Aggregate Planning and Inventory Management.pptx by cometjunkie50


									Asst.Prof.Dr. Apichat Sopadang Faculty of Engineering, Chiang Mai University

Operations Planning
— Long-range planning — Intermediate or medium-range planning — Short-range planning

Manufacturing Planning and Control System

Manufacturing Planning and Control System
— Aggregate planning — Master production scheduling — Inventory planning — Dependent demand - demand for item is independent of demand for any other item (Material Requirement Planning: MRP) — Independent demand - demand for item is dependent upon the demand for some other item (Economic Order Quantity: EOQ)

Independent Demand


Dependent Demand







Independent demand is uncertain. Dependent demand is certain.

Functions of Inventory
distribution — To protect against stock-outs
— To meet anticipated demand — To smooth production requirements — To decouple components of the production-

— To take advantage of order cycles — To help hedge against price increases or to take

advantage of quantity discounts

— To permit operations

Effective Inventory Management
— — — —

A system to keep track of inventory A reliable forecast of demand Knowledge of lead times Reasonable estimates of
— Holding costs — Ordering costs — Shortage costs

— A classification system

Key Inventory Terms
receiving the order — Holding (carrying) costs: cost to carry an item in inventory for a length of time, usually a year — Ordering costs: costs of ordering and receiving inventory — Shortage costs: costs when demand exceeds supply
— Lead time: time interval between ordering and

ABC Classification System
Classifying inventory according to some measure of importance and allocating control efforts accordingly.

A - very important B - mod. important C - least important

High Annual $ volume of items Low


Number of Items


Classifying Items as ABC
% Annual $ Usage
100 80 60 40 20 0 0 50 100

Class A B C

% $ Vol 80 15 5

% Items 15 30 55


% of Inventory Items

Economic Order Quantity Models
— Economic order quantity model — Economic production model — Quantity discount model

Assumptions of EOQ Model
— Only one product is involved — Annual demand requirements known — Demand is even throughout the year — Lead time does not vary — Each order is received in a single delivery — There are no quantity discounts

How Much to Order?
Annual Cost

Order (Setup) Cost Curve

Optimal Order Quantity (Q*)

Order Quantity

EOQ Model Equations
Optimal Order Quantity Expected Number of Orders

= Q* =

2 ×D ×S H D =N = Q* =T =
Working Days / Year

Expected Time Between Orders


d =

Working Days / Year

ROP = d × L

D = Demand per year S = Setup (order) cost per order H = Holding (carrying) cost d = Demand per day L = Lead time in days

When To Order
Inventory Level
Optimal Order Quantity (Q*) Reorder Point (ROP) Lead Time Average Inventory (Q*/2 (Q*/2)


The Inventory Cycle
Quantity on hand Reorder point

Usage rate

Profile of Inventory Level Over Time

Receive order

Place Receive order order

Place order

Receive order


Lead time

Production Order Quantity Model
— Answers how much to order and when to order — Allows partial receipt of material
— Other EOQ assumptions apply

— Suited for production environment
— Material produced, used immediately — Provides production lot size

— Lower holding cost than EOQ model

POQ Model Inventory Levels
Inventory Level Level
Production portion of cycle

Demand portion of cycle with no supply

Supply Begins

Supply Ends


Inventory Level Inventory level with no demand Production Portion of Cycle Max. Inventory Q·(1 Q·(1- d/p)


Supply Begins

Supply Ends

Demand portion of cycle with no supply


POQ Model Equations
Optimal Order Quantity = Q* = p

2*D*S d H* 1 p
d p

Maximum inventory level = Q* Setup Cost Holding Cost = D Q * S


( )
D = Demand per year S = Setup cost H = Holding cost d = Demand per day p = Production per day

1 -


= 0.5 * H * Q

( )
1d p

Material requirements planning
— Material requirements planning (MRP): Computer-

based information system for ordering and scheduling of dependent demand inventories

The Planning Process
Production Plan Master Production Schedule Material Requirements Plan Capacity Requirements Plan


Realistic?? Execute Capacity Plans Execute Material Plans


MRP Components
ส่ วนนําเข้ า
คําสั งซื อ การพยากรณ์ การเปลียน แปลงแบบ แผนลํ าดับ การผลิต

ส่ วนประมวลผล

ส่ วนผลได้
รายการเปลียนแปลง ใบสั งผลิต แผนการสั งซื อหรื อผลิต รายงานพิเศษ แผนงาน รายงานผลการควบคุม


โปรแกรม MRP

ปริมาณนําเข้ า แฟมข้ อมูลสินค้ า ้ คงคลัง ปริมาณจ่ายออก

รายการสินค้ าคงเหลือ

Inputs for MRP
— Master scheduling — Bill of materials — Inventory Information

Bill of Materials
0 X


















MRP II System
— Expanded MRP with and emphasis placed on


— Financial planning — Marketing — Engineering — Purchasing — Manufacturing

MRP II System
Finance Marketing Production plan MRP Market Demand Manufacturing production schedule Adjust master schedule Yes

Rough-cut capacity planning

Capacity planning

Adjust production plan Yes Problems? No Requirements



Enterprise Resource Planning
— Enterprise resource planning (ERP): An expanded

effort to integrate standardized record-keeping that will permit information sharing throughout the organization

Enterprise Resource Planning
Operations Engineering Sales and marketing

Supplier relationship management

Central database and server
Human resource Finance and accounting

Customer relationship management

Headquarters and branches

Module Connectivity

Benefit of ERP
— Real time information

supply chain members with litter delay — Provide supply chain visibility — Reduce inventory — Reduce bullwhip effect — Standardize manufacturing process — Etc.

— Communicate information of operations changes to

Bullwhip Effect

Effects of Bullwhip Effect
— Excess Inventory — Problems with Quality — Overtime Expenses — Lengthened Lead Time — Increased Shipping Costs — Lost Customer Service

Reasons for Bullwhip Effect
— Demand Forecasting — EOQ Model — Change in price — Short profit prediction — Shortage of product => Order => Demand decrease =>

Bullwhip Effect

Main Reasons for Bullwhip Effect
— Lack of process effective — Information missing and synchronize — Lack of collaboration between organizations in

supply chain

Improvement for Bullwhip Effect
— Information Sharing — Point of sale (POS) — Operational Effectiveness — Electronic Data Interchange (EDI) — Computer Aided Ordering (CAO) — Synchronize in Supply Chain => Good demand

forecasting and Order point

Supporting Tools
Automatically using POS — Continuous Replenish Program (CRP) — Collaborative Planning Forecasting and Replenishment (CPFR) — Price Policy — ERP
— Vendor Management Inventory (VMI) => Replenished

Research on Benefits of ERP
ERP Benefits Better managerial decision making Improve financial management Improve customer service and retention Ease of expansion/growth and increase flexibility Faster, more accurate transactions Head count reduction Cycle time reduction Improve inventory and assess management Fewer physic resources and improved logistics Increase revenue Target 1 2 3 4 5 6 7 8 9 10 Achieved 3 1 8 5 2 9 7 4 6 10

Accenture Institute for Strategic Change, 2002 – 163 organizations survey

ERP Software Applications
— SAP AG — Oracle — PeopleSoft — J.D. Edwards — Baan

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