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Material Reqire!e"t# Pla""i"$ (MRP) a"% ERP
UESTI&NS DISCUSSI&N Q 1. The difference between a gross requirements plan and a net requirement plan is that a net plan adjusts for on-hand inventory and scheduled receipts at each level. 2. Once the MRP system is in place, it provides information to assist decision makers in other functional areas such as the amounts of labor required, cash needs, purchase pu rchase requirements, and timing. 3. The similarit similarities ies between between material material requiremen requirements ts planning planning (MRP) and distribution resource planning (DRP) are that the procedures and logic are analogous. 4. The difference difference between material material requiremen requirements ts planning planning (MRP) and material resource planning planning II (MRP II) is that MRP II includes or integrates functions within the firm in addition to the management management of dependent dependent demand demand inventories inventories.. Examples Examples of these these additi additiona onall functio functions ns includ include: e: Order Order entry, entry, invoic invoicing ing,, billing, purchasing, production scheduling, capacity planning, and warehouse management. 5. There is no one “ideal” lot sizing technique that should be used by all manufacturing organizations. Lot-for-lot is the goal to be sought. However, where setup costs are significant and demand is not particularly lumpy, EOQ is a simple method and typically provides satisfactory results. Too much concern with lot sizing yields spurious results because of MRP dynamics. 6. In a DRP system, inventory residing within the system is moved within the system, rather than entering or leaving the system. Therefore, although effort should be made to reduce total inventory to minimize overall carrying cost, carrying cost per se does not have a significant effect on appropriate lot size. 7. MRP is usually a part of the overall production planning process. Its most important capability is including the timing/ scheduling scheduling factor in inventory inventory planning. MRP II, of course, course, addresses the timing/scheduling of other resources in addition to inventory. 8.
(a) When a work center center is only over over capacity capacity for one week (or a short time), the production planner has a number of options, including:
Splitting an order to an earlier or later week Requesting Requesting overtime, overtime, an alternate alternate (perhaps more expensive) production process Subcontracting
(b) A cons consis iste tent nt lack lack of capa capaci city ty sugge suggest stss a capi capita tall investment to increase capacity, add a shift, or develop an outside source. Redesign of the product may also be an alternative. 9.
The master schedule is expressed in terms of: (1) End items items in a continuous continuous (make-to(make-to-stock stock)) company; (2) Cust Custom omer er orde orders rs in a job job shop shop (mak (makee-to to-o -orde rder) r) company; and (3) Modules in a repetitive (assemble-to-stock) company.
10. Virtually all functions of the firm impact an MRP system. For instance, purchasing performance affects delivery, changes in capac capacity ity (i.e., (i.e., labor, labor, mainte maintenan nance ce,, breakd breakdown owns) s) impact impact throughput, sales impact the master schedule as do financial issues issues such as capital capital expenditure expenditure for capacity capacity,, engineerin engineering g perfor performan mance ce such such as meetin meeting g schedu schedules les and prefer preferenc encee (or flexibility) for particular approaches to design/processing.
rationale le for: for: (a) A phanto phantom m bill bill of materi material al is a 11. The rationa subass subassemb embly ly that that exists exists only only on the product production ion line—s line—say ay a mixture/ glue that only exists a few minutes and then must be used used or discar discarded ded.. Such Such items items are never invent inventori oried. ed. (b) A planning bill of material may be used to issue a mixture of parts that only makes sense to reduce reduce material material handling—say handling—say the hardware for a washing machine assembly. (c) A pseudo bill of material is another name for planning bill to meet the same conditions. 12.
An effective MRP system requires:
13.
A good schedule of what is to be made An accurate BOM Accurate inventory records Accurate purchases data Lead times that will be met
The benefits of ERP include:
Provides integration of the production, supply chain, and administrative functions. Incr Increa ease sess coll collab abor orat atio ion n betw betwee een n funct functio ions ns and and locations Often has a common database Can Can add effe effect ctiv iven eneess and effi effici cien ency cy to the the organization.
14. Distinctions between MRP, DRP, and ERP, are: MRP is a set set of softwa software re progra programs ms desig designed ned to sched schedule ule mate materia riall requirem requirements ents.. These These programs programs include include an integrat integrated ed set of programs
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that determine an item master for each part, a bill of material, an
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explosion scheme, a lead-time file, an inventory status file, and vendor information. DRP is a time-phased stock-replenishment plan for all levels of the distribution network. Its focus is on retail and wholesale distribution network. On the other hand, enterprise enterprise resource resource planning planning (ERP) systems are systems systems that often integrate MRP and a variety of other accounting systems, human resource management, and communication with vendors and suppliers. 15. In MRP, demand need not be constant. Also, in an MRP system, the demand for one item depends on the demand for others—in particular, the end item. (There are exceptions such as spare parts and maintenance orders.) 16.
The disadvantages of ERP include:
17.
Is very expensive to purchase and even more costly to customize. Implem Implement entati ation on may requir requiree major major change changess in the company and its processes. Is so complex that many companies cannot adjust to it. Involv Involves es an ongoin ongoing g proces processs for implem implement entat ation ion,, which may never be completed. Expertise in ERP is limited, with staffing an ongoing problem.
(a) The Web Web sites of of most of the the major major ERP vendors vendors will will include include “successfu “successfull solutions” solutions” using their their software. software. See Web pages of the major vendors: American Software: www.amsoftware.com JD Edwards: www.jdedwards.com The Baan Company: www.baan.com Oracle: www.oracle.com SAP: www.sap.com IQMS: www.iqms.com
18.
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Life-cycle collaborat collaboration ion Quality management Environment Environment health & safety (See www.sap.com/solutions.)
19. Moving toward JIT and kanban suggest that the traditional weekly “buckets” (or even daily buckets) in an MRP system may be inadequate. MRP systems may need to move to hourly buckets for some items. Some MRP systems now deliver to “positions” in the production process—a “flow” criterion rather than a bucket criteria. Additionally, if tracking of small lots is necessary (and it may not be) then not only will such “buckets” be necessary, but ease of inputs via bar codes or other automated means may be necessary.
