planProduction plan

RequirementsRequirements

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ProductionProductionI tInventory

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PlanPlanTru-RainbowTru-Rainbow

CompanyCompany

110110

400400

15001500

12501250

10001000

750750

500500

250250

00

| | | |

11 22 33 44QuarterQuarter

Pai

nt(t

housandsof

gallons)

Paint(t

housandsof

gallons)

510510

300300

InventoryInventoryconsumptionconsumption

Production planProduction plan

RequirementsRequirements

InventoryInventory

accumulationaccumulation

ProductionProductionInventoryInventory

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PlanPlanTru-RainbowTru-Rainbow

CompanyCompany

110110

400400

15001500

12501250

10001000

750750

500500

250250

00

| | | |

11 22 33 44QuarterQuarter

Paint(t

housandsof

gallons)

Paint(t

housandsof

gallons)

510510

300300

InventoryInventoryconsumptionconsumption

Production planProduction plan

RequirementsRequirements

InventoryInventory

accumulationaccumulation

ProductionProduction

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PlanningPlanning

TableauTableauTru-RainbowTru-Rainbow

CompanyCompany

ProductionProduction

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PlanningPlanning

TableauTableauTru-RainbowTru-Rainbow

CompanyCompany Total Cost

Quarter Cost

ProductionProduction

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PlanningPlanning

TableauTableauTru-RainbowTru-Rainbow

CompanyCompany Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $68

ProductionProduction

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PlanningPlanning

TableauTableauTru-RainbowTru-Rainbow

CompanyCompany Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,048

ProductionProduction

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PlanningPlanning

TableauTableauTru-RainbowTru-Rainbow

CompanyCompany Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,0483 110($1.30) + 90($1.80) + 200($2.20)

+ 750($1.00) + 150($1.50) = 2,100

ProductionProduction

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PlanningPlanning

TableauTableauTru-RainbowTru-Rainbow

CompanyCompany Total Cost

Quarter Cost

1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,0483 110($1.30) + 90($1.80) + 200($2.20)

+ 750($1.00) + 150($1.50) = 2,1004 450($1.00) + 90($1.50) + 110($1.90) = 794

Total $4,010

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1 450 90 20 5602 450 90 200 7403 750 150 200 1,1004 450 90 110 650

Totals 2,100 420 530 3,050

Regular-Time Overtime Subcon-Quarter Production Production tracting Total

Anticipation Inventory

Quarter Quantity

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1 450 90 20 5602 450 90 200 7403 750 150 200 1,1004 450 90 110 650

Totals 2,100 420 530 3,050

Regular-Time Overtime Subcon-Quarter Production Production tracting Total

Anticipation Inventory

Quarter Quantity

1 250 + 560 300 = 510

2 510 + 740 850 = 4003 400 + 1,100 1,500 = 04 0 + 650 350 = 300

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Topic 4

Alternatives Quarter

12

34

TotalCapacity

Unuse

dCapacit

y

Requirements

Quarter

Subcontract

Overtime

Regulartime

Subcontract

Overtime

Regulartime

Subcontract

Overtime

Regulartime

Subcontract

Overtime

Regulartime

Beginning

inventory1

2

3

4

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By the end of this topic, you should beable to: Discuss the aggregate planning

strategies; Describe some of the methods used in

aggregate planning;

Identify assignment method, sequencingrules and Johnsons rule; and

Explain shop loading, sequencingmonitoring.

