OPERATION MANAGEMENT (CASE: MRP AT A-CAT CORP.)

18th of May 2015 Operations Management For Competitive Advantage Group 4 Azis Rizky Prawira Camelia Indah Murniwati Jejen Nugraha Muhammad Yuriansyah Putra Nasrul Nabil Sangadji

1406513344 1406513376 1406589114 1406514100 1406589303

OUTLINE   Company Background of A-CAT Corp.  Problem Identification  Theory of MRP  Analysis  Conclusion & Lesson Learned

Company Background: A-CAT Corp.



 Mid-sized manufacturer and distributor of domestic electrical appliances.  Operated two medium-sized facilities in Vidarbha region of Maharashtra states of India.  Focus on the rural segment (low-income customers).  A-CAT’s manufacturing units had been in operation since 1986.  Annual sales of Rs6,000,000 US$120,000.  Had about 35 employees.  Manufactured electrical appliances for household use: television signal boosters, transformers, FM radio kits, electronic ballasts, battery chargers, voltage regulators, etc.

Problem Identification

  Sunita Menon was assigned the task of preparing the operation plan for the next eight weeks for the product P0110.  The basic problem Menon Faced was deciding how to produce economically.  After collecting the data (Bill of Materials, Product Structure Diagram, Master Schedule, On Hand Inventory, Costs Associated), Menon reached a different answer for every lot-sizing technique that she applied.

Theory of MRP

  MRP is a planning approach to material / material that ignoring the past, but look to the demands or needs of future production.  MRP can be applied for planning materials / parts / components or sub-assemblies that depend on the product or inventory.  MRP is a computerized information system is built specifically to help manufacturers manage inventory and schedule of reservations / reception material / materials.

MRP Input

Authorized master production schedule

Inventory transactions

Inventory records

MRP explosion

Material requirements plan

Other sources of demand

Bills of materials

Engineering and process designs

Information for MRP  Bill of Materials (BOM) of all products for certain that consists of several levels (level).  Number parts / components are unique and permanent.  The existence of Master Production Schedule (MPS) of production. The final result contains the time and amount.  The amount of material requirements / Notes Inventory (Inventory Record) for each part / component products.  Stock code number.  Lead time for each part / component in an exact figure.  The required amount equal to that of the production schedule.

BOM Sample

Master Production Scheduling

Master production schedule (MPS): Total aggregate production for all types of "family" seats

Inventory Record

 Supply Notes : A record that shows an item’s lot-size policy, lead time, and various time-phased data.  Gross requirements : The total demand derived from all parent production plans.  Scheduled receipts are orders that have been placed but not yet completed.  projected on-hand inventory: An estimate of the amount of inventory available each week after gross requirements have been satisfied.  planned receipts : Orders that are not yet released to the shop or supplier.  planned order releases : An indication of when an order for a specified quantity of an item is to be issued.

Lot Sizing in MRP Systems Lot sizes – the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule.

Analysis

  Based on the data (Bill of Materials, Product Structure Diagram, Master Schedule, On Hand Inventory, Costs Associated), Lot Sizes will be determined by using Lot Sizing Strategies below: 1. 2. 3. 4.

Lot for Lot (L4L) Economic Order Quantity (EOQ) Least Total Cost (LTC) Least Unit Cost (LUC)

Bill of Material (BOM)

Level 0

(Quantity)

Independent Demand

(1)

(2)

(2)

1

Dependent Demand

2

(4)

(3)

Master Production Schedule The End Item: P0110

On Hand Inventory

Cost

1. Lot for Lot (L4L)

  Lot-for-Lot (L4L) is the most commont technique. It  Sets planned orders to exactly match the net requirements  Produces exactly what is needed each week with no inventory carroed over into future periods.  Minimizes carrying cost.  Does not take into account setup costs or capacity limitations.