ETHICAL D ILEMMA ERP is going to cost more than expected. What do you do? Certainly, any sense of fairness and decency suggest suggest that the customer must be told the truth. However, a sales representative can be expected to try to solve the problem for his customer. This may mean that:
The first stop is the sales representative’s manager to see if another customer or pending customer may have dealt with this problem and solved the problem or may be willing to share development costs. A second option is to ask the manager “Is there any budget or pending budget for this type of enhancement or can we help the customer out by paying for part of the enhancement?”
The bottom line is that not telling the customer the truth and/or selling the customer something that will not do the job is not only unethical, but also probably bad business—certainly bad business in the long run.
(b) The poor ERP efforts efforts or installations installations may take take a little more digging, but a look at www.CIO.com and www. Information Week.com should get students started.
ACTIE M &DEL E ERCISE ERCISE
(a) (a) Peop People leSo Soft ft incl includ udes es the the foll follow owin ing g in its its CRM CRM offerings (see http://www.oracle.com/applica http://www.oracle.com/applications/peoplesoft/ tions/peoplesoft/ CRM/ent/index.html):
1. Suppose that item B must be ordered in multiples of dozens. Which items are affected by this change? Items D and E
Supplier Relationship Management Manage supplier relationships including indirect and direct goods, as well as services procurement with:
Partner relationship management solution Sales solution Service solution CRM analytics CRM industry solutions Marketing solution
ACTIVE MODEL 14.1: Order Releases
2. Suppose that the minimum order quantity for item C is 200 units. Which items are affected by this change? Items E, F, G, and D
R&,LEMS R&,LEMS END*&+*CHAPTER P 14.1
An exploded bill yields the following:
Item J: 200 units; Item K: 200 × 1 = 200 units; Item L: 200 × 4 = 800 units; Item M: 200 × 2 = 400 units. 14.2
The time-phased assembly plan for the gift bags is:
(b) SAP’s Supply Chain Management product includes: Supply strategy development Supplier qualification Supplier selection Contract negotiation and management SAP’s Produ Product ct Lifecy Lifecycle cle Manage Manageme ment nt produc productt (c) SAP’s includes: Life-cycle data management management Asset life-cycle life-cycle management management Program & project management
Someone should start on item M by noon.
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(a) Produc Productt structur structure: e:
(b)
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1
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14.7 Net material requirements plan, modified to include the 20 units of U required for maintenance: .ee/ Ite !
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(b) For 50 bracke brackets ts,, the gross gross requir requireme ements nts are for 50 bases, bases, 100 springs, 250 clamps, clamps, 250 handles, handles, 250 castings, 100 housings, 200 bearings, and 100 shafts. 2
40 360 60 60 40 0 3 20 60 3 20 60
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(c) For 50 brackets brackets net requiremen requirements ts are: 25 bases, bases, 100 springs, 125 clamps, 125 handles, 125 castings, 50 housings, 100 bearings, and 50 shafts.
1
3 20 6 0
* To achieve these results in POM for Windows, Windows, add Part U as a new BOM line, level O, so that the software software will recognize recognize an additional independent demand, not scheduled receipts.
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14.9 (a) Time-phase Time-phased d product structure structure for bracket with start start times:
P L A N N I N G ( M R P )A N D
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(a) Gross Gross mater material ial requir requireme ements nts pla plan: n:
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H
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P L A N N I N G ( M R P )A N D
ERP
210 210
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P L A N N I N G ( M R P )A N D
(b)
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ERP
(a)
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11
12
10
11
12
10
11
12
Qa"tit86 1 L9t Si:e6 L4L
%00 Qa"tit86 1 L9t Si:e6 12
% 00 20 **0 * **
*
*** Qa"tit86 1 L9t Si:e6 2
% 00 200 200
200
2 00 5 00
500
C9!9"e"t
Qa"tit8
A C , E
1 1 1 1 1 1
2
G
2
H
3
%00 % 00
Pare"t6 eletrial "it Lea% Ti!e6 1 3ee/ 1 2 ' 4 -
.ee/ N9;
% 00
Gross req-'re.e$ S&!ed-led re&e'($ O !ad 20 #e$ req-'re.e$ Plaed order re&e'($ Plaed order release Le5el6 2 Ite!6 /"9B
Qa"tit86 - L9t Si:e6 100
)0
Pare"t6 eletrial "it Lea% Ti!e6 1 3ee/ 1 2 ' 4 -
.ee/ N9;
ERP
375)0 37*00
Gross req-'re.e$ S&!ed-led re&e'($ O !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release Le5el6 2 Ite!6 #3it
P L A N N I N G ( M R P )A N D
375)0
Pare"t6 eletrial "it Lea% Ti!e6 1 3ee/ 1 2 ' 4 -
.ee/ N9;
14.14
R EQUIREMENTS
1 1 E
1
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
214 214
21-
CHAPTER 14
(b) L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$
MAT ER I AL
R EQUIREMENTS
P L A N N I N G ( M R P )A N D
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
0
0
A
1
2
1
Gr Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
)
1
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
)
2
,
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 3
1
2
G
