Beruflich Dokumente
Kultur Dokumente
Engineering
Instructor:
Anna Corinna Cagliano
anna.cagliano@polito.it
A.Y. 2018-2019
Outline
• Inventory Costs
• Inventory Management Models
• Basics of Material Requirement Planning
(MRP)
1
Outline
Inventory Costs
• Inventory Management Models
• Basics of Material Requirement Planning
(MRP)
2
Inventory Costs
• Procurement cost
– Purchasing cost (human resources, etc.)
– Transportation cost
• Storage cost (inventory carrying)
– Capital interest
– Material handling and store HR
– Investment amortizations (building facility, MHE
equipment, etc.)
– Maintenance
– Shrinkage
3
Cumulative percent economic value
ABC Classification
4
ABC Classification
• A items
– Few items (10‐15%) account for the greatest portion
of inventory value (70 – 80%)
– A items ask for rigorous inventory management
• C items
– Large number of items (65%‐75%) have little value
on total (5 – 10%)
– Less rigorous policy
• B items
– Might be associated with either A or C groups as far
as inventory management is concerned. 5
Outline
Inventory Costs
Inventory Management Models
Basics of Material Requirement Planning
(MRP)
6
Why to Hold Inventory ?
• To reduce demand uncertainty
– Safety stock (stock of flexibility)
– Seasonal stock (stock of capacity)
• To separate different operations phases
– way to allow sourcing, making and delivery to
work at different rates
– allows the different phases to be “asynchronous”
and it absorbs upstream variations.
7
What Should be Decided
• Replenishment policy, i.e. how much and when to
order
– Impacts on:
• Stock carrying costs
• Setup/order emission costs
• Stock out / downstream service costs
– Constraints:
• Production capacity and flexibility of upstream production level
• Physical space limit of warehouses.
• Control level, i.e. the detail and the frequency of
control of the stock level of each item
– Impacts on:
• Cost of control
– Constraints:
• Availability of resources to perform the controls (people, 8
computers, ...).
Inventory Management –
Look Back Approach
• A target inventory level is set without looking
ahead at the demand.
• The time and the quantity to order are
decided only based on the current level of
stock.
• This inventory management approach is
basically to simply react to demand.
9
Inventory Management –
Look Back Approach
• The look back approach should be used when
it is hard to look ahead the demand:
– Demand is constant in time, or:
– It is impossible to foresee demand with enough
accuracy, or:
– The upstream phase is highly flexible.
10
Inventory Management –
Look Back Objectives
• The main objectives of the look back approach
are to minimize costs and to maximize the
service level for the downstream phases.
• These objectives can be expressed as the
minimization of a total cost function composed
by:
– Stock carrying costs
– Execution costs (order / setup)
– Costs of control
– Costs of poor service level at downstream phases
(stock out costs). 11
Inventory Management –
Look Back. Types of Models
• According to the type of control
– Continuous control
– Discrete control: time intervals
• According to the order placing time
– Fixed interval
– Variable interval
• According to the ordered quantity
– Fixed quantity
– Variable quantity
• According to the type of re‐order
– Independent entries: each item is re‐ordered
independently from the others
– Joint entries: orders for the different items are
coordinated. 12
Economic Order Quantity (EOQ)
Model
• Characteristics
– Variable period of order placing
– Fixed quantity ordered
– Continuous control
– Independent entries reorder
• Objectives
– Identify the quantity Q [units] to re‐order that
minimizes the total cost, as summation of
• ordering cost
• purchasing/production cost
• stock carrying cost
– and the conditions that determine the orders issuing
13
The EOQ Model
Inventory Assume infinite stock
level replenishment rate
Economic
Order Quantity
Re-order Q
Point
R
INVENTORY
Safety Stock
(SS)
Time
Material
arrived
Order Lead Time
placed L
Re-order Point = demand in the LT +
Safety Stock = R = d x L + SS 14
EOQ – Notation & Assumptions
15
EOQ – Steady Demand
In this example
Safety Stock = 0 200
150
0
1 2 3 4
Time
Average stock = (Q / 2) + Safety Stock
REORDER POINT
SAFETY STOCK
TIME
REORDERS PRODUCTION OR PURCHASING LT
b d
time
Normal distribution of the
demand and the order
L1
lead time L2
Lead‐time
L
22
Safety Stock (Probabilistic D,
Deterministic L)
• Data:
– R reorder point in units
– d average daily demand
– L lead time expressed in days (deterministic)
– k function of the expected service level
(probability of not facing stockouts during the lead
time)
– L std‐dev of demand during lead time
SS k L
23
Standard Deviation of Demand
During the Lead Time
• Given the standard deviation of daily demand d,
the standard deviation during lead time L can be
calculated as
L L d
24
Calculating k
Probability no stockout during order lead time
2 2 2
SS k * d L L
d
• k function of service level Standard deviation
• d standard dev. of demand of demand during
• L average value of lead time the order lead time
• L standard dev. of lead time
• d average value of demand 26
Fixed‐Time Period Model
• Characteristics
– Discontinuous control
– Fixed‐time between reviews (T)
– Variable ordered quantity
– Independent or combined entries reorder
• Objective
– Identifying the quantity to re‐order at each review
that allows the availability of each product to achieve
a pre‐defined service level, called objective level (OL)
• Hypotheses
– The same as EOQ
– Probabilistic demand, probabilistic order lead time 27
Fixed‐Time Period Model
INVENTORY LEVEL L L
Material Material
arrives arrives
OL
Order Order
INVENTORY
SS
TIME
T T
28
Fixed‐Time Period Model
• At fixed time intervals of T days inventory level is
reviewed and availability is calculated. Availability
is:
– I = current inventory level + Orders placed but not yet
arrived
• An order q is issued equal to the difference
between objective level OL and availability:
– q = OL ‐ I [units]
– The objective level OL is defined in order to cover the
demand in the time window T+L (where L is supplier’s
OL (T L) d SS
LT): [units]
29
Fixed‐Time Period Model
• Safety stock is calculated in the same way as in
the EOQ model. However, the component
derived from demand variability must prevent
from stockouts that can happen during the
time window (T+L).