Step 1: MRP Explosion Calculations MRP Explosion Calculations Item P0110 Q L4L LT 2 OH 240 SS 0

Week Gross requirement Scheduled receipts Projected available balance Net requirements Planned order receipts Planned order release

MRP Explosion Calculations Item POX Q LT OH SS

L4L 1 500 0

-4

-3

-2

-1

1 400

2 350

3 300

4 450

5 300

6 450

7 225

8 525

240

240

240

240

0 300 300 300

0 450 450 450

0 300 300 225

0 450 450 525

0 525 525

350

0 350 350 450

0 225 225

160

0 160 160 300

-2

-1

1

2

3

4

5

6

7

8

320

700

600

900

600

900

450

1050

180 0 0 520

0 520 520 600

0 600 600 900

0 900 900 600

0 600 600 900

0 900 900 450

0 450 450 1050

0 1050 1050

Week -4 Gross requirement Scheduled receipts Projected available balance Net requirements Planned order receipts Planned order release

500

-3

500

0

MRP Explosion Calculations Item POY Q LT OH SS

L4L 1 340 0

Week -4 Gross requirement Scheduled receipts Projected available balance Net requirements Planned order receipts Planned order release

MRP Explosion Calculations Item P1X1 Q LT OH SS

L4L 1 500 0

L4L 1 600 0

340

0

-2

-1

1

2

3

4

5

6

7

8

320

700

600

900

600

900

450

1050

20 0 0 680

0 680 680 600

0 600 600 900

0 900 900 600

0 600 600 900

0 900 900 450

0 450 450 1050

0 1050 1050

6

7

8

6

7

8

Week -4 Gross requirement Scheduled receipts Projected available balance Net requirements Planned order receipts Planned order release

MRP Explosion Calculations Item P1X2 Q LT OH SS

340

-3

500

-3

500

1580

-2

-1

1

2

3

4

5

2080

2400

3600

2400

3600

1800

4200

0 1580 1580 2400

0 2400 2400 3600

0 3600 3600 2400

0 2400 2400 3600

0 3600 3600 1800

0 1800 1800 4200

0 4200 4200

Week -4 Gross requirement Scheduled receipts Projected available balance Net requirements Planned order receipts Planned order release

600

-3

600

960

-2

-1

1

2

3

4

5

1560

1800

2700

1800

2700

1350

3150

0 960 960 1800

0 1800 1800 2700

0 2700 2700 1800

0 1800 1800 2700

0 2700 2700 1350

0 1350 1350 3150

0 3150 3150

Step 2: Lot-for-Lot Run Size for an MRP Schedule P0110 Week

P0X Week

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost 1 160 160 0 0 500 500 2 350 350 0 0 500 1000 3 300 300 0 0 500 1500 4 450 450 0 0 500 2000 5 300 300 0 0 500 2500 6 450 450 0 0 500 3000 7 225 225 0 0 500 3500 8 525 525 0 0 500 4000

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost -1 520 520 0 0 400 400 1 600 600 0 0 400 800 2 900 900 0 0 400 1200 3 600 600 0 0 400 1600 4 900 900 0 0 400 2000 5 450 450 0 0 400 2400 6 1050 1050 0 0 400 2800

POY Week -1 1 2 3 4 5 6

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost 680 680 0 0 350 350 600 600 0 0 350 700 900 900 0 0 350 1050 600 600 0 0 350 1400 900 900 0 0 350 1750 450 450 0 0 350 2100 1050 1050 0 0 350 2450

P1X1 Week

P1X2 Week

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost -2 1580 1580 0 0 430 430 -1 2400 2400 0 0 430 860 1 3600 3600 0 0 430 1290 2 2400 2400 0 0 430 1720 3 3600 3600 0 0 430 2150 4 1800 1800 0 0 430 2580 5 4200 4200 0 0 430 3010

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost -2 960 960 0 0 400 400 -1 1800 1800 0 0 400 800 1 2700 2700 0 0 400 1200 2 1800 1800 0 0 400 1600 3 2700 2700 0 0 400 2000 4 1350 1350 0 0 400 2400 5 3150 3150 0 0 400 2800

