DSP: Chapter 2 - Inventory Planning
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What is Independent Demand?
items forecasted or ordered by customers
What is Dependent Demand
planned orders based on the bill of material (BOM) structure for parent items.
What are some commonly used ordering review methods?
- order point, reorder point
- periodic review
- material requirements planning (MRP)
- visual review
What order review methods should be used for independent demand?
- order point
- periodic review
- visual review
can also be used for MRP and Kanban, but not the primary
What order review methods (ordering systems) should be used for dependent demand?
could also be used for order point and periodic review
What questions does the order review method answer?
- What is the net demand?
- What is the available balance?
- What quantity will need to be ordered?
- When will the orders need to be released?
- When will the orders need to be received?
Why are ordering systems used?
to help determine purchase order and work order schedules and quantities applicable to the types of inventory they manage.
T or F
MRO is scheduled separately from independent or dependent demand items.
What is order point system?
Independent demand -
The inventory method that places an order for a lot whenever the quantity on hand is reduced to a predetermined level known as the order point
- OP = order point
- DDLT = demand during lead time
- OP = DDLT
What is the intent of order point system?
the intent, for an item without safety stock, is to receive a replenishment order just as the items stocks out.
What are the uses of the order point method?
- primarily for independent demand items, such as finished goods and MRO
- for dependent demand items such as raw materials when demand is stable and continuous
- not for high value class A items because of inventory costs
- for limiting lot sizes because of truckload and storage capacity at the receiving warehouse
What is the periodic review system (PRS)?
- It is opposite of the order point system.
- The PRS is known as a fixed interval order system.
- It is a type of independent demand management model in which an order is placed every n time units. The order quantity is variable and essentially replaces items consumed during the current time period.
What is the order point system?
- a replenishment system that releases orders in fixed order quantities when an order point is reached.
- The quantity can be based on Economic order quantity.
- Ordering intervals can vary depending on the demand rate.
What is the difference between periodic review system and order point system?
- Interval between orders
- - PRS is fixed and constant
- - Order point system varies depending on actual usage
- Order quantity
- - PRS varies by period
- Order point system is usually fixed
Why would you use PRS?
- Receiving deliveries of many different items from one source at one time is economical
- Tracking and posting transactions of many small issues from inventory are expensive
- It is safe to assume sufficient inventory was ordered to last until the next review interval
- Items have a limited shelf life
- Ordering costs are low;short interval ordering is not an issue
What is VMI?
Vendor Managed Inventory
What is the difference between VMI and consignment inventory?
- The customer shares visibility of its demand with the supplier, in terms of promotions and point of sales rates, through various information sharing technologies
- The customer's information is an input to the planning process used by the supplier, which assumes the entire role for planning and replenishment
- Often the supplier owns the goods until the customer uses them
- Ownership of the item is negotiable and depends on the business requirements and contractual agreements between the two parties
when does consignment inventory occur?
when a supplier provides a customer with inventory for use but retains ownership of the product until it is used or sold.
What is reverse logistics planning?
- used for the revers flow of products and components through the supply chain
- return goods handling
What does reverse logistics do?
- addresses reverse flow of products and components
- accepts and returns goods for repair, remanufacture, and recycling of products and components
- recognizes similarities and differences between "repair and remanufacture" and normal manufacturing
- assumes that independent and dependent demand planning for repair and remanufacturing is similar to manufacturing planning and control principles
What are independent demand inventories?
- Wholesale finished goods
- manufactured finished goods
- service or replacement parts
- maintenance, repair, operating
What are dependent demand inventories?
- Fabricated components
- purchased components
- raw materials
What is the job of MRP?
to plan the release of orders to purchase, make, and assemble components of dependent demand items
Where is independent demand scheduled?
What is service requirements planning (SRP)?
- determines materials (dependent demand) needed to meet master service schedule due dates
- determines labor (dependent demand) needed to meet master service schedule due dates
- offsets planned order releases for materials based on purchasing and delivery lead times
- creates work schedules, taking into account labor requirements and service due dates
- makes recommendations for rescheduling when due dates cannot be met
What is visual review?
- reordering based on looking at the inventory on hand
- min/max technique commonly used to determine order quantity
- appropriate for low value items in services (such as retail) and manufacturing
- can be used in vendor managed and consignment inventory
What is Kanban?
- a signal for replenishment
- upstream station does not start producing parts until it receives a signal
- The system constrains inventory levels in the factory
- An important concept in lean philosophy; kanban improves flow, increases throughput, and eliminates waste
True or False
Kanban is a pull system
What is aggregate planning?
conversion of strategic level plans into the resource capacity a firm will need to meet demand (one to three years)
What is disaggregate planning?
decisions on capacity and timing necessary for product lines to meet demand (up to one year)
what is resource scheduling?
Weekly, monthly, and quarterly (or rolling 3 month) plans to match capacity with fluctuations in demand
T or F
MPC is the system used by manufacturers to recognize the demand for products, plan the resources required to produce them, and execute and control prodcution
MPC includes what?
- top down planning approach - planning and execution activities are formally related to the organization's strategic goals
- layered approach to planning
- - business planning
- -Sales and operations planning
- - master scheduling
- -Material requirements planning
- - Capacity planning
- Cross functional coordination of different roles
- closed loop system
MRPII for service is similar to MRP II for manufacturing how?
- Aggregate service planning and resource requirements planning - very similar to S&OP, operations planning, production planning, and resource planning
- Master service scheduling - s/t demand planning
- RCCP - Bills of capacity and bills of labor are used in service
- SRP and CRP - SRP plans materials and service.