Gr Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
10
2
H
2
Peri9% (3ee/) ' 4
10A 2
2
2
2
2
2
2 * *
0
*
2
Peri9% (3ee/) ' 4
10A )
)
)
)
)
)
) ) )
0
)
2
Peri9% (3ee/) ' 4
0
0
0
0
* )
)
)
)
)
) 3 3
3
1
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
10
1 Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
0 10 10
1 Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
10
1
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
Peri9% (3ee/) ' 4
Gr Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
2
ERP
2
Peri9% (3ee/) ' 4 )
1
1
1
1
1
1 4 4
4
1
2
Gr Gross req-'re.e$
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
Peri9% (3ee/) ' 4 )
CHAPTER 14
MATERIAL
R EQUIREMENTS
P L A N N I N G ( M R P )A N D
L93 Lea% &" Sa@et8 Le5el It I te! Ti!e Ha"% St9/ All9ate C9%e ID %
L9t Si:e 8o$ 9or 8o$
2
10
3
C
1 Gr G ross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
10
8o$
1
4
3
E
1
10
2
21 21
Peri9% (3ee/) ' 4
2
2
1
1
1
Peri9% (3ee/) ' 4
0H
L93 Lea% &" Sa@et8 Le5el It I te! Ti!e Ha"% St9/ All9ate C9%e ID %
L9t Si:e
2
ERP
10
10 10
0
0
10 0 0
* 10 0 0
Peri9% (3ee/) ' 4
Gr Gross req-'re.e$ 3H7,
9or 8o$
14.15
S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
(a)
4
4
4
4
4 0 0
0
Ten units are required for production, and 10 each of B and F for field service repair C9!9"e" t
Qa"tit8
A C , E G H
(b)
L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$ 9or 8o$
10 20 40 20 40 20 20 20
L93 Lea% &" Sa@et8 Le5el It I te! Ti!e Ha"% St9/ All9ate C9%e ID % 1
0
0
A
1 Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
L93 Lea% &" Sa@et8 Le5el It I te! Ti!e Ha"% St9/ All9ate C9%e ID % 1
2
1
Gr Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$
2
10 0
0
0
0
0
0
1
2
Peri9% (3ee/) ' 4 10;
2
2
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
2
2
2
2 *
0 10 10 10 10
10A 0 10
0
21
L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$ 9or 8o$
CHAPTER 14
MAT ER I AL
R EQUIREMENTS
P L A N N I N G ( M R P )A N D
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
)
1
1 Gr Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
)
2
,
Gr Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
1
2
G
)
)
)
2
10;
10A
) ) ) 10
0 10 10
0
0
0
0
0
0
0
0
0
Peri9% (3ee/) ' 4 * 10
)
)
)
)
3
1 Gr Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
)
Peri9% (3ee/) ' 4
)
1
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 3
)
2
ERP
1
2
) 3 3 10
0 10 10
Peri9% (3ee/) ' 4
1
1
4
10
1
)
10
1 4 4
0 10 10
Note: M (in items B and F) means a repair or maintenance item. L9t Si:e 8o$ 9or 8o$
L9t Si:e 8o$
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
10
2
H
1 Gr G ross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release
L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 2
10
3
C
10
2
10
Peri9% (3ee/) ' 4
10
10 10
)
10
10 10
) ) )
)
1
2
Peri9% (3ee/) ' 4 13H7
Gross req-'re.e$
10
9or 8o$
L9t Si:e 8o$
S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed re&e'($ Plaed release L93 Lea% &" Sa@et8 Le5el It I t e! Ti!e Ha"% St9/ All9ate C9%e ID % 1
4
3
E
10
1 Gross req-'re.e$
10
2
10
10 10
3
10
10 3 3
0 10 10
Peri9% (3ee/) ' 4 3,
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
CHAPTER 14
14.16
R EQUIREMENTS
P L A N N I N G ( M R P )A N D
ERP
(a) Only item item G has changed changed because because it has no subasse subassem m blies or components. (b) (b) If week week 1 on the produc producti tion on plan plan is now, now, then then an increase in the lead time for G means only one unit of G will will be avai availa labl blee for for comp compon onen entt F in week week 5. Therefore, F and consequently four units of “A” will be delayed one week. (c) As production production planner, several several options options are possible: possible:
14.17
MATERIAL
Tell the customer that the four units (which are probably “spares”) are going to be delayed one week. Ask the supplier supplier of G to expedite production production or delivery. Reduce the production time for item F or A.
Lot-for-Lot Ordering Policy:
Gr req e< '= Ed '= Ord r&($ Ord rel
1
2
'
4
30 40 10
10 10
40 10 0 30
0 0
30
30
-
.ee/
30 0 0 30 50
50 0 0 50 20
20 0 0 20
0 0 10
10
11
12
10 0 0 10 *0
*0 0 0 *0
0 0
)0 0 0 )0
)0
C T T = Order cost + holding cost = 7 orders × $150/order + 20 units × $2.50/unit/period = $1,100 14.18
Economic order quantity: Q
=
2 DS H
=
2 × 33 0 × 1 5 0 2.50
×
12
=
57.4, or 57 units
where D = period demand, S = = setup or order cost, H = = holding cost. Reorder point: 330 Reorder point = Demand during lead time = units week × 1 week 12 = 27.5, or 28 units
Le5el6 Ite!6 .ee/ N9;
Pare"t6 Lea% Ti!e6 1 1 2 ' 4
Gross req-'re.e$ S&!ed-led re&e'($ O !ad 40 #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
30
40
40 0
10
10 30
25
)5 )5
)5
Qa"tit86 L9t Si:e6 E&Q
-
30
50
20
25 3
)4 16
41
)5
)5
)5
21
10
10
*0
21
11 6%
11 11
)0 4)
114 114
)5
Theoretical total cost:
= =
33 0
×
1 50
+
+
Holdi olding ng cos costt =
DS Q
+
4) ) )5
Setups: 5 × 150 = $750 Holding: (allowing for 12 time periods) 2.50 × 352 = $880 Setup + holding = total cost = $1,63 0
rder cos costt C T = Orde
12 12
QH
2
57 × (12 × 2.50)
57 2 868.42 + 855.00 = $1, 72 723.42
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
)2
21 21
21
CHAPTER 14
MAT ER I AL
R EQUIREMENTS
P L A N N I N G ( M R P )A N D
ERP
Note: Order and carrying costs are not equal due to rounding of the EOQ to a whole number. Actual total cost: C T
=
Orde rder cost cost + Holdi olding ng cost cost + Stoc Stocko kout ut cost cost
= 5 orders × $150 order + 454 un units ×