Step 3: Total Cost Calculation for L4L Item P0110 P0X P0Y P1X1 P1X2 Total Cost L4L

Cost 4,000 2,800 2,450 3,010 2,800 15,060

2. Economic Order Quantity (EOQ)

 Economic order quantity (EOQ) is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. Step 1: EOQ Calculations

D = Annual Demand H = Annual Holding Cost S = Setup Cost

Step 2: MRP Explosion Calculations Lv 0 (P0110) EOQ = 588 LT :2 Gross requirement schedule receipts projected on hand net requirements Planned order receipts Planned Ending Inventory Planned order releases Lv 1 (POX) EOQ = 1287 LT :1 -3 Gross requirement schedule receipts projected on hand net requirements Planned order receipts Planned Ending Inventory Planned order releases 1287

Lv 1 (POY) LT :1 Gross requirement schedule receipts projected on hand net requirements Planned order receipts Planned Ending Inventory Planned order releases

EOQ = 1665 -3

-2

588

-2 1176 500 676 1287 611

-2 1176 340 836 1665 829

1665

-1

1 2 3 400 350 300

4 450

5 6 7 8 300 450 225 525

240 160 350 300 588 588 428 78 366 588 588

450 588 504 588

300 450 225 525 588 588 204 342 117 180 588

-1 1 2 0 1176 1176

3 4 0 1176

5 6 0 1176

7

3 4 0 1176

5 6 0 1176

0 1176 1176 0 1176 0 1176 1665 1665 1665 1318 142 631 1120 1665 1665 1665

Total Cost :

D= H= S= 2DS/H = EOQ = Total Cost :

7

17940 52 500 345000 588 4719

8

1176 1176 1176 1176 1287 1287 1287 1287 722 833 944 1055 1287 1287 1287 1287

-1 1 2 0 1176 1176

D= H= S= 2DS/H = EOQ =

34970 16.9 400 1655385 1287 3354

8 D= H= S= 2DS/H = EOQ = Total Cost :

36010 9.1 350 2770000 1665 2107

Lv 2 (P1X1) EOQ = 10418 LT :1 -4 -3 Gross requirement 5148 schedule receipts projected on hand 500 net requirements 4648 Planned order receipts 10418 Planned Ending Inventory 5770 Planned order releases 10418

-2 -1 1 0 5148 5148

2 3 0 5148

0 5148 5148 10418 622 5892 10418

0 5148

Lv 2 (P1X2) EOQ = 4994 LT :1 -4 -3 -2 Gross requirement 3861 0 schedule receipts projected on hand 600 net requirements 3261 0 Planned order receipts 4994 Planned Ending Inventory 1733 Planned order releases 4994 4994

4 5 0 5148

6

7

8 D= H= S= 2DS/H = EOQ =

0 5148 10418 744 6014 10418

-1 1 3861 3861

2 3 0 3861

3861 3861 4994 4994 2866 3999 4994

0 3861

4 5 0 3861

0 3861 4994 138 1271 4994

Total Cost :

6

7

164060 1.3 430 108532000 10418 1766

8 D= H= S= 2DS/H = EOQ = Total Cost :

121582.5 3.9 400 24940000 4994 2351

Step 3: EOQ Run Size for an MRP Schedule P0110 Week

P0X Week

POY Week

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost 1 160 588 428 428 500 928 2 350 0 78 78 0 1006 3 300 588 366 366 500 1872 4 450 588 504 504 500 2876 5 300 0 204 204 0 3080 6 450 588 342 342 500 3922 7 225 0 117 117 0 4039 8 525 588 180 180 500 4719

