The document outlines key concepts related to inventory management and material requirements planning (MRP). It discusses inventory types, ABC analysis, cycle counting, economic order quantity models, reorder points, dependent demand, bills of materials, master production schedules, MRP structure and management, distribution resource planning, and enterprise resource planning systems and their advantages and disadvantages. The learning objectives are also to understand probabilistic inventory models and how to build MRP plans.

1. Operations Management Session 6 – Inventory Management & MRP / ERP

13. The Material Flow Cycle Figure 12.1 Input Wait for Wait to Move Wait in queue Setup Run Output inspection be moved time for operator time time Cycle time 95% 5%

21. Inventory Usage Over Time Figure 12.3 Order quantity = Q (maximum inventory level) Usage rate Average inventory on hand Q 2 Minimum inventory Inventory level Time 0

22. Minimizing Costs Objective is to minimize total costs Table 11.5 Annual cost Order quantity Curve for total cost of holding and setup Holding cost curve Setup (or order) cost curve Minimum total cost Optimal order quantity (Q*)

24. Reorder Point Curve Figure 12.5 Q* ROP (units) Inventory level (units) Time (days) Lead time = L Slope = units/day = d

26. Production Order Quantity Model Figure 12.6 Inventory level Time Demand part of cycle with no production Part of inventory cycle during which production (and usage) is taking place t Maximum inventory

28. Probabilistic Demand Figure 12.8 Safety stock 16.5 units ROP  Place order Inventory level Time 0 Minimum demand during lead time Maximum demand during lead time Mean demand during lead time Normal distribution probability of demand during lead time Expected demand during lead time (350 kits) ROP = 350 + safety stock of 16.5 = 366.5 Receive order Lead time

29. Probabilistic Demand Safety stock Probability of no stockout 95% of the time Mean demand 350 ROP = ? kits Quantity Number of standard deviations 0 z Risk of a stockout (5% of area of normal curve)

31. Fixed-Period (P) Systems Figure 12.9 On-hand inventory Time Q 1 Q 2 Target quantity (T) P Q 3 Q 4 P P

33. Operations Management Material Requirements Planning (MRP) and ERP

46. The Planning Process Figure 14.1 Change production plan? Master production schedule Management Return on investment Capital Engineering Design completion Aggregate production plan Procurement Supplier performance Human resources Manpower planning Production Capacity Inventory Marketing Customer demand Finance Cash flow

47. The Planning Process Figure 14.1 Is capacity plan being met? Is execution meeting the plan? Change master production schedule? Change capacity? Change requirements? No Execute material plans Execute capacity plans Yes Realistic? Capacity requirements plan Material requirements plan Master production schedule

48. Aggregate Production Plan Figure 14.2 Months January February Aggregate Production Plan 1,500 1,200 (Shows the total quantity of amplifiers) Weeks 1 2 3 4 5 6 7 8 Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 240-watt amplifier 100 100 100 100 150-watt amplifier 500 500 450 450 75-watt amplifier 300 100

51. BOM Example B (2) Std. 12” Speaker kit C (3) Std. 12” Speaker kit w/ amp-booster 1 E (2) E (2) F (2) Packing box and installation kit of wire, bolts, and screws Std. 12” Speaker booster assembly 2 D (2) 12” Speaker D (2) 12” Speaker G (1) Amp-booster 3 Product structure for “Awesome” (A) A Level 0

53. Time-Phased Product Structure Figure 14.4 | | | | | | | | 1 2 3 4 5 6 7 8 Time in weeks F 2 weeks 3 weeks 1 week A 2 weeks 1 week D E 2 weeks D G 1 week 1 week 2 weeks to produce B C E Start production of D Must have D and E completed here so production can begin on B

54. MRP Structure Figure 14.5 Output Reports MRP by period report MRP by date report Planned order report Purchase advice Exception reports Order early or late or not needed Order quantity too small or too large Data Files Purchasing data BOM Lead times (Item master file) Inventory data Master production schedule Material requirement planning programs (computer and software)

57. MRP in Services (a) PRODUCT STRUCTURE TREE Figure 14.10 Uncooked linguini #30004 Sauce #30006 Veal #30005 Chef; Work Center #1 Helper one; Work Center #2 Asst. Chef; Work Center #3 Cooked linguini #20002 Spinach #20004 Prepared veal and sauce #20003 Veal picante #10001

58. MRP in Services (b) BILL OF MATERIALS Part Number Description Quantity Unit of Measure Unit cost 10001 Veal picante 1 Serving — 20002 Cooked linguini 1 Serving — 20003 Prepared veal and sauce 1 Serving — 20004 Spinach 0.1 Bag 0.94 30004 Uncooked linguini 0.5 Pound — 30005 Veal 1 Serving 2.15 30006 Sauce 1 Serving 0.80

59. MRP in Services (c) BILL OF LABOR FOR VEAL PICANTE Labor Hours Work Center Operation Labor Type Setup Time Run Time 1 Assemble dish Chef .0069 .0041 2 Cook linguini Helper one .0005 .0022 3 Cook veal and sauce Assistant Chef .0125 .0500

63. ERP and MRP Figure 14.11

66. SAP’s ERP Modules Figure 14.12 Cash to Cash Covers all financial related activity: Accounts receivable General ledger Cash management Accounts payable Treasury Asset management Dock to Dispatch Covers internal inventory management: Warehousing Forecasting Physical inventory Distribution planning Replenishment planning Material handling Promote to Deliver Covers front-end customer-oriented activities: Marketing Quote and order processing Transportation Documentation and labeling After sales service Warranty and guarantees Procure to Pay Covers sourcing activities: Vendor sourcing Purchase requisitioning Purchase ordering Purchase contracts Inbound logistics Supplier invoicing/ matching Supplier payment/ settlement Supplier performance Design to Manufacture Covers internal production activities: Design Shop floor engineering reporting Production Contract/project engineering management Plant Subcontractor maintenance management Recruit to Hire Covers all HR- and payroll-oriented activity: Time and attendance Payroll Travel and expenses