PURCHASING AND SCHEDULING

Purchasing or procurement deals with procuring and arranging

inbound movement of materials parts or finished inventory from
suppliers manufacturing or assembly plants. Scheduling is
putting a time frame on the procurement activities. Scheduling
takes into account when the procurement is required.
Procurement consists of all activities in procurement
performance cycle. And putting a timetable on these activities is
scheduling.
Out source considerations
When a company out sources one of its activities to service
providers outside, several considerations are evaluated.
Traditionally, these considerations revolve round cost of making
the item in house [making internally] and the price charged by
the service providers out side[making it externally]. If the cost of
buying the service or product from outside source is less than
making it in house, the service or the product gets outsourced. In
the current business environment, these decisions receive further
analysis and evaluate economic trade off points & strategic trade
off points
Economic factors

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The total cost of performing all activities to create a product is
calculated. To minimize this cost some activities may get
outsourced and some may be sourced internally. The
combination that gives minimum cost to perform entire activity
is ideal.
Strategic factors
 The strategic core competency of our company. What will this
be in future? Where should we be concentrating on?
 Ability to provide superior service and not only the cost of
making the product or service
 Costs and cost trend on the long run
 Special skills developed by a service organization, which are
preferred by the clients. Our company can do outsourcing and
get the benefit of specialized skills. E.g. satelite-tracking
system developed by Schneider National Inc. It is obviously
beneficial to hire this service rather than reinvent the wheel!
Another example can be the daba wallahs in mumbai
What is MRP? [Bardi, page 251]
MRP [Materials Requirement Plan]
Popular concept in 1960&1970. Consists of a computer system, a
manufacturing information system, building on inventory, production
scheduling and administering all inputs to production. And a concept
and philosophy of management.

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 Definition of MRP system: MRP system consists of a set of
logically related procedures, decision rules, and records designed to
translate a master production schedule into time phased net inventory
requirements and the planned coverage of such requirement for each
component item needed to implement schedule. An MRP system re
plans net requirements and coverage as a result of changes in either
the master schedule, demand, and inventory status or product
composition. MRP systems meet their objective by computing net
requirements for each inventory item, time-phasing them, and
determining their proper coverage
Objectives:
1. Ensure the availability of materials components and products for
planned production and customer delivery.
2. Maintain the lowest possible inventory level
3. Plan manufacturing activities, delivery schedules and purchasing
activities
How? Process: MRP starts with customer’s demand for the quantity
of end product and the time when the products are needed.
Then MRP explodes the time and need for components based upon
the end product need. MRP System focuses on inbound logistical
area
MRP System uses following key elements:
1. Master Production Schedule

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2. Bill of Materials
3. Inventory Status Files
4. MRP Program
5. Outputs & Reports
MRP system has developed into its current incarnation in phases.
First phase is called MRPI or Materials Requirement Planning and
the second phase is called MRPII or Manufacturing Resources
Planning
MRP I is a computer based production and inventory control system
[soft ware] that attempts to minimize inventories while maintaining
adequate materials for production process.

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 MRP I

inventory
Customers Engineerin
transaction forecasts
orders g changes
s

Inventory Master production Bill of materials

status file schedule file
[finished items, [which product to [product structure
WIP, planned produce, in what and routing]
orders quantity & when]

MRP I
SYSTEM

PLANNED
SCHEDULES AND
VARIOUS OTHER
REPORTS

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When does it get applied?
MRP I is applied when
1. The process follows an intermittent system.
2. Demand is dependent
3. Purchasing dept., their suppliers and company’s own
manufacturing system is flexible enough to handle deliveries on
weekly basis
Advantages of MRP I:
1. Improved business results[ROI, profits]
2. improved manufacturing results
3. better manufacturing control
4. more accurate and timely information
5. less inventory
6. time phased ordering of materials
7. less materials obsolescence
8. higher reliability
9. more responsiveness to market demand
10.reduced production costs
Disadvantages of MRP I:
1. Due to small lot purchases high material acquisition costs and
high ordering costs
2. Stock out costs are more as safety stock protection is low

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3. A limitation of software as adapting to specific situations is
difficult. So modification of the software is necessary
MRP II:
MRP I is updated and expanded to include financial and marketing
and logistics elements. This newer version is called Manufacturing
Resources Planning or MRP II. Includes entire set of activities
involved in planning and control of production.
It consists of a variety of functions of modules and includes
production planning, resource requirements planning, master
production scheduling, materials requirement planning [MRP I], shop
floor control and purchasing

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 MRP II

Orders Bill of Inventory

[production materials records
plan]

Material requirement
planning [MRP]

Capacity requirement
planning [CRP]

No

Realistic?