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost -2 676 1287 611 199 400 599 -1 0 0 0 0 0 599 1 1176 1287 722 235 400 1233 2 1176 1287 833 271 400 1904 3 0 0 0 0 0 1904 4 1176 1287 944 307 400 2611 5 0 0 0 0 0 2611 6 1176 1287 1055 343 400 3354 Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost -2 836 1665 829 145 350 495 -1 0 0 0 0 0 495 1 1176 1665 1318 231 350 1076 2 1176 0 142 25 0 1101 3 0 0 0 0 0 1101 4 1176 1665 631 110 350 1561 5 0 0 0 0 0 1561 6 1176 1665 1120 196 350 2107

P1X1 Week

P1X2 Week

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost -3 4648 10418 5770 144 430 574 -2 0 0 0 0 0 574 -1 5148 0 622 16 0 590 1 5148 10418 5892 147 430 1167 2 0 0 0 0 0 1167 3 5148 0 744 19 0 1186 4 0 0 0 0 0 1186 5 3861 10418 6014 150 430 1766

Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost -3 3261 4994 1733 130 400 530 -2 0 0 0 0 0 530 -1 3861 4994 2866 215 400 1145 1 3861 4994 3999 300 400 1845 2 0 0 0 0 0 1845 3 3861 0 138 10 0 1855 4 0 0 0 0 0 1855 5 3861 4994 1271 95 400 2351

Step 4: Total Cost Calculation for EOQ Total EOQ Cost ITEM COST (In Rs) P0110 4719 POX 3354 POY 2107 P1X1 1766 P1X2 2351 TOTAL 14296

3. Least Total Cost (LTC)

 Least Total Cost (LTC) is a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup (or ordering) cost for various lot sizes and then selects the lot in which these are most nearly equal.

Step 1

Step 2

Week Quantity Ordered 1 160 1-2 510 1-3 810 1-4 1260 1-5 1560 1-6 2010 1-7 2235 1-8 2760

Carrying Cost Setup Cost Total Cost Different 0 500 500 500 350 500 850 150 950 500 1450 450 2300 500 2800 1800 3500 500 4000 3000 5750 500 6250 5250 7100 500 7600 6600 10775 500 11275 10275

Week Quantity Ordered 3 300 3-4 750 3-5 1050 3-6 1500 3-7 1725 3-8 2250

Carrying Cost Setup Cost Total Cost Different 0 500 500 500 450 500 950 50 1050 500 1550 550 2400 500 2900 1900 3300 500 3800 2800 5925 500 6425 5425

Week Quantity Ordered 5 300 5-6 750 5-7 975 5-8 1500

Carrying Cost Setup Cost Total Cost Different 0 500 500 500 450 500 950 50 900 500 1400 400 2475 500 2975 1975

Week Quantity Ordered 7 225 7-8 750

Carrying Cost Setup Cost Total Cost Different 0 500 500 500 525 500 1025 25

Week 1 2 3 4 5 6 7 8

Net Requirement Prod. Qty Ending Inv. 160 510 350 350 0 0 300 750 450 450 0 0 300 750 450 450 0 0 225 750 525 525 0 0

Holding Cost 350 0 450 0 450 0 525 0

Setup Cost Total Cost 500 850 0 850 500 1800 0 1800 500 2750 0 2750 500 3775 0 3775

LTC Level 0 P0110 Item P0110 POX POY P1X1 P1X2 Week 1 2 3 4 5 6 7 8

Item P0110 POX POY P1X1 PIX2

Inventory 240 500 340 500 600

Net Requirement 400 350 300 450 300 450 225 525

Cost/Unit Set Up Cost 200 500 65 400 35 350 5 430 15 400

Step 1

Step 2

Week Quantity Ordered 1 520 1-2 520 1-3 2020 1-4 2020 1-5 3520 1-6 3520 1-7 5020 1-8 5020

Carrying Cost Setup Cost Total Cost Different 0 400 400 400 0 400 400 400 975 400 1375 575 975 400 1375 575 2925 400 3325 2525 2925 400 3325 2525 5850 400 6250 5450 5850 400 6250 5450

