Calculation exercise 1 MRP, JIT, TOC and SOP Dr Jussi Heikkilä
Problem 1: MRP in XYZ Company fixed lot size Item A Period 1 2 3 4 5 6 7 8 9 10 Gross requirements 71 46 49 55 52 47 51 48 56 51 Scheduled receipts Projected available balance 150 79 33 134 79 27 130 79 31 125 74 Planned order release 0 150 0 0 150 0 0 150 0 0 Q = 150, LT = 1, SS = 0 Average inventory 79,1 Item B Period 1 2 3 4 5 6 7 8 9 10 Gross requirements 77 83 90 22 10 10 16 19 27 79 Scheduled receipts Projected available balance 150 73 140 50 28 18 8 142 123 96 17 Planned order release 150 0 0 0 0 150 0 0 0 0 Q = 150, LT = 1, SS = 0 Average inventory 69,5
Problem 1: MRP in XYZ Company variable lot size Item A Period 1 2 3 4 5 6 7 8 9 10 Gross requirements 71 46 49 55 52 47 51 48 56 51 Scheduled receipts Projected available balance 150 79 33 107 52 0 99 48 0 51 0 Planned order release 0 123 0 0 146 0 0 107 0 0 Q = 3 weeks, LT = 1, SS = 0 Average inventory 46,9 Item B Period 1 2 3 4 5 6 7 8 9 10 Gross requirements 77 83 90 22 10 10 16 19 27 79 Scheduled receipts Projected available balance 150 73 112 22 0 26 16 0 106 79 0 Planned order release 122 0 0 36 0 0 125 0 0 0 Q = 3 weeks, LT = 1, SS = 0 Average inventory 43,4
Problem 2: JIT in BCD Company Calculating the number of Kanbans DL (1 + α) Y = --------------- a Y = number of Kanban card sets D = demand per unit of time L = lead time a = container capacity α = policy variable (safety stock) 4
Problem 2: JIT in BCD Company a. Q/2 x EUR 150 = (6000 * 150) / 2 = EUR 450,000 No of Kanbans = (250 x 10 x 1.1) / 100 = 28 Average inventory = 28 * 100 units = 2800 units x 150 EUR = EUR 420,000 b. Reducing lead time from 10 to 5 days No of Kanbans = (250 x 5 x 1.1) / 100 = 14 Average inventory = 14 * 100 units = 1400 units x 150 EUR = EUR 210,000 The investment in inventory decreases from EUR 420,000 to EUR 210,000 The inventory carrying cost, therefore, is reduced by 0,24%* x EUR 210,000 = EUR 50,400 c. The return on investment per year is EUR 50,400 / EUR 100,00 = 50% => The investment is worth doing! *The average true cost of inventory for an average American manufacturing company.
Problem 3: TOC and transfer batches in OPQ Company Operation 1 S 1 Run Q t Run (800-Q t ) Transfer T T Operation 2 S 2 Run Q t Run (800-Q t ) A B C 20 90 8Q 90 8Q 14Q Q t t t 4710 337 t 6 (800 Q 4800 6Q t t ) 20 6
Problem 3: TOC and transfer batches in OPQ Company Total lead time by not having transfer batch (60 min + 90 min) + 20 min + 800 * (6 min + 8min) = 11 370 min = 189,5 hrs total lead time with transfer batch (60 min + 90 min) + (337)*6 min + 20 min + 800 * 8 min = 8 592 min = 143,2 hrs. Savings (189,5-143,27)/189,5 = 24,4%. There was a question in class last year about using several much smaller transfer batches, even going down to a transfer batch size of 6. The limiting factor here is the transfer time. With small transfer batches multiple transfer times start slowing down the process. For those of you who are interested in studying this issue further, I advise you to look at Chapter 8A Advanced Scheduling and particularly the part Group Scheduling and Transfer Batches. 7
Problem 4: SOP in EFG Company a) Producing a chase plan Chase plan: All the demand must be fulfilled (no stockouts) Ending inventory = 0 Capacity = Demand - Beginning Inventory How much to produce each quarter and what is the overall cost? Assumption: Cost of laying-off includes all the settle payments 8
Problem 4: SOP in EFG Company a) Producing a chase plan Quarter 1: Demand - Beginning inventory = 5 000 1 000 = Required production = 4 000 pcs Required number of employees = 4 000 / 100 = 40 Number of employees on hand = 60 reduce 20 Quarter 2: Required production = 10 000 Required number of employees = 10 000 / 100 = 100 Number of employees on hand = 40 hire 60 etc. 9
Problem 4: SOP in EFG Company a) Producing a chase plan Period Q1 Q2 Q3 Q4 Demand 5000 10000 8000 2000 Beginning Inventory 1000 0 0 0 Production 4000 10000 8000 2000 Unit cost Total cost Ending Inventory 0 0 0 0 5 0 Employees required 40 100 80 20 1200 288000 Employees on hand 60 40 100 80 Hire 0 60 0 0 200 12000 Lay off 20 0 20 60 400 40000 SUM 340000 10
Problem 4: SOP in EFG Company b) Producing a level plan Level capacity Number of employees = constant In case of fluctuating demand, overtime and stockouts might occur (unless excess capacity is held) In this case No ending inventory allowed What is the production rate, inventories at each quarter, stockouts and total costs? 11
Problem 4: SOP in EFG Company b) Producing a level plan Level capacity = constant =? Total production according to demand forecast - beginning inventory = 24 000 Level capacity = average required capacity = 24 000 / (4 * 100) = 60 employees Quarter 1: Demand - Beginning inventory = 5 000 1 000 = Required production = 4 000 pcs Number of employees on hand = 60 production 6 000 Ending inventory = 2 000 Quarter 2: Required production = 10 000 Beginning inventory = 2 000, production 6 000 stockouts = 2 000 Quarter 3: Beginning inventory -2 000, demand 8 000, production 6 000 stockouts 4 000 Quarter 4: Beginning inventory -4 000, demand 2 000, production 6 000 ending inventory 0 12
Problem 4: SOP in EFG Company b) Producing a level plan Period Q1 Q2 Q3 Q4 Demand 5000 10000 8000 2000 Beginning Inventory 1000 2000-2000 -4000 Production 6000 6000 6000 6000 Stock-outs 0 2000 4000 0 5 30000 Ending Inventory 2000 0 0 0 2 4000 Employees required 60 60 60 60 1200 288000 Employees on hand 60 60 60 60 Hire 0 0 0 0 200 0 Lay off 0 0 0 0 400 0 SUM 322000 What additional factors need to be considered in SOP to decide which plan to use? 13