147

Planning RelationshipsPlanning Relationships

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g pg p

BusinessBusinessor annualor annual

planplan

Planning RelationshipsPlanning Relationships

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g pg p

BusinessBusinessor annualor annual

planplan

ProductionProductionor staffingor staffingplanplan

Planning RelationshipsPlanning Relationships

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g pg p

MPS orMPS orworkforceworkforcescheduleschedule

BusinessBusinessor annualor annual

planplan

ProductionProductionor staffingor staffingplanplan

Planning RelationshipsPlanning Relationships

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g pg p

MPS orMPS orworkforceworkforcescheduleschedule

BusinessBusinessor annualor annual

planplan

ProductionProductionor staffingor staffingplanplan

Planning RelationshipsPlanning Relationships

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g pg p

MPS orMPS orworkforceworkforcescheduleschedule

BusinessBusinessor annualor annual

planplan

ProductionProductionor staffingor staffingplanplan

Managerial InputsManagerial Inputs

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Aggregate

plan

Managerial InputsManagerial Inputs

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Aggregate

plan

Customer needs

Demand forecasts

Competition behavior

Distribution and marketing

Managerial InputsManagerial Inputs

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Cost data

Financial condition

of firm

Accounting and finance

Aggregate

plan

Customer needs

Demand forecasts

Competition behavior

Distribution and marketing

Managerial InputsManagerial Inputs

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Labor-market conditions

Training capacity

Human resources

Cost data

Financial condition

of firm

Accounting and finance

Aggregate

plan

Customer needs

Demand forecasts

Competition behavior

Distribution and marketing

Managerial InputsManagerial Inputs

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New products

Product design changes

Machine standards

Engineering

Labor-market conditions

Training capacity

Human resources

Cost data

Financial condition

of firm

Accounting and finance

Aggregate

plan

Customer needsDemand forecasts

Competition behavior

Distribution and marketing

Managerial InputsManagerial Inputs

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Supplier capabilities

Storage capacity

Materials availability

Materials

New products

Product design changes

Machine standards

Engineering

Labor-market conditions

Training capacity

Human resources

Cost data

Financial condition

of firm

Accounting and finance

Aggregate

plan

Customer needsDemand forecasts

Competition behavior

Distribution and marketing

Managerial InputsManagerial Inputs

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Supplier capabilities

Storage capacity

Materials availability

Materials

Current machine capacitiesPlans for future capacities

Workforce capacitiesCurrent staffing level

Operations

New products

Product design changes

Machine standards

Engineering

Labor-market conditions

Training capacity

Human resources

Cost data

Financial condition

of firm

Accounting and finance

Aggregate

plan

Customer needsDemand forecasts

Competition behavior

Distribution and marketing

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Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits

Maximize Customer ServiceMaximize Customer Service

Minimize Inventory InvestmentMinimize Inventory Investment Minimize Changes in ProductionMinimize Changes in Production

RatesRates

Minimize Changes in WorkforceMinimize Changes in WorkforceLevelsLevels

Maximize Utilization of Plant andMaximize Utilization of Plant and

EquipmentEquipment 160

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TABLE 14.1 PLANNING STRATEGIES FOR AGGREGATE PLANS

Possible Alternatives Possible AlternativesStrategy during Slack Season during Peak Season

4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-outputrate pation inventory, pation inventory, over-

undertime, vacations time, subcontracting,backorders, stockouts

1. Chase #1: vary workforce Layoffs Hiringlevel to match demand

2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,rateto match demand vacations subcontracting

3. Level #1: constant No layoffs, building No hiring, depletingworkforcelevel anticipation inventory, anticipation inventory,

undertime, vacations overtime, subcontracting,backorders, stockouts

Aggregate Planning ProcessAggregate Planning Process

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gg g ggg g g

Determinerequirements forplanning horizon

Aggregate Planning ProcessAggregate Planning Process

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gg g ggg g g

Determinerequirements forplanning horizon

Identify alternatives,constraints, and costs

Aggregate Planning ProcessAggregate Planning Process

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gg g ggg g g

Determinerequirements forplanning horizon

Identify alternatives,constraints, and costs

Prepare prospectiveplan for

planning horizon

Aggregate Planning ProcessAggregate Planning Process

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gg g ggg g g

Determinerequirements forplanning horizon

Identify alternatives,constraints, and costs

Prepare prospectiveplan for

planning horizon

Is the planacceptable?

Aggregate Planning ProcessAggregate Planning Process

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gg g g

Determinerequirements forplanning horizon

Identify alternatives,constraints, and costs

Prepare prospectiveplan for

planning horizon

Is the planacceptable?

NoNo

Aggregate Planning ProcessAggregate Planning Process

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gg g g

Determinerequirements forplanning horizon

Identify alternatives,constraints, and costs

Prepare prospectiveplan for

planning horizon

Implement andupdate the plan

Is the planacceptable?