Week Quantity Ordered 3 1500 3-4 1500 3-5 3000 3-6 3000 3-7 4500 3-8 4500

Carrying Cost Setup Cost Total Cost Different 0 400 400 400 0 400 400 400 975 400 1375 575 975 400 1375 575 2925 400 3325 2525 2925 400 3325 2525

Week Quantity Ordered 5 1500 5-6 1500 5-7 3000 5-8 3000

Carrying Cost Setup Cost Total Cost Different 0 400 400 400 0 400 400 400 975 400 1375 575 975 400 1375 575

Week Quantity Ordered 7 1500 7-8 1500

Carrying Cost Setup Cost Total Cost Different 0 400 400 400 0 400 400 400

Week 1 2 3 4 5 6 7 8

Net Requirement Prod. Qty Ending Inv. 520 520 0 0 0 0 1500 1500 0 0 0 0 1500 1500 0 0 0 0 1500 1500 0 0 0 0

Holding Cost 0 0 0 0 0 0 0 0

Setup Cost Total Cost 400 400 0 400 400 800 0 800 400 1200 0 1200 400 1600 0 1600

LTC Level 1 P0X Item P0110 POX POY P1X1 P1X2 Week 1 2 3 4 5 6 7 8

Item P0110 POX POY P1X1 PIX2

Inventory 240 500 340 500 600

Qty 1 2 2 4 3

Net Requirement 510 0 750 0 750 0 750 0

Tot. Req 1020 0 1500 0 1500 0 1500 0

Cost/Unit Set Up Cost 200 500 65 400 35 350 5 430 15 400

Step 1

Step 2

Week Quantity Ordered 1 680 1-2 680 1-3 2180 1-4 2180 1-5 3680 1-6 3680 1-7 5180 1-8 5180

Carrying Cost Setup Cost Total Cost Different 0 350 350 350 0 350 350 350 525 350 875 175 525 350 875 175 1575 350 1925 1225 1575 350 1925 1225 3150 350 3500 2800 3150 350 3500 2800

Week Quantity Ordered 5 1500 5-6 1500 5-7 3000 5-8 3000

Carrying Cost Setup Cost Total Cost Different 0 350 350 350 0 350 350 350 525 350 875 175 525 350 875 175

Week 1 2 3 4 5 6 7 8

Net Requirement Prod. Qty Ending Inv. 680 2180 1500 0 0 1500 1500 0 0 0 0 0 1500 3000 1500 0 0 1500 1500 0 0 0 0 0

Holding Cost 263 263 0 0 263 263 0 0

Setup Cost Total Cost 350 613 0 875 0 875 0 875 350 1487.5 0 1750 0 1750 0 1750

LTC Level 1 P0Y Item P0110 POX POY P1X1 P1X2 Week 1 2 3 4 5 6 7 8

Item P0110 POX POY P1X1 PIX2

Inventory 240 500 340 500 600 Net Requirement 510 0 750 0 750 0 750 0

Qty 1 2 2 4 3 Tot. Req 1020 0 1500 0 1500 0 1500 0

Cost/Unit Set Up Cost 200 500 65 400 35 350 5 430 15 400

Step 1

Step 2

Week Quantity Ordered 1 1580 1-2 1580 1-3 7580 1-4 7580 1-5 13580 1-6 13580 1-7 19580 1-8 19580

Carrying Cost Setup Cost Total Cost Different 0 430 430 430 0 430 430 430 300 430 730 130 300 430 730 130 900 430 1330 470 900 430 1330 470 1800 430 2230 1370 1800 430 2230 1370

Week Quantity Ordered 5 6000 5-6 6000 5-7 12000 5-8 12000

Carrying Cost Setup Cost Total Cost Different 0 430 430 430 0 430 430 430 300 430 730 130 300 430 730 130

Week 1 2 3 4 5 6 7 8

Net Requirement Prod. Qty Ending Inv. 1580 7580 6000 0 0 6000 6000 0 0 0 0 0 6000 12000 6000 0 0 6000 6000 0 0 0 0 0

Holding Cost 150 150 0 0 150 150 0 0

Setup Cost Total Cost 430 580 0 730 0 730 0 730 430 1310 0 1460 0 1460 0 1460

LTC Level 2 P1X1 Item P0110 POX POY P1X1 P1X2 Week 1 2 3 4 5 6 7 8

Item P0110 POX POY P1X1 PIX2

Inventory 240 500 340 500 600 Net Requirement 520 0 1500 0 1500 0 1500 0

Qty 1 2 2 4 3 Tot. Req 2080 0 6000 0 6000 0 6000 0

Cost/Unit Set Up Cost 200 500 65 400 35 350 5 430 15 400

Step 1

Step 2

Week Quantity Ordered 1 960 1-2 960 1-3 5460 1-4 5460 1-5 9960 1-6 9960 1-7 14460 1-8 14460

Carrying Cost Setup Cost Total Cost Different 0 400 400 400 0 400 400 400 675 400 1075 275 675 400 1075 275 2025 400 2425 1625 2025 400 2425 1625 4050 400 4450 3650 4050 400 4450 3650

Week Quantity Ordered 5 4500 5-6 4500 5-7 9000 5-8 9000

Carrying Cost Setup Cost Total Cost Different 0 400 400 400 0 400 400 400 675 400 1075 275 675 400 1075 275

Week 1 2 3 4 5 6 7 8

Net Requirement Prod. Qty Ending Inv. 960 5460 4500 0 0 4500 4500 0 0 0 0 0 4500 9000 4500 0 0 4500 4500 0 0 0 0 0

Holding Cost 338 338 0 0 338 338 0 0

Setup Cost Total Cost 400 738 0 1075 0 1075 0 1075 400 1813 0 2150 0 2150 0 2150

LTC Level 2 P1X2 Item P0110 POX POY P1X1 P1X2 Week 1 2 3 4 5 6 7 8

Inventory 240 500 340 500 600

Net Requirement 520 0 1500 0 1500 0 1500 0

Item P0110 POX POY P1X1 PIX2

Qty 1 2 2 4 3 Tot. Req 1560 0 4500 0 4500 0 4500 0

Cost/Unit Set Up Cost 200 500 65 400 35 350 5 430 15 400

Step 3: Total Cost Calculation for LTC

Item P0110 P0X P0Y P1X1 P1X2 Total Cost

Cost 3,775 1,600 1,750 1,460 2,150 10,735

4. Least Unit Cost (LUC)

  Least unit cost method – a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost.

LUC

Step 1 Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

1

160

0

500

500

1-2

510

350

500

850

1-3

810

950

500

1450

1-4

1260

2300

500

2800

1-5

1560

3500

500

4000

1-6

1200

5750

500

6250

1-7

2235

7100

500

7600

1-8

2760

10775

500

11275

3.13 1.67 1.79 2.22 2.56 5.21 3.40 4.09

Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

3

300

0

500

500

3-4

750

450

500

950

3-5

1050

1050

500

1550

3-6

1500

2400

500

2900

3-7

1725

3300

500

3800

3-8

2250

5925

500

6425

1.7 1.3 1.5 1.9 2.2 2.9

Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

5

300

0

500

500

5-6

750

450

500

950

5-7

975

900

500

1400

5-8

1500

2475

500

2975

1.7 1.3 1.4 2.0

Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

7

225

0

500

500

7-8

750

525

500

1025

2.2 1.4

Step 2

Level 0 P0110

Week

Net Requirement

Prod. Qty

Ending Inv.