- Shop floor control - very different
- Uncertainty of service lead times and resource requirements -
What problems are created with long lead times?
- high variation in lead time
- extra costs, such as overtime, scrap, rework, and capital invested in inventory and equipment
- Hidden costs (suck as manufacturing overhead caused by excessive plant size, expeditors, stockrooms, personnel)
- slow rate of quality improvements
What are the principles for shortening lead times?
- predict lead time by capping amount of WIP
- maintain supply chain velocity by maintaining an even flow of WIP and making sure that WIP is related to current demand
- Prevent excess WIP by releasing material into the line in amounts consistent with appropriate batch sizes
What steps can an organization take to reduce WIP and therefore lead time?
- Use a pull system
- Determine the strategic or finished goods buffer
- increase flexibility to deal with product line complexity
- implement synchronous flow
What is a pull system?
- factory produces only what the customer or distributor uses, which creates the pull
- each workstation makes only enough to replenish what the next workstation is using
- Each process replenishes only what the next process is using.
Why do we need to determine the strategic, or finished goods, buffer?
- must be adequate to service demand during mfg lead time
- needs to account for cycle time interval
- needs to account for transportation time, safety stock and seasonality and promotions
- it puts a cap on the amount of WIP in the system and enables the start of cont improvement initiatives to reduce lead times through setup and batch size reduction
what is process flexibility?
- can swiftly change volume or mix
- requires the following
- flexible machinery
- cross trained employees
- quick changeovers
What is cycle time interval?
the time that it takes production to shift back to making a part after making other parts
What is synchronous flow?
a basic pull system that has no timing associated with operations in the product routing
What is synchronous pull?
- uses takt time to control the velocity of flow and reduce overall lead time
- operation times must be known and standardized
- completion of an assy at one workstateion triggers production of an assy at the next station and throughout the production system
- The system assumes that through process improvements, batch sizes that are consistent with the desired rate of flow can be implemented
- The trigger can be recognized by MRP software, which releases the assembly to the next workstation
What are the 5 principles of lean?
- value stream
What do the 5 principles of lean influence?
throughput and elimination of waste
What are major lean improvement tools?
- value stream mapping
- pull system
- setup reduction
- total productive maintenance
t or f
use of the value stream mapping technique can result in improved inventories, cycle times and throughput
Value stream maps are best prepared by working backward from the finished product or service through various processes while timing each step
T or F
What do the customer value added questions determine?
What the customer is willing to pay for in activities that produce a good or service.
What do the non value added questions determine?
identify activities that appear to be necessary but add no customer perceived value to the product
These are usually attacked first as they make up the majority of time spent in making a product
What is Total productive maintenance (TPM)?
preventive maintenance on equipment to prevent downtime and quality problems
- Goals of TPM
- -reduce downtime
- -increase process flow
- Schedule preventive maintenance before problems occur
- Train and empower operators to perform routine maintenance on their equipment
- Give operators a sense of responsibility for their machines and for reducing downtime
T or F
TPM engages operators into the maintenance on their machines
What is the most important objective of TPM?
What are the negative impacts of downtime?
- delays in downstream operations
- reduced process speed
- more inventory buffers
- less room for unexpected machine problems
- reduced quality due to problematic machines that produce statistically out of control products
What are the 3 important types of information that must be accurate?
- part description or part number
What are the benefits of inventory record accuracy?
- Accurate and effective priority planning system
- High levels of customer service
- Effective and efficient operations
Why do you verify inventory accuracy?
- Perpetual inventory records reflect the balance of inventory on hand
- Physical balances and record balances can easily differ
- Because planning and replenishment systems rely on accurate data, verifying record balances is essential
What are the costs of inaccurate inventory records?
- Lost sales
- excess production
- low productivity
- excessive expediting
- high inventory levels
- missed schedules
- late delivery
- excess freight costs
- high levels of obsolescence
What are inventory accuracy goals?
- 100% inventory accuracy
- 100% of the parts
- 100% of the time
these are not practical
What do inventory accuracy tolerances criteria include?
- value of the item
- critical nature of the item
- ability to stop production
- lead time
- difficulty of precise measurement
How do you verify inventory record data?
- Cycle Counting
- Periodic physical counts
What is cycle counting?
occurs continuously - as experienced and trained employees count a few items daily. The emphasis is on finding and fixing the root causes of errors as well as correcting the data
What is periodic inventories or physical counts
Performed at a recurring interval, such as the annual taking of physical inventory. All items are counted in a short period, often requiring shutdown of operations and the use of many personnel with diverse experiences
When should you cycle count?
- For ABC Classification - count A's more frequently than Bs and Cs
- At reorder time
- upon receipt of stock
- When balance is zero
- When balance is negative
- After a set number of transactions
What are the uses of ABC Classification?
- Cycle counting
- Customer service
- engineering priorities
- replenishment systems
- Investment decisions
What is the cycle counting process?
- process and procedural requiremnts
- education and training
- accountability and responsibility
What attributes should be considered in the prcesses and procedures?
- method of counting
- frequency of counting
- items to be counted
- timing of the cycle counts
- reconciliation process and sign off policy
How should cycle counters be educated and trained?
- Understand the benefits of inventory accuracy
- understand the adverse effects of inventory inaccuracy
- -related processes and procedures
- methods for determining counting priority and frequency
- -root cause analysis and reconciliation techniques
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