Eoq, Ppd, L4L, Poq

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Lot Sizing in MRP






The net requirements data is subjected lot sizing
Lot sizes developed can satisfy the net requirements for one or more weeks The basic trade-off involves the elimination of one or more setups at the expense of carrying inventory longer
Lot sizing problem is basically one of converting requirements into a series of replenishment orders
Lot sizing problem generally considered in a local level; that is, only in terms of the one part and not its components

Characteristics of Net Requirements Demand






Net requirement does not satisfy the independent demand assumption of constant uniform demand.
The requirements are stated on a period-by-period basis (time-phased) – Discrete characteristic
They can be lumpy; that is, they can vary substantially from period to period and even have periods with no demand requirements
Lot sizing procedure used for one part in an MRP system has a direct impact on the gross requirements data passed to its components parts
Use of procedures other than lot-for-lot tends to increase the requirement data’s lumpiness farther down in the product structure

Lot-Sizing Procedure
Lot-For-Lot
• Replenishment orders are planned as required
Table 1. Example problem: Weekly net requirement schedule
Week
1
2
3
4
5
6
7
8
9
10 11 12 13 14
Gross
65 10 20 10 15 20 70 180 250 270 230 40 0 10
requirements
Scheduled
60
receipts
Projected
As planned order releases are not decided, projected available available 25 20 10
balances are not calculated
balance
Net
10 10 15 20 70 180 250 270 230 40 0 10
Requirements
Ordering cost = Rs 300 per order
Inventory carrying cost = Rs 2 per unit per week
Lead time = 1 week
Total net requirement (from period 3 to 14)= 1105
1105
Average weekly requirements =
= 92.1
12


For the above net requirements the lot-for-lot procedure gives the planned order releases as follows

Table 2. Lot-for-lot technique
Week
123
4
5
6
7
8
9
10 11 12
Net
10 10 15 20 70 180 250 270 230 40
requirements
Planned
order
10 10 15 20 70 180 250 270 230 40
0
releases
The relevant cost calculation
It is assumed that carrying cost is incurred for the end of the period inventory Total order cost = 11*300=Rs 3300
Total carrying cost = 0
Total cost = Rs 3300

13

14

0

10

10

Economic Order Quantities (EOQ)




EOQ procedure is generally applied to constant uniform demand Since requirement planning has discrete and lumpy demand, the EOQ procedure has to be modified
The total cost equation of EOQ procedure cannot be used in requirement planning



Lot size when EOQ is used =

2 RC o
=
H

2 * 92.1 * 300
= 166 units
2

• This lot size applied to the requirement planning problem in Table 1 is as follows Table 3. Economic order quantity example
Week
12
3
4
5
6
7
8
9
10 11 12 13 14
Net
10 10 15 20 70 180 250 270 230 40
0
10
requirements
Projected
available
156 146 131 111 41 27
0
0
0 126 126 116
inventory
Planned
166 223 270 230 166
order
166
releases
Total ordering cost = Rs 1,800
Total inventory carrying cost = (156+146+131+111+41+27+126+126+116) 2 = Rs 1960 Total cost = Rs 3760
• The average weekly requirement is used for EOQ that ignores much of the other information in the requirements schedule
• This results in
Carrying excess inventory from week to week – for example 41 units are carried over into week 8 when a new order is received
Increase the order quantity in those periods where the requirements exceed the economic lot size plus the amount of inventory carried over into the period

Periodic Order Quantities (POQ)


This procedure uses requirements of fixed number of periods as lot sizes





The fixed number of periods is determined as the economic time between orders This is equal to EOQ divided by mean demand rate
The time between order for requirements data in Table 1 is 1.8 ≈ 2 weeks (166/92.1=1.8)...
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