Operations and Supply Chain Management The Core

MATERIAL REQUIREMENTS PLANNING chapter 9 291
WEEK
NET
REQUIREMENTS
PRODUCTION
QUANTITY
HOLDING
COST
SETUP
COST
TOTAL
COST
UNIT
COST
1 105 105 $ 0.00 $100.00 $100.00 $0.9524
1−2 80 185 8.00 100.00 108.00 0.5838
1−3 130 315 34.00 100.00 134.00 0.4254
1−4 50 365 49.00 100.00 149.00 0.4082
1−5 0 365 49.00 100.00 149.00 0.4082
1−6 200 565 149.00 100.00 249.00 0.4407
1−7 125 690 224.00 100.00 324.00 0.4696
1−8 100 790 294.00 100.00 394.00 0.4987
6 200 200 0.00 100.00 100.00 0.5000
6−7 125 325 12.50 100.00 112.50 0.3462
6−8 100 425 32.50 100.00 132.50 0.3118
For the first order, the least unit cost results from ordering enough to cover weeks 1 through 5, so our
first order would be for 365 units. (This example can be a bit tricky—we have to use a little common
sense.) Ordering for weeks 1–4 has the same low unit cost because there is no demand for week 5.
We will say we are ordering for weeks 1–5 so that we don’t place an unnecessary order in week 5
to cover demand for weeks 5–8. For the second order, the lowest unit cost comes from ordering for
weeks 6–8, so we would plan for an order of 425 units. As with the LTC example, our second order
might change as we learn net requirements for weeks 9 and beyond. Based on these orders, we can
now develop an order schedule based on LUC.
WEEK
NET
REQUIREMENTS
PRODUCTION
QUANTITY
ENDING
INVENTORY
HOLDING
COST
SETUP
COST
TOTAL
COST
1 105 365 260 $26.00 $100.00 $126.00
2 80 0 180 18.00 0.00 144.00
3 130 0 50 5.00 0.00 149.00
4 50 0 0 0.00 0.00 149.00
5 0 0 0 0.00 0.00 149.00
6 200 425 225 22.50 100.00 271.50
7 125 0 100 10.00 0.00 281.50
8 100 0 0 0.00 0.00 281.50
Best Lot Size Method
Based on the data we have available, the total costs for each lot-sizing method are lot-for-lot, $800.00;
EOQ, $350.40; LTC, $359.00; and LUC, $281.50. The relatively high setup cost in this example
makes lot-for-lot an unwise choice. LUC has the lowest total cost by a significant margin. It works so
well here because it minimizes holding costs across the planning horizon.
DISCUSSION QUESTIONS
LO9–1
LO9–2
LO9–3
1. What do we mean when we say that MRP is based on dependent demand?
2. Discuss the importance of the master production schedule in an MRP system.
3. Explain the need for time fences in the master production schedule.
4. “MRP just prepares shopping lists. It does not do the shopping or cook the
dinner.” Comment.
5. What are the sources of demand in an MRP system? Are these dependent or
independent, and how are they used as inputs to the system?
6. State the types of data that would be carried in the bill-of-materials file and the
inventory record file.
7. Discuss the meaning of MRP terms such as planned-order release and scheduled
order receipt.
8. Why is the MRP process referred to as an “explosion”?
9. Many practitioners currently update MRP weekly or biweekly. Would it be more
valuable if it were updated daily? Discuss.
10. Should safety stock be necessary in an MRP system with dependent demand? If
so, why? If not, why do firms carry it anyway?