NoNo

YesYes

Aggregate Planning ProcessAggregate Planning Process

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gg g g

Determinerequirements forplanning horizon

Identify alternatives,constraints, and costs

Prepare prospectiveplan for

planning horizon

Move aheadto next

planning session

Implement andupdate the plan

Is the planacceptable?

NoNo

YesYes

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Regular-Time CostsRegular-Time Costs

Overtime CostsOvertime Costs

Hiring andHiring and

Layoff CostsLayoff Costs

InventoryInventory

Holding CostsHolding Costs Backorder and Stockout CostsBackorder and Stockout Costs

169

Dock Aisle

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170

DockDock AisleAisle

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TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks * Number of part-time employees* Number of part-time employees

171

DockDock AisleAisle

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TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks

1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period

2.2. No backorders are permittedNo backorders are permitted

3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity

4.4. The following costs can be assigned:The following costs can be assigned:

Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time

HiringHiring $1,000/person$1,000/person

LayoffsLayoffs $500/person$500/person

* Number of part-time employees* Number of part-time employees

172

Dock Aisle

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TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks

1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period

2.2. No backorders are permittedNo backorders are permitted

3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity

4.4. The following costs can be assigned:The following costs can be assigned:

Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time

HiringHiring $1,000/person$1,000/person

LayoffsLayoffs $500/person$500/person

Peak Requirement

173

Dock Aisle

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TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks

1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period

2.2. No backorders are permittedNo backorders are permitted

3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity

4.4. The following costs can be assigned:The following costs can be assigned:

Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time

HiringHiring $1,000/person$1,000/person

LayoffsLayoffs $500/person$500/person

Peak Requirement

1.20w= 18 employees in peak period

174

Dock Aisle

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TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks

1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period

2.2. No backorders are permittedNo backorders are permitted

3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity

4.4. The following costs can be assigned:The following costs can be assigned:

Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time

HiringHiring $1,000/person$1,000/person

LayoffsLayoffs $500/person$500/person

Peak Requirement

1.20w= 18 employees in peak period

w

= = 15 employees

18

1.20

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TIME PERIODTIME PERIOD

11 22 33 44 55 66 TotalTotal

Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878

Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks

1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period

2.2. No backorders are permittedNo backorders are permitted

3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity

4.4. The following costs can be assigned:The following costs can be assigned:

Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time

HiringHiring $1,000/person$1,000/person

LayoffsLayoffs $500/person$500/person

Peak Requirement

1.20w= 18 employees in peak period

w

= = 15 employees

18

1.20

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Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

Required employeesRequired employees

178

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11

Required employeesRequired employees

179

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11 XX XX XX XX XX

Required employeesRequired employees

180

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11 XX XX XX XX XX

RequirementRequirement 55 33 77 88 9*9* 33 22

Required employeesRequired employees

181

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11 XX XX XX XX XX

RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX

Required employeesRequired employees

182

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11 XX XX XX XX XX

RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX

RequirementRequirement 44 22 66 77 8*8* 33 22

Required employeesRequired employees

183

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11 XX XX XX XX XX

RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX

RequirementRequirement 44 22 66 77 8*8* 33 22

EmployeeEmployee 33 XX XX XX XX XX

Required employeesRequired employees

184

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11 XX XX XX XX XX

RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX

RequirementRequirement 44 22 66 77 8*8* 33 22

EmployeeEmployee 33 XX XX XX XX XX

RequirementRequirement 33 11 55 66 7*7* 33 22

Required employeesRequired employees

185

Scheduling ServicesScheduling Services

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DayDay MM TT WW ThTh FF SS SuSu

Number of employeesNumber of employees 66 44 88 99 10*10* 33 22

EmployeeEmployee 11 XX XX XX XX XX

RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX

RequirementRequirement 44 22 66 77 8*8* 33 22

EmployeeEmployee 33 XX XX XX XX XX

RequirementRequirement 33 11 55 66 7*7* 33 22EmployeeEmployee 44 XX XX XX XX XX

Required employeesRequired employees

186

Scheduling ServicesScheduling Ser