| 2. ILot Sizing in Material Requirement System (MRP) (20 pts)] Michael Jordan,
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| 2. ILot Sizing in Material Requirement System (MRP) (20 pts)] Michael Jordan, senior in the department of management at jJsU, recently gota job as a production planner onda Automotive Assembly Plant in Lincoln, Alabama. His first task on the job training is to review the master production plan shown below: (initial inventory-150 units, Ordering cost-S2:00 per order, lad time 1week, Holding cost = $1 per unit per week. No penalty cost for shortage/stockouts.) Part Period Gross requirements 90 1160117011301 0 L! Develop an ordering plan and costs for this plant using the following techniques. a) Develop the lot-for-lot MRP table and calculate the total relevant costs. ( Part Perlod requirements 90 160 170 130 110 Scheduled recelpts Projected available (Beg.) 150 in, onhand (End ofPeriod) Net requirements Planned order receipts Planned order releases Holding Cost Ordering Cost- Total Cost = b Develop the Economic Order Quantity (EO lot sizing technique. (Assume EOQ 200) (6 points) Part Period 90 160 170 130 0110 Gross requirements Scheduled receipts Projected available (Beg.) 150 Inv. On hand (End of period) Net requirements Planned order receipts Planned order releases Lead time 1 wk L Lot size= Holding Cost = Ordering Cost Total Cost = Develop the Petiodic Onder Quantity (POQ) lot sizing technique. (POQ Interval 2 weeks) (6 points) Period Gross requirements Scheduled receipts 90 160 170 1300 110 Beg.) 150 nv. On hand fEnd of peried) Net requirements Planned order receipts Planned order Lead time - -otsize Holding Cost Ordering Cost = Total Cost = (d) Among the three lot sizing techniques above, which one is the best strategy with the points)Explanation / Answer
Initial Inventory = 150 units
Lead time = 1 week
Ordering Cost = $200/order
Holding cost = $1/unit/week
No Penalty cost for shortage/stockout means Safety stock = 0 units
a) In Lot for Lor method, no safety stock is needed so the ordering will be done as per exact requirements for that week
Considering Lead time is 1 week, the requirement of week 2 will be bought on week 1.
Total relevant costs using Lot for Lot (LFL) MRP table:
Holding cost= Inventory on hand *holding cost/unit/week*no.of weeks = 60*$1*1= $60 ( only on week 1, extra inventory of 60 was available. rest all weeks had 0 on-hand inventory)
Ordering Cost= no.of orders*ordering cost/order = 4*$200= $800 (orders were placed for only 4 weeks)
Total Cost= holding cost +ordering cost = $60+$800 = $860
b) Economic order quantity is the best order quantity which gives the minimum cost of ordering and holding the lot so whenever the inventory is below the stock requirement level, exact EOQ is ordered. This reduces multiple ordering but increases the holding cost.
.Total relevant costs using EOQ MRP table:
(EOQ=200 units)
Holding cost= Inventory on hand *holding cost/unit/week*no.of weeks = $ (60*1+100*1+130*1+90*1)= $380 ( 90 units at the end of last week is also taken into consideration for holding cost calculation on assumption that they will have to remain as inventory for minimum 1 week.)
Ordering Cost= no.of orders*ordering cost/order = 3*$200= $600 (orders were placed for only 4 weeks)
Total Cost= holding cost +ordering cost = $380+$600 = $980
c) POQ (period order quantity) method gives an ideal period to order EOQ. POQ gives the approximate period which the EOQ will cover in 1st order so it takes the average demand over EOQ to arrive at an ideal POQ to keep the cost as minimum.
POQ = (sum of gross requirements/no.of periods)/EOQ
Given- POQ = 2 weeks so every 2 weeks EOQ should be ordered to keep cost optimal which is demand of 2 weeks are ordered in one week
Holding cost= Inventory on hand *holding cost/unit/week*no.of weeks = $ (60*1+170*1)= $230
Ordering Cost= no.of orders*ordering cost/order = 3*$200= $600 (orders were placed for only 4 weeks)
Total Cost= holding cost +ordering cost = $230+$600 = $830
d) Among the three lot sizing techniques, POQ is the best strategy with the least cost of $830 because the ordering cost is least in this method.
Lot for lot method can be used when production required is for less weeks since the holding cost is minimum in this methos
Part: Lot of Lot Period 0 1 2 3 4 5 6 Gross Requirements 90 160 170 130 0 110 Scheduled Receipts Project Available (Begging) 150 150 60 0 0 0 0 Inventory on hand (end of Period) 150 60 0 0 0 0 0 Net Requirements 0 100 170 130 0 110 Planned Order Receipts 0 100 170 130 0 110 Planned Order Releases 0 100 170 130 0 110 0Related Questions
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