$2.50 unit period + 33 units × $10 unit stockout
=
750 + 1,135 + 330
=
$2,215
Note: The actual cost of using the EOQ policy under this case of varying demand is more than the theoretical cost. In addition, we were forced to use backorders when stockouts occurred. The poor perform performanc ancee with with respec respectt to stocko stockout ut is due to the fact that that “average demand during lead time” is not a particularly good measure of the necessary reorder point. Note that the present versions of the Excel OM and POM for Windows software do not consider reorder points, stockouts, or backorder costs. You may wish to make u se of the following: EOQ ordering ordering policy, policy, modified modified for delayed delayed order placement placement :
Gross req-'re.e$ e<''< '=e$or> Ed'< '=e$or>
1
2
'
4
-
30 40 10
0 10
40 65 25
25 25
30 *4 )4
Order re&e'($s Order release
)5 )5
.ee/ 50 )4 ?16+
)5 )5
20 ?16 21
10
11 11
21 21
10 5* 6*
*0 6* ?12+
?12 ?12
)5 )5
)5 )5
)5
Total inventory = 10 + 10 + 27 + 27 + 54 + 21 + 21 + 68 = 238 Actual total cost: rder cos costt C T = Orde
+
Holdi olding ng cost ost
= 6 orders × $150 order × =
+
+
Stoc Stocko kout ut cost cost
238 units
$2. $2.50 unit unit peri period od + 33 uni units ts × $10 $10 unit unit stoc stocko kout ut
900.00
+
595.00 + 330.00 = $1, 82 825.00
Thus, if we are able to “time” order placement in an optimal fashio fashion, n, the EOQ ordering policy can be made more efficient. Note Note,, howe howeve ver, r, that that this this opti optima mall timi timing ng requ requir ires es that that we accurately forecast demand—something that for varying demand we are usually unable to do. Note, also, that this “optimal” timing does not reduce the likelihood of a stockout and, by increasing the customer “wait” period, may contribute to additional customer dissat dissatisf isfact action ion.. The elimin eliminati ation on of stocko stockouts uts can only only be accomplished by using a higher reorder point (reorder + safety stock). EOQ ordering ordering policy, policy, modified modified to include include safety stock :
1 Gr req e< '= Ed '= Ord r&($ Ord rel
30 40 10 )5
2 10 65 )5 )5
.ee/
'
4
-
40 65 *4 )5
*4 *4
30 *4 )4
50 )4 41 )5 )5
)5
20 41 5* )5
10
11
5* 5*
10 5* 6*
*0 6* 4) )5 )5
4) 102 )5
)5
12 12 )0 102 )2 )5
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
12 )0 ?12 ? )+ )5 )5 )5
CHAPTER 14
MATERIAL
R EQUIREMENTS
Reorder when ending inventory <70
14.19
Combined reorder + safety stock: De!a"% %ri"$ Lea% Ti!e
+reqe"8
Pr9BaBilit8
C!lati5e Pr9BaBilit8
0 10 20 30 40 )0 60 50 *0
4 1 1 2 1 1 0 1 1
0@333 0@0*3 0@0*3 0@165 0@0*3 0@0*3 0@000 0@0*3 0@0*3
0@333 0@415 0@)00 0@665 0@5)0 0@*33 0@*33 0@%15 1@000
= 6 orders × =
×
+
Holdi olding ng cost ost
$150 order
$2.50 unit period
+
+
+
ERP
220 220
Solution with lead time = 1: Holding cost = $2.50; Setup cost = $150. PPB ordering policy: 1
2
Gr req 30 e< '= 40 10 Ed '= 10 10 Ord r&($ Ord rel 60
'
4
40 10 30 30 30 60
.ee/
-
10 1 0 11 12
30 50 20 10 *0 *0 30 0 30 10 10 0 )0 0 30 10 10 0 )0 )0 100 130 100 13 0
)0 )0 0
Calculating EPP: EPP
To reduce the likelihood of a stockout to approximately 10%, we must use a combined reorder point/safety stock of 70 units. Note that this “reorder” point is approximately two and one half times the reorde reorderr point point calcul calculate ated d using using the measur measuree of “avera “average ge demand over lead time.” Actual total cost: rder cos costt C T = Orde
P L A N N I N G ( M R P )A N D
=
Setup cost Holding cost
=
150 2.50
C!lati5 e C9!Bi"e% Net Req;
=
60
Peri9%#
C9#t# Part Peri9%#
&r%er H9l%
1 0 0 17 2 0 0 17 27 3 30 1)0 1 7 2 7 37 4 30 1)0 1 7 2 7 37 4 7 ) + 60 30 × 0 30 × 2 B 60 1)0 17 27 37 47 )7 13 130 30 × 0 30 × 2 50 × 3 B 1)0 6 250
Stoc Stocko kout ut cost cost
763 units
0 units × $10 unit stockout
900.00 + 1907.50 + 0 = $2, 807.50
2) 2) 5) 5)
* The part periods for an order encompassing periods 1, 2, 3, 4, and 5 most nearly approximates the EPP of 60.
Note that as we might expect, the holding cost has increased.
Note: (1) We have assumed that: (a) a product ordered during a calendar week is available at the beginning o f the following week; (b) shipments during a week take place at the beginning of the week. (2) POM for Windows will produce the same answer. Excel OM will produce the same answer when lead time is zero. Peri9%# C9!Bi"e% 6 67 67 67 67
5 57 * 57 *7 %+ 57 *7 %7 10
C!lati5e Net Req; 50 %0 %0 100 1*0
C9#t# &r%er H9l%
Part Peri9%# 50 × 0 50 × 0 50 × 0 50 × 0 50 × 0 350
B0 20 × 1 B 20 20 × 1 B 20 20 × 1 10 × 3 B )0 20 × 1 10 × 3 *0 × 4 B
1)0
0 )0 )0 12)
* The part periods for an order encompassing periods 6, 7, 8, and 9 most nearly approximates the EPP of 60.
Peri9%# C9!Bi"e%
C!lati5e Net Req;
10 107 11 107 117 12+
*0 *0 130
C9#t# &r%er H9l%
Part Peri9%# *0 × 0 B 0 *0 × 0 B 0 *0 × 0 )0 × 2 B 100
1)0
Calculate total cost: Orderr cos costt C T = Orde
+
Hold Holdin ing g cos costt
= 3 orders × $150 order × =
$2.5 $2.50 0 unit unit peri period od
$1,025.00
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
+
230 units
0 0 2)0
221
14.20
CHAPTER 14
MAT ER I AL
R EQUIREMENTS
P L A N N I N G ( M R P )A N D
ERP
Always order 100 units; fixed order quantity (FOQ) = 100
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad 3) #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
1
2
'
4
-
10 10
3)
30
40
0
10
40
30
0
30
))
3) 0
0 30 100
50 0
30 0
30 0
20 20 100
*0 0
)0 0
)0 0
20 3) 100
100
100
100
3 setups at $100 each + 350 units @ $1 = $650.
14.21
Periodic order quantity (POQ)—3 periods; Every three weeks, order for 3 wks ahead.
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
3)
1
2
'
4
-
10 10
3)
30
40
0
10
40
30
0
30
))
3) 0
0 30 50
40 0
0 0
0 10 *0
50 0
30 0
0 0 *)
*) 30
)) 0
50
*0
*)
3 setups each at $100 + 280 units @ $1 = 580
14.22
A modification of the part-period balancing shown in the text y ields the following costs:
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
3)
1
2
'
4
-
10 10
3)
30
40
0
10
40
30
0
30
))
3) 0
0 30 *0
)0 0
10 0
10 0
0 40 50
30 30 0
0 0
0 30 *)
)) 0
*0
50
*)
3 setups each at $300 + 155 units @ $1 = $455
14.23 The firm has 22,500 minutes available to produce 330 units, which require 21,450 minutes of work. One possible solution is: Caa Caai it8 t8 Caa Caai it8 t8 Req Reqir ire% e% A5ail 5ailaB aBle le &5er &5er .ee/ U"it# (Ti!e) (Ti!e) (U"%er) Pr9%ti9" S e%ler F# F# A t ti9" 1 2 3 4
0 40 30 40
0 27600 17%)0 27600
272)0 272)0 272)0 272)0
272)0D 3)0 300D 3)0
) 6
10 50
6)0 47))0
272)0 272)0
17600D 27300
5
40
27600
272)0
3)0
* % 10
10 30 60
6)0 17%)0 37%00
272)0 272)0 272)0
17600D 300D 176)0
8o$ s(l'$@ Use 3)0 .'-$es ' Fee 1@ 8o$ s(l'$@ Use 300 .'-$es ' Fee 3@ Use )0 .'-$es o ao$!er .a&!'e or ' Fee 1 or )@ 8o$ s(l'$@ Use 1%00 .'-$es ' Fee 1@ O(era$'os s(l'$@ Use 400 .'-$es .'-$es o ao$!er ao$!er .a&!'e7 .a&!'e7 o=er$'.e7 o=er$'.e7 or s-&o$ra&$@ O=erla( o(era$'os so $!a$ eI$ o(era$'o &a e<'@ 8o$ s(l'$@ Use 3)0 .'-$es ' Fee )@
8o$ s(l'$@ 12)0 .'-$es ' Wee * ad 300 .'-$es ' Fee %@ O(era$'os s(l'$@ 100 .'-$es o ao$!er .a&!'e7 o=er$'.e7 or s-&o$ra&$@
There are other possible solutions.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
CHAPTER 14
MATERIAL
R EQUIREMENTS
P L A N N I N G ( M R P )A N D
ERP
222 222
14.24 Caait Caait8 8 Reqire A5ailaBl &5er % e .ee/ U"it# (Ti!e) (Ti!e) (U"%er Pr9%ti9" Se%lerF# Ati9" ) 1
60
37%00
272)0
176)0
2 3
30 10
17%)0 6)0
272)0 272)0
4
40
27600
272)0
300D 17600 D 3)0
)
50
47))0
272)0
27300
6
10
6)0
272)0
5
40
27600
272)0
17600 D 300
*
30
17%)0
272)0
300D
14.25
8o$ s(l'$@ ;o=e 300 .'-$es 4@3 -'$sD $o Fee 2 ad 13)0 .'-$es $o Fee 3@
8o$ s(l'$@ ;o=e 2)0 .'-$es $o Fee 3@ O(era$'o s(l'$@ ;o=e ;o=e 100 100 .'.'-$e $es s $o ao$ ao$!e !err .a&! .a&!' 'e7 e7 o=er o=er$' $'.e .e77 or s-&o$ra&$@ 8o$ s( s(l'$@ ;o=e 1600 .'-$es $o $o Fe Fee 6@ O=erla( o( o(era$'os $o
8o$ s(l'$@ ;o=e 300 .'-$es $o Fee *@ O=erla( o(era$'os $o
(a) ,
1
2
'
4
-
Gr Gross req-'re.e$ O !ad
1
2
'
4
-
Gr Gross req-'re.e$ O !ad 20 #e #e$ P@ P@O@ re&e'($ P@ P@O@ release
A Gr G ross req-'re.e$ O !ad 10 #e #e$ P@ P@O@ re&e'($ P@ P@O@ release
1
2
160 40
30
2
'
4
-
'
4
-
1*0 40 20 0 160 40 160 40
)0 20 30 30
1
60 60
(c) Steer
60
P@ P@O@ release
Gr Gross req-'re.e$ O !ad 20 #e$ P@ P@O@ re&e'($ P@ P@O@ release
30
P@ P@O@ re&e'($
+
%0
30
#e #e$
(b)
30 10 20 20 20
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
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14.26
L9t Si:e
Lea% Ti!e ( 9@ L93* eri9% &" Sa@et8 All9* Le5el #) Ha"% St9/ ate% C9%e
Ite! ID
Peri9% (%a8) 1
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8o$ 9or 8o$
8o$ 9or 8o$
1
1
1
0
1
1
Tale
To(
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8o$ 9or 8o$
1
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8o$ 9or 8o$
1
Gl-e
1 00
1
1
1
2
ase
S!or$ ra&e
2
3
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
640
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
*0
100
100
100
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
Plaed order re&e'($ Plaed order release
) 640
6 6 40 64
5 1 2* 12
* 1 2* 12
640 640 640 640
640 12* 640 12* 12* 12*
12* 12*
640
640 64
1 2* 12
1 2* 12
640 640 640 640 640 12*
12* 12* 12*
12* 12*
*0
*0
16
16
*0 *0 *0
*0 *0 16
16 16 16
16 16
40
40
*
*
100
60
20
12
640 64 640
12* 12 1 2*
640 640 640 640 640 12*
12* 12* 12*
172* 172*0 2)6 0
2)6
172* 172*0 2)6 0 172* 172*0 2)6 0 172* 172* 2)6 2)6
2)6
640
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$
100
4
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
2)6
12* 12*
4
CHAPTER 14
8o$ 9or 8o$
1
MATERIAL
2
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P L A N N I N G ( M R P )A N D
8o< Gross req-'re.e$ ra&e S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$ Plaed order re&e'($ Plaed order release
8o$ 9or 8o$
1
2
8e<
Plaed order re&e'($ Plaed order release
14.27
Hr# C9ee TaBle Reqire Ma#ter Se%le % Tale Tale Asse.l> Asse.l> To( To( Pre(ara$'o Pre(ara$'o Asse.le ase 8o< ra&e 2D S!or$ ra&e 2D 8e< 4D To$al To$al Ho-rs
2 2 1 0@2) 0@2) 0@2)
Lea% Ti!e 1 1 1 1 1 1
0
320 320 640
172*0 640 320 320 640
172*0 172*0 6 40 64 64 12 *
172*0
37200
374)6
Here are solutions to additional homework problems 14.28–14.32 that appear on our Web site, www.myomlab.com. (a)
2)6 2)6
172* 172*0 0 172* 172*0 0 172*0 172* 2)6 0
2)6 2)6 2)6 2)6 2)6
27)6 27)60 0
)12 )12
27)6 27)60 0 27)6 27)60 0 27)60 27)6 )12 0
)12 )12 )12 )12 )12
Da8 1 Da8 2 Da8 ' Da8 4 Da8 - Da8 Da8 Da8
ADDIT&NAL H P P &ME.&R R&,LEMS R&,LEMS 14.28
224 224
172* 172*0 0
Gross req-'re.e$ S&!ed-led re&e'($ Pro:e&$ed o !ad #e$ req-'re.e$
ERP
(c)
640 172*0 2)6 12* 64 64 12 * 17%20
640 2)6 2)6 12*
12* 2)6
640
2)6
.ee/ 1
2
12*
'
4
Req-'red ,a$e Order Release
(b)
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
10
10
Req-'red ,a$e Order Release Req-'red ,a$e Order Release
-
A
30 30
, 20
20
22-
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14.29 Le5el6 0 Ite!6 A .e .ee/ N9; Gr Gross req-'re.e$ S&!ed-led re&e'($ O !ad 2 #e # e$ req-'re.e$ Pl Plaed order re&e'($ Pl Plaed order release Le5el6 1 Ite!6 D .e .ee/ N9; Gr G ross req-'re.e$ S&!ed-led re&e'($ O !ad 4 #e #e$ req-'re.e$ Pl P laed order re&e'($ Pl Plaed order release
1
Gr G ross req-'re.e$ S&!ed-led re&e'($ O !ad #e #e$ req-'re.e$ Pl P laed order re&e'($ Pl P laed order release
14.30
(a)
Qa"tit86 L9t Si:e6 L4L
-
10
10
10
10 2
2
2
2
2
2 * *
*
1
Pare"t6 A Lea% Ti!e6 1 3ee/ 2 ' 4
Qa"tit86 ' L9t Si:e6 L4L
24
4
4
4
4
4 20 20
20
Le5el6 1 Ite!6 + .e .ee/ N9;
Pare"t6 7 Lea% Ti!e6 1 3ee/ 2 ' 4
Pare"t6 A Lea% Ti!e6 2 3ee/# 1
2
'
4
-
Qa"tit86 2 L9t Si:e6 L4L
16 0
0
0
0
0 16 16
16
14.30
(c)
St S teer
1
2
'
4
-
Gr G ross req-'re.e$ O !ad 20 #e #e$ P@ P@O@ re&e'($ P@ P@O@ release
A
(b)
)0 20 30 30
30
1
2
'
4
Gr Gross req-'re.e$ O !ad 10 #e #e$ P@ P@O@ re&e'($ P@ P@O@ release
,
-
30 10 20 20 20
1
Gr Gross req-'re.e$ O !ad 30 #e #e$ P@ P@O@ re&e'($ P@ P@O@ release
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
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'
4
-
%0 30 60 60
60
CHAPTER 14
+
1
Gross req-'re.e$ O !ad 20 #e # e$ P@ P@O@ re&e'($ P@ P@O@ release
2
MATERIAL
'
4
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P L A N N I N G ( M R P )A N D
ERP
22 22
Theoretical total cost:
1*0 40
Orderr cos costt C T = Orde
20 0 160 40 160 40
+
hold holdin ing g cos costt =
DS Q
+
QH
2
275 × 50 105 × 0.25 × 10 + 105 2 = 130.95 + 131.25 = $262.20 =
16 0 4 0
C!Order lati and carrying costs are not equal due to C9#t# Note: 5e the EOQ to a whole number. rounding C9 C9!Bi"e% Actual Net R eq; Part Peri9%# &r%er H9l% cost: Peri9%#
(a) Economic Order Quantity
14.31
N93 1 Gr req e< '= Ed '= Or Ord r&($
0 0+
2
.ee/ 4 -
'
3) 30 0 50 5 0 40
4) 0 10 40 40 ?) 100 %0 ?)+ 100 %0 )0
10
10)
10
30 0 30 )) )0 20 12) %) 20+ 12 12 % %) ) 40 ) 10
Note Note:: If the the five five unit unitss not produce produced d in period period 3 (because of five-unit shortage) are produced in week 4, then actual inventory drops by five units (from 680 to 675). This analysis includes holding cost for the 40 units held from period 10 for period 11. Orders are placed in the weeks with ending inventory below below the reorder reorder point point (i.e. (i.e. 27.5) 27.5) as noted noted with with asterisks. Economic Order Quantity: Q
=
2 DS = H
2 × 275 × 50 50 0.25 × 10
=
104.9 or 105 units
where where D = period period demand, demand, S = setup or order cost, = holding cost. H =
1
)derr cos C T = 3 Orde Or c0ostB t +0hold holdin ing g cost cost
=3 order3 s0 units × $50 order + 630 un 17 2 6)or × 1 B 30 17 17 27 3 1 0 ×it 1peri 4) × 2 B 120 ×10 $0.2 $0.25 53unit un pe riod od × 1 4) × 2 0 × 3 B 120 17 17 27 37 4 1 1 0 3 0 = 150 + 157.50 = $307.50 17 17 27 37 47 )+ 120 30 × 1 4) × 2 10 × 4 B 160 (b Lo1 t6 for fo0r Lot: Lot:30 × 1 4) × 2 10 × 4 40 × ) 17 27 37 47(b) )7) Lot 6 B 360 .ee/ Ti# 3ee / Gr req e< '= Ed '= Ord r&($ Ord rel
0 0 3)
1
2
'
4
-
3) 0 0 3) 30
30 0 0 30 4)
4) 0 0 4)
0 0 0
10 0 0 10 40
10
Calculating total cost: C T = Orde Orderr cos costt
+
10
40 30 0 30 )) 0 0 0 0 0 0 0 0 0 0 40 30 30 )) )) 30 30 ))
hold holdin ing g cost cost
= 8 orders ders × $50 orde rder =
+
0 (no holdin ding cost)
$400.00
(c) Part-perio Part-period d balancing balancing
Reorder point: Reorde Reorderr point point = demand demand during during lead lead time time =
)0
275
N93 1
uni units peri period od × 1 perio eriod d
10 = 27.5 or 28 units
2
'
4
.ee/
10 10
Gr req 3) 30 4) 0 10 40 4 0 30 0 30 )) e< '= 0 0 *) )) 10 10 0 60 30 30 0 Ed '= 0 *) )) 10 10 0 60 30 30 0 0 Ord r&($ 120 100 )) Ord rel 120 100 ))
Calculating EPP: Order cost EPP = Holdin ding cost
=
50 0.25 .25
=
200
Note: (1) We have assumed that: (a) a product ordered during a calendar week is available at the beginning of the following week; (b) shipments during a week take place at the beginning of the week; (c) no carrying cost occurs during the week the order is received.
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0@00 21@2) 13@5) 2@)0 2@)0
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(2) The The POM POM for for Wind Window owss progr program am is unab unable le to handle the non-zero non-zero lead-time lead-time—thus —thus will produce produce a different answer. Excel OM does not perform PartPeriod balancing. Peri9%# C9!Bi"e% 6 67 67 67 67
C!lati5e Net Req; 40 50 50 1 00 1))
5 57 * 57 *7 %+ 57 *7 %7 10
C9#t# &r%e H9l% r