yes

Execute capacity
plans

Execute materials
plan

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 Benefits of MRP II:
1. Inventory reductions of one fourth to one third
2. Higher inventory turn over
3. Improved consistency in on-time customer delivery
4. Reduction in purchasing costs due to less urgent purchases
5. Minimization of workforce overtime
Distribution Resource Plan [DRP]: Distribution Resource Plan is a
widely used powerful technique applied to outbound logistics to help
determine appropriate level of inventory
Distribution requirement planning [DRP I] is defined as “the
application of MRP principles to the distribution environment [out
bound logistics], integrating the special needs of distribution. It is a
dynamic model that looks at the time phased plan of events that
effect inventory.
Distribution Resource Planning [DRP II ]is an extension of DRP I.
Distribution resources planning applies the time phased logic of DRP
I to replenish inventories in multi echelon warehousing systems.
Distribution resources planning extends DRP I to include the
planning of key resources in a distribution system –ware house
space, man power levels, transport capacity [eg. trucks, rail cars] and
financial flows.
As an extension of DRP I, DRP II uses the needs of distribution to
drive the master schedule, controlling the bill of materials and

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ultimately materials requirement planning. In essence, DRP I & DRP
II are outgrowths of MRP I & MRP II, applied to logistics activities
of a firm.
Uses of DRP generated information
♦ Coordinate the replenishment of SKUs coming from the same
source[eg. a company owned or vendor’s plant.]
♦ Select transportation modes and carriers and shipment sizes more
cost efficiently.
♦ Schedule shipping and receiving labour
♦ Develop a master production schedule for each SKU Accurate
forecasts are essential ingredients for successful DRP II system.
Marketing benefits
Increased service levels - improved OTD, reduced Customer
Complaints
Effective new product introduction plans
Ability to anticipate shortages
Improved inventory coordination
Logistics benefits
Reduced distribution costs
Reduced inventory levels
Decreased warehouse space requirement as inventory is low
Lesser back orders

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Improved inventory visibility & coordination between
manufacturing and logistics
Constraints
Needs accurate forecast
Sources of errors in the system
- Inaccuracy in forecast quantity
- Inaccuracy in forecast location
- Inaccuracy in forecast time
Variable performance cycles
System nervousness
Uncertainty buffers
PL. SEE NEXT PAGE FOR VISUALS
COMPARE DRP & MRP
DRP MRP
1.scope Outbound logistics Inbound logistics
2.dependence for Market Production Schedule
planning inputs worked out based on
past data in the
organization
[forecast based on
past data]
3. Coordination Once the finished Up to Finished
responsibility goods are Goods starting from
produced. raw materials

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 production.
4. Nature of plan Short term and
accurate
5. What is forecast? Finished goods Dependent demand
6. Planning Tool Schedule prepared Production schedule
for delivery of
supplies in the
outbound logistical
net work.

7. Inventory SKUs Raw Materials,

management of? components
8. Planning Market[retailers] Raw material stores,
availability of & warehouses Conversion process
stock at? & finished goods
store

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DRP & MRP LINK
DISTRIBUTION CENTER I
LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 55, ORDER
QUANTITY 500
WEEKS 0 1 2 3 4 5 6 7 8
DETAILS
WEEKLY - 50 50 60 70 80 70 60 50
REQUIREMENTS
STOCK 35 30 25 19 12 54 47 41 36
2 2 2 2 2 2 2 2 2
ORDER & ARRIVAL 50 50
WHEN & HOW 0 0
MUCH?

DISTRIBUTION CENTER II
LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 40, ORDER
QUANTITY 150
WEEKS 0 1 2 3 4 5 6 7 8
DETAILS
WEEKLY - 20 25 15 20 30 25 15 30
REQUIREMENTS
STOCK 14 12 95 80 60 18 13 14 11
0 0 0 5 5 0

ORDER & ARRIVAL 15 15

WHEN & HOW 0 0
MUCH?

DISTRIBUTION CENTER III

LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 115, ORDER
QUANTITY 800
WEEKS 0 1 2 3 4 5 6 7 8
DETAILS

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WEEKLY - 11 11 12 12 12 12 12 12
REQUIREMENTS 5 5 0 0 5 5 5 0
STOCK 22 90 79 67 55 42 30 17 85
0 5 0 0 0 5 0 5 5

ORDER & ARRIVAL 80 80

WHEN & HOW 0 0
MUCH?

CENTRAL SUPPLY FACILITY

LEAD TIME IS 3 WEEKS, SAFETY STOCK IS 287, ORDER
QUANTITY 2200
WEEKS 0 1 2 3 4 5 6 7 8
DETAILS
WEEKLY - - - 650 - - 800 - -
REQUIREMENTS
STOCK 1 1 1 600 60 60 2 2 2
250 250 250 0 0 000 000 000
ORDER & 2 2
ARRIVAL WHEN 200 200
& HOW MUCH?
TO MRP
SCHEDULE

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