Holding Cost

Setup Cost

Total Cost

1

160

510

350

350

500

850

2

350

0

0

0

0

850

3

300

750

450

450

500

1800

4

450

0

0

0

0

1800

5

300

750

450

450

500

2750

6

450

0

0

0

0

2750

7

225

750

525

525

500

3775

8

525

0

0

0

0

3775

LUC

Step 1 Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

-1

0

0

0

0

-1-0

520

0

400

400

-1-1

1120

195

400

595

-1-2

2020

780

400

1180

-1-3

2620

1365

400

1765

-1-4

3520

2535

400

2935

-1-5

3970

3266.25

400

3666.25

-1-6

5020

5313.75

400

5713.75

0 0.77 0.53 0.58 0.67 0.83 0.92 1.14

Week 2

Quantity Ordered 900

Carrying Cost 0

Setup Cost 400

Total Cost 400

2-3

1500

195

400

595

2-4

2400

780

400

1180

2-5

2850

1218.75

400

1618.75

2-6

3900

2583.75

400

2983.75

Week 4

Quantity Ordered 900

Carrying Cost 0

Setup Cost 400

Total Cost 400

4-5

1350

146.25

400

546.25

4-6

2400

828.75

400

1228.75

Week 6

Quantity Ordered 1050

Carrying Cost 0

Setup Cost 400

Total Cost 400

Step 2

Level 1 P0X

Unit Cost

0.44 0.40 0.49 0.57 0.77

Unit Cost

0.44 0.40 0.51

Unit Cost

0.38

Week

Net Requirement

Prod. Qty

Ending Inv.

Holding Cost

Setup Cost

Total Cost

-1

0

0

180

58.5

0

58.5

0

520

1120

600

195

400

653.5

1

600

0

0

0

0

653.5

2

900

1500

600

195

400

1248.5

3

600

0

0

0

0

1248.5

4

900

1350

450

146.25

400

1794.75

5

450

0

0

0

0

1794.75

6

1050

1050

0

0

400

2194.75

Step 1

Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

-1

0

0

0

0

-1-0

680

0

350

350

-1-1

1280

105

350

455

-1-2

2180

420

350

770

-1-3

2780

735

350

1085

-1-4

3680

1365

350

1715

-1-5

4130

1758.75

350

2108.75

-1-6

5180

2861.25

350

3211.25

0 0.51 0.36 0.35 0.39 0.47 0.51 0.62

Week 3

Quantity Ordered 600

Carrying Cost 0

Setup Cost 350

Total Cost 350

3-4

1500

157.5

350

507.5

3-5

1950

315

350

665

3-6

3000

866.25

350

1216.25

Week 5

Quantity Ordered 450

Carrying Cost 0

Setup Cost 350

Total Cost 350

5-6

1500

183.75

350

533.75

Step 2

LUC Level 1 P0Y

Unit Cost

0.58 0.338 0.341 0.41 Unit Cost

0.78 0.36

Week

Net Requirement

Prod. Qty

Ending Inv.

Holding Cost

Setup Cost

Total Cost

-1

0

0

20

3.5

0

3.5

0

680

2180

1500

262.5

350

616

1

600

0

900

157.5

0

773.5

2

900

0

0

0

0

773.5

3

600

1500

900

157.5

350

1281

4

900

0

0

0

0

1281

5

450

1500

1050

183.75

350

1814.75

6

1050

0

0

0

0

1814.75

LUC Step 1 Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

-1

780

0

430

430

-1-0

3580

70

430

500

-1-1

5980

190

430

620

-1-2

9580

460

430

890

-1-3

11980

700

430

1130

-1-4

15580

1150

430

1580

-1-5

17380

1420

430

1850

-1-6

21580

2155

430

2585

0.55 0.14 0.10 0.093 0.094 0.10 0.11 0.12

Week 3

Quantity Ordered 2400

Carrying Cost 0

Setup Cost 430

Total Cost 430

3-4

3600

90

430

520

3-5

7800

180

430

610

3-6

11400

495

430

925

Week 6

Quantity Ordered 4200

Carrying Cost 0

Setup Cost 430

Total Cost 430

Step 2

Level 2 P1X1

Unit Cost

0.18 0.14 0.078 0.081 Unit Cost

0.10

Week

Net Requirement

Prod. Qty

Ending Inv.