Part Peri9%# 40 × 0 B 40 × 0 30 × 1 B 30 40 × 0 30 × 1 B 30 40 × 0 30 × 1 30 × 3 B 120 40 × 0 30 × 1 30 × 3 )) × 4 B 340
)0 1)@ 1)@00 00 5@)0 5@)0
Calculating total cost: Orderr cos costt C T = Orde =
+
hold holdin ing g cos costt
3 orders × $50 order
+
280 units
× $0.2 $0.25 5 unit unit peri period od =
150.00 + 70.00 = $220.00
14.32 Ite! A .e .ee/ To$al req@ O O !ad #e # e$ req@ Or O rd re&@ Or Ord rel@
1 3
2 3
' 3
4 3
3
3
10
11
10 3 5 5
3
12
1'
14
10 10 10
5
1-
1
) ) )
10
)
Ite! , .e .ee/ To To$al req@ O O !ad #e$ req@ Ord re&@ Or Ord rel@
1 2
2 2
' 2
4 2
2
*
10 2 * * 5
5 2 5 5
10
11
12
1'
10 10 10
14
1-
) ) )
10
)
1 3 3 3
3
Ite! C .e .ee/ To$al req@ O O !ad #e #e$ req@ Or Ord re&@ Ord rel@
1
2
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-
1 10 0
10 10
10
10
10 10
5 5 5
5
10 10 10
10
10
10 10 10 10 )
11
12 ) ) )
)
1'
14
) ) ) 3
1-
1
3 3 3
Ite! D .e .ee/ To$al req@ O O !ad #e #e$ req@ Or O rd re&@ Or Ord rel@
1 )
2 )
' )
4 )
3
* ) 3 3 5
5 5 5
10
11
12
10 10 10 10
1'
14
) ) ) )
13 3 3
3
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
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CHAPTER 14
.e .ee/ To To$al req@ O O !ad #e # e$ req@ Or O rd re&@ Or Ord rel@
.e .ee/ To To$al req@ O !ad #e$ req@ Ord re&@ Or Ord rel@
.e .ee/ To$al req@ O O !ad #e$ req@ Ord re&@ Or O rd rel@
.e .ee/ To$al req@ O O !ad #e #e$ req@ Or Ord re&@ Ord rel@
1 )
2 )
' )
4 3 )
MATERIAL
-
)
2 )
' )
4 )
-
20 20 20
)
2
1
1
4
5
' 1
4 1
) 1 4 4
1
2
'
4
-
10
10 10
10 10
10
) 10 1 0
2
10 ) ) ) 5
Ite! +
22 22
in working toward common3goals. 10 10 10 10
10
11
3 3 3
12
1'
10 10 10
10
14
1-
1
14
1-
1
14
1-
1
) ) )
10 Ite! G
ERP
1corporate-based 0 11 12 performance 1' 14measures, 1- using 1 common information,
5 5 5
5 5 5 10
P L A N N I N G ( M R P )A N D
MRP system. When this is completed, everyone will will be judged by
20
)
1
Ite! E
% 2 5 5
5
1
R EQUIREMENTS
)
11
12
10 10 10
1' ) ) )
) Ite! H
5 ) 2 2
10
11
12
10 10 10 10
1' ) ) )
)
CASE S TUDJ TUDJ HILL’S AUTOMOTIVE, INC. In this case, each department argues that it is doing its job well —“the problem is with them.” The result is confusion and poor results for the company as a whole. Many of the problems relate to the classic MRP issues of (a) lack of master schedule; (b) lack of capaci capacity ty plannin planning; g; and (c) few, few, if any, any, accura accurate te lead lead times, times, all resulting resulting in poor scheduling and chaos in the assembly area. There seems also to be a question as to whether the various departments are working toward toward common common goals goals and whether whether appropr appropriat iatee measure measuress of performa performance nce are in place. place. The specif specific ic issues in a plan plan would include (a) introduction of corporate wide goals and performance measures for each function; (b) development of labor standards for the assembly, assembly, and packaging operations; operations; (c) developmen developmentt of quality standards for all production and purchased items, to which suppl supplie iers rs woul would d adhe adhere re;; (d) (d) impro improve veme ment ntss in inve invent ntor ory y management practices; (e) development of a capacity planning procedu procedure re (i.e. (i.e.,, determ determina inatio tion n as to how many many units units can can be produced produced during what time periods); periods); (f ) implementa implementation tion of a master production schedule (which might encompass a relatively short horizon due to the typical short production cycle); and, ultimately, proper use of an
2. A properly used MRP system will provide the structure needed at Hill’s Automotive; unneeded and excess inventory and poor bills of material will be evident, as will production schedules beyond the firm’s capabilities. Lead times, order release dates, shortages, etc. etc. will will also also be speci specifie fied. d. Accura Accuracy cy and disci discipli pline ne will will be required. The instructor may then want to discuss the problems one would encounter in implementing some of the changes discussed above. As a beginning, one might consider that the individual departments appear to be operating in a relatively informal manner and as separate entities. The student might be asked to consider how the persons employed within this organization will react to the changes suggested above, which, uniformly, result in increased dema demand ndss on empl employ oyee eess and and incr increa ease sed d inte integr grat atio ion n amon among g departments.
ASE ASE S TUDJ TUDJ IDE& C MRP AT WHEELED COACH A 7-minute video, filmed specifically for this text, is available from Prentice Hall and is designed to supplement the written case.
