Slide 2 of 20

Notes:

Notes - The above slide illustrates the general objectives of this session. Please keep in mind that the methods used by an organization should be driven by planning processes very high in the organization.

Example - Inventory Strategy will drive the methods used to order and control inventory. An organization that fits a repetitive manufacturing model with stable demand would typically be able to operate with minimal on hand inventories. It is very common to see companies in situations that allow for minimal inventories carry high levels of inventory because of the inventory strategy.

Quote For Session-

In business it is not necessarily the big that eat the small; but the fast that eat the slow.

Slide 3 of 20

Notes:

Instructors Definitions

Dependent Demand - Demand that is derived from another internal requirement. Example - In an automotive plant the tires for a car would be considered dependent demand. Demand for tires can be calculated by knowing how many cars are required (4 tires per car).

Independent Demand - Demand that is typically forecast or derived from customer orders. Example - The number of cars to be produced would be derived from a forecast or customer orders.

Keep in mind that some items can have both dependent and independent demand. Example - An Airbag for a car would be dependent demand for manufacturing and independent demand for service parts (replacement part).

Slide 4 of 20

Notes:

MRO supplies are not included in

inventory turns. This is because they are not

considered in cost of goods sold.

Slide 5 of 20

Notes:

Notes- Excess inventory is inventory procured or manufactured in excess of current operational needs. It may be caused by lot sizing, price breaks, or other operational policies.

Slide 6 of 20

Notes:

Notes - This is a very breif explanation of MRP. More detailed information will follow in later sessions.

Instructor Definition of MRP - MRP simply put is a calculator. MRP uses information from Bills of Material (B.O.M.), Inventory Records, and Planning Factors to calculate demand.

Product A (Level 0 - Highest Level in B.O.M.)

Product A is considered to be Independent Demand (Finished Good). Typically independent demand is forecast and subject to customer orders (Uncertainty). For the most part SAFETY STOCK is only carried on finished goods because of the Order Uncertainty.

All other items below Product A are considered to be Dependent Demand. There requirements can be calculated from requirements for Product A. Typically it is not necessary to carry safety stock on Dependent items. Sometimes Safety Stock is needed to take care of supplier inconsistencies, quality problems, capacity problems and service parts demand. Notice the different levels in the B.O.M. (ie. 1,2,3 etc.)these levels help in the MRP planning process.

Slide 7 of 20

Notes:

Notes:

Circled in blue is gross requirements. These come from the Master Production Schedule (Output of MPS and Input to MRP)

Circled in Red is a Scheduled Receipt. At an earlier point in time the Scheduled Receipt was a Planned Order Receipt. A Planned Order Receipt will be moved to a Scheduled Receipt when work is started on the order. The reason it is called a Scheduled Receipt is because once the order has started there is more confidence that the order will be filled.

Circled in Green is Projected Available. This is the quantity calculated to be On Hand at the beginning of period 1. This in most cases would be on Monday morning.

Slide 8 of 20

Notes:

Notes: The above slide is the solution for the calculation performed in period three for periods 4 and 5. This solution is based off of information from the participant guide Page 1-22 (slide 1-17)

The TPOP of 540 calculated in period three for the next two periods (lead time of 2 weeks) is used to determine if a net requirement will result.

Hold tight for the next few slides. It will become more clear.

Slide 9 of 20

Notes:

Notes: The above slide is the solution for the calculation performed in period seven for periods 8 and 9. This solution is based off of information from the participant guide Page 1-22 (slide 1-17)

The TPOP of 330 calculated in period seven for the next two periods (lead time of 2 weeks) is used to determine if a net requirement will result.

Hold tight for the next few slides. It will become more clear.

Slide 10 of 20

Notes:

Notes: You will notice in period three that there is a planned order release for 600. This is because the TPOP of 540 is greater than the projected available in period 3 of 480. This means that in order to cover the next two periods of demand there must be a planned order release. The quantity of 600 is due to the lot size.

FYI - This is not the common method for calculating requirements in MRP. A simplified method will be reviewed in later sessions.

Slide 13 of 20

Notes:

Notes: The order quantity increases in geometric proportion to increases in annual useage.

Slide 15 of 20

Notes:

Notes: Fixed Order Quantity enables the planner to have full control over the selection of order quantity.

Slide 16 of 20

Notes:

Notes: Period 3 has a need for 80 units to replenish safety stock and 40 to satisfy gross requirements.

Period 5 has a need to replenish 10 units of safety stock.

The Order Quantity for Period Three and Period Five is fixed at 500. In future sessions this will be referred to as the Lot Size.

Slide 17 of 20

Notes:

Notes: APICS did not include a grid to show what the example would look like once calculated. In this example an order would be placed to cover exactly 13 periods of Net Requirements. At the end of the 13 periods the projected available should be zero. This means that there would be no remnants (left overs).

Slide 18 of 20

Notes:

Notes: The EOQ is given as 650.

The Average Period Usage (In this Example) is the sum of the forecast demand over 8 periods divided by the number of periods. In actual practice, the organization needs to determine whether this is based on historical or future (forecasted or dependent) demand.

The periods with question marks cannot be determined until periods 9 and 10 gross requirements are known.

FYI - This is not a common method used. The trend for manufacturing organizations of all types is leading more to a lot for lot type of environment. Don’t stress if you are a little confused on period order quantity. What is important for testing purposes is to know that period order quantity typically plans for no remnants at the end of a period determined by the calculation.