Holding Cost

Setup Cost

Total Cost

-1

780

9580

8800

220

430

220

0

2800

0

6000

150

0

370

1

2400

0

3600

90

0

460

2

3600

0

0

0

0

460

3

2400

7800

5400

135

430

1025

4

3600

0

1800

45

0

1070

5

1800

0

0

0

0

1070

6

4200

4200

0

0

430

1500

LUC Step 1 Week

Quantity Ordered

Carrying Cost

Setup Cost

Total Cost

Unit Cost

-1

360

0

400

400

-1-0

2460

157.5

400

557.5

-1-1

4260

427.5

400

827.5

-1-2

6960

1035

400

1435

-1-3

8760

1575

400

1975

-1-4

11460

2587.5

400

2987.5

-1-5

12810

3195

400

3595

-1-6

15960

4848.75

400

5248.75

1.11 0.23 0.19 0.21 0.23 0.26 0.28 0.33

Week 2

Quantity Ordered 2700

Carrying Cost 0

Setup Cost 400

Total Cost 400

2-3

4500

135

400

535

2-4

7200

540

400

940

2-5

8550

843.75

400

1243.75

2-6

11700

1788.75

400

2188.75

Week 4

Quantity Ordered 2700

Carrying Cost 0

Setup Cost 400

Total Cost 400

4-5

4050

101.25

400

501.25

4-6

7200

573.75

400

973.75

Week 6

Quantity Ordered 3150

Carrying Cost 0

Setup Cost 400

Total Cost 400

Step 2

Level 2 P1X2

Unit Cost

0.15 0.12 0.13 0.15 0.19 Unit Cost

0.15 0.12 0.14 Unit Cost

0.13

Week

Net Requirement

Prod. Qty

Ending Inv.

Holding Cost

Setup Cost

Total Cost

-1

360

4260

3900

97.5

400

97.5

0

2100

0

1800

45

0

142.5

1

1800

0

0

0

0

142.5

2

2700

4500

1800

45

400

587.5

3

1800

0

0

0

0

587.5

4

2700

4050

1350

33.75

400

1021.25

5

1350

0

0

0

0

1021.25

6

3150

3150

0

0

400

1421.25

Step 3: Total Cost Calculation for LUC

Item P0110 P0X P0Y P1X1 P1X2 TOTAL

Cost (Rs) 3,775 2,195 1,815 1,500 1,421 10,706

Conclusion

  Based on calculations, Total Cost for every lot-sizing Method as follows Lot-Sizing Method

Total Cost (Rs)

Lot-for-Lot (L4L)

15,060

Economic Order Quantity (EOQ)

14,296

Least Total Cost (LTC)

10,735

Least Unit Cost (LUC)

10,706

 The lowest cost was obtained using the Least Unit Cost Method of Rs10,706.  Sunita Menon should choose the Least Unit Cost Method as Lot Sizing Strategy at A-Cat Corp.

Lesson Learned



 MRP system determines detailed schedules that show exactly what is needed over time.  MRP is most useful in industries where standard products are made in batches from common components and parts.  The system’s effectiveness depended on the inventory position and policies, the bill of materials and the demand requirements for finished goods and components.  Lot sizes are the production (or purchasing quantities) that are used by the MRP system. The simplest case is when the system schedules exactly what is needed each period (known as lot-forlot), but when there are significant cost (set up cost & carrying cost) lot-for-lot might not be the least costly method.  The advantage of the least unit cost method is that it is more complete analysis and would take into account ordering or setup costs that might change as the order sizes increases.  The lowest cost from the alternatives method of Lot Sizing can be a consideration for Lot Sizing.

References

  Jacobs, F. Robert, and Richard B. Chase. Operations and Supply Chain Management. 14th. Global Ed. New York: McGraw-Hill Companies Inc. 2014.  Material Requirements Planning at A-Cat Corp. 2012. Richard Ivey School of Business Foundation.