SAFETY STOCK, LOT SIZING, AND SYSTEM UPDATING

SAFETY STOCK, LOT SIZING, AND SYSTEM UPDATING

Safety stock: One of the reasons for using MRP to manage dependent demand inventory items is to avoid the need for safety stock, in reality, firms may elect to carry safety stock on some items for a variety of reasons: Safety stock amounts are sometimes deducted before showing the On hand/Available quantities. Following are some of the reasons for carrying safety stock of components on an MRP format 1. Not all demand is dependent. Some items (e.g., repair parts) may have a service requirement that has an independent demand component.

2. Variable lead times from suppliers are a common source of uncertainty to many firms.

3. Firms may experience machine breakdowns, scrap losses, and last-minute customer changes. Lot sizing: Order quantities are not always specified in advance. Different lot-sizing methods are in use, they are (1) fixed-order quantity amounts, e.g., 300 handlebars; (2) EOQ or ERL amounts; (3) lot for lot, which is ordering the exact amount of the net requirements for each period; (4) fixedperiod requirements, e.g., a 2-month supply; and (5) various least-cost approaches, e.g., least-unit cost, least-total cost. The part-period algorithm is a method that uses a ratio of ordering costs to carrying costs per period, which yields a part-period number. Then requirements for current and future periods are cumulated until the cumulative holding cost (in part-period terms) is as close as possible to this number.

System updating: MRP system designs typically use one of two methods to process data, update files, and ensure that the system information is valid and conforms with actual: (1) regenerative processing or (2) net change processing.

Regenerative MRP systems: use batch processing to replan the whole system (full explosion of all items) on a regular basis (e.g., weekly).

Net change MRP systems: are online and react continuously to changes from the master schedule, inventory file, and other transactions. Early MRP installations were largely of the regenerative type, but then as net change systems became perfected, more firms began installing them. However, being “activity driven,” net change systems are sometimes “nervous” and tend to overreact to changes. The major disadvantage of regenerative systems is the time lag that exists until updated information is incorporated into the system.

System application: Although MRP systems are widely used, they are most beneficial in manufacturing environments where products are manufactured to order, or assembled to order or to stock. MRP does not provide as much advantage in low-volume, highly complex applications or in continuous flow processes, such as refineries. It does, however, enjoy wide application in metals, paper, food, chemical, and other processing applications.