2 2 2
SS k T L k (L T) d d L
T+L = Standard deviation of the demand during the
time period (T+L)
30
Fixed Q vs. Fixed T Models
fixed quantity fixed time
‐ easy joint (combined entries)
‐ low average stock level
re‐orders planning
(continuous control)
‐ easy control of availiability
‐ Minimization of relevant costs
level (periodic control)
(OPTIMIZATION)
‐ difficult joint (combined
entries) re‐orders planning ‐ higher average stock level
‐ many replenishment orders (periodic control)
(also to the same supplier)
‐ “heavy” control of availiability
level (continuous control)
31
Outline
Inventory Costs
Inventory Management Models
Basics of Material Requirement Planning
(MRP)
32
Material Requirement Planning
• Inventory Management. Look ahead criterion.
• Based on the production plan for a given
finished product (Master Production Schedule ‐
MPS), calculates for each part in the BOM of
the product:
– The quantity that needs to be purchased/produced.
– When the associated purchasing/production order
needs to be issued.
33
Material Requirement Planning
• The following quantities are also taken into
account:
– The available inventory level for each part
– The already scheduled deliveries for each part
(units that have been ordered but not yet received).
• The MRP procedure we will see is run over a
time horizon (planning time horizon)
constituted by a number of time periods (e.g.
weeks).
• The MRP procedure is run before the planning
time horizon starts. 34
Notation & Assumptions
• Demand: the quantity of a part that is needed at the
end of each period of the planning time horizon.
• Scheduled Deliveries: units that are scheduled to be
received at the beginning of each time period.
• Initial Inventory on Hand: the inventory level of one
part at the beginning of the planning time horizon.
• Inventory on Hand: the available inventory at the end
of each time period of the planning time horizon.
• Planned Order: how many units of a given part need to
be ordered.
• Planned Order Released: when the associated order is
issued (orders are issued at the end of a time period).
35
MRP Procedure
• Sum
– the time period requirements of a part in order to
produce all those finished products/sub‐assemblies
having that part in their BOMs.
• Split
– the total part requirement per time period
obtained above according to chosen lot‐sizing
policy.
• Shift in Time (backward)
– the lot‐sized requirements according to the order
lead time for each part. 36
MRP Procedure
• It 's easier to do than to say….
37
Example 1
Master Production Schedule for P1:
50 units at the end of week 5
60 units at the end of week 7
P1 Initial inventory on hand:
P1: 10 units
P2: 20 units
P2 Scheduled deliveries: 20 units of P2 at the
beginning of week 3
Order Lead Time & Lot‐sizing policy:
P3 (2) P1: 1 week. The order can have any size.
P2: 2 weeks. The order can have any size.
P3: 3 weeks. Order size: 150 units or multiples.38
MRP Record for P1
Initial
P1; LT=1 week; Lot-
Inventory
sizing: any order size
on Hand
Time period [week] 1 2 3 4 5 6 7
Demand 50 60
Scheduled Deliveries
Inventory on Hand 10 10 10 10 10 0 0 0
Planned Order 40 60
Planned Order Released 40 60
39
MRP Record for P2
Initial
P2; LT=2 weeks; Lot-
Inventory
sizing: any order size
on Hand
Time period [week] 1 2 3 4 5 6 7
Demand 40 60
Scheduled Deliveries 20
Inventory on Hand 20 20 20 40 0 0 0 0
Planned Order 60
Planned Order Released 60
40
MRP Record for P3
41
MRP Record for P3
What would happen if the order lead time for P3
was 4 weeks?
P3; LT=4 weeks; Lot- Initial
sizing: 150 units or Inventory
multiples on Hand
Time period [week] 1 2 3 4 5 6 7
Demand 120
Scheduled Deliveries
Inventory on Hand 0 0 0 0 30 30 30 30
Planned Order 150
Planned Order Released 150
I would need to place the order before the planning
time horizon starts (not possible!!) 42
MRP Record for P3
The delivery of the 120 units of P3 is delayed of 1
week
P3; LT=4 weeks; Lot- Initial
sizing: 150 units or Inventory
multiples on Hand
Time period [week] 1 2 3 4 5 6 7
Demand 120
Scheduled Deliveries
Inventory on Hand 0 0 0 0 0 30 30 30
Planned Order 150
Planned Order Released 150
The production of P2 and P1 will be delayed as well
43
Example 2
MASTER PRODUCTION SCHEDULE
Time period [week] 1 2 3 4 5 6 7 8
Wheelbarrow Demand 40 60 60 50
Note: the container is not
considered in the BOM for
this exercise
Order Initial
Lot-sizing Scheduled
Part Lead Inventory
[units/order] Deliveries
Time on Hand
Handles 300 2 weeks 100 300 in week 2
Wheel sub-
200 3 weeks 220
assembly (*)
Wheel 400 1 week 50
(*) in week 5 90 wheel sub-assemblies are also required to produce
44
another product
Example 2
HANDLES Time period [week] IIH 1 2 3 4 5 6 7 8
LT = 2 weeks Demand 80 120 120 100
Scheduled Deliveries 300
Lot-sizing = 300
Inventory on Hand 100 20 320 320 200 200 80 80 280
units/order
Planned Order 300
Planned Order Released 300
46