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1. Accurate inventory is an important issue at Wheeled Coach because of the dynamic changes that occur in ambulances. Items that are purchased purchased but not used promptly promptly often end up as excess excess inventory and must be disposed of at distress prices. Moreover, MRP does does not work work without without accurate accurate inventor inventory. y. As in any dependent manufacturing process, shortage of a part may mean that the entire end unit, in this case an expensive ambulance, cannot be assembled, completed, or delivered. Accurate inventory has cost implications for both the units in which the inventory is to be installed (the ambulance) and as an asset. 2. Exce Excess ss inve invent ntory ory exis exists ts beca becaus usee of mini minimu mum m orde orderr requiremen requirements, ts, BOM errors, errors, customer-c customer-change hange orders, orders, purchasing purchasing and receiving errors, etc. A plan for Wheeled Coach to deal with excess inventory is first to see what can be returned to the vendor for near full full credit credit;; second second,, see what can be substi substitut tuted ed on subsequent units for the items called out on the bills of material; and third, work at some sort of sale or scrap or supply to other auto dealers or truckers who may have n eed for the items.
Wheeled Coach will find it difficul difficultt to dispose dispose of excess excess 3. Wheeled inventory. It is hard to substitute excess components in units (and their related bills of material) as units are being assembled. It takes innovati innovation on on the part of the engineer engineering ing shop and inventory inventory personnel to make this work and keep the bills of material, through engineering changes notices, accurate. For those items that are changed but are not critical, management management instituted an effectivity date. That is a date that the change would be effective to the date in the production schedule that allowed all of the components in stock to be used. Some material can be returned to the supplier, but most suppliers are not interested in taking old merchandise back, so that is a difficult option. Finally, selling the items themselves proved a reasonable last resort. However, even this is expensive. It requires cataloging, publicity, letter writing, phone calls, and follow-up. follow-up. It is a real marketing marketing challenge challenge,, and Wheeled Coach does does this this by having having occasi occasiona onall sales sales of excess excess invent inventory ory on Saturdays. All of these options are being used, and all do reduce inventory ultimately.
P L A N N I N G ( M R P )A N D
ERP
ASE ASE S TUDJ TUDJ ADDITI&NAL C K IKON’S ATTEMPT AT ERP 1. IKON IKON needs needs compre comprehen hensiv sivee market marketing ing inform informati ation on on potent potential ial custom customers ers,, existi existing ng custom customers ers,, and their their copier copier installations, and then a service history on each machine sold and its its owner owner or leas leaseh ehol olde der. r. Addi Additi tion onal ally ly,, it need needss the the usua usuall accounting accounting informatio information n on payables, payables, receivabl receivables, es, assets, assets, and liabilities as well as good inventory information on copiers, parts, and supplies. 2. The advantages of ERP software are that it is usually sold as an integrated system that ties HR, accounting, manufacturing, and suppliers together. Consequently, in theory, it provides for a high degree of timely, accurate information. Most of these systems deliver much less than the theory suggests. The disadvantage of any standard software product is that it may not (or will not) fit a given (in this case IKON’s) business. IKON’s problem was complicated because many ERP systems are an outgrowth of manufacturing systems. This manufacturing base often means they are weak in the marketing, marketing, customer tracking, tracking, servic service, e, and repair repair featur features es critic critical al to IKON’s IKON’s compet competiti itive ve advantage. A wide variety of special programs have been written for customer sales and service tracking, but for SAP, like other vendors in the field, that was not an initial priority. 3. The The bet bet was was that that the the pilo pilott inst instal alla lati tion on woul would d work work at reasonable cost and, not incidentally, do the job. This did not turn out to be the case. (It cost over $14 million to get the system running, $8 million paid to IBM for consulting consulting and the remainder of the $25 million paid in consulting fees since the system was turned on.) 4. The project was canceled because of the expense, combined with with functio functional nality ity gaps gaps and the amount amount of intern internal al busine business ss procedures IKON would have to change.
* This case study appears on our Companion Web site, www.pearsonhighered.com/heizer.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
