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202 CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P

C H A P T E R

Material Requirements Planning (MRP) and


ERP

DISCUSSION QUESTIONS (b) A   consistent   lack   of   capacity   suggests   a   capital


investment to increase capacity, add a shift, or develop
1. The difference between a gross requirements plan and a net
an outside source. Redesign of the product may also be
requirement plan is that a net plan adjusts for on­hand inventory
an alternative.
and scheduled receipts at each level.
 9. The master schedule is expressed in terms of:
2. Once the MRP system is in place, it provides information to
assist decision makers in other functional areas such as the amounts (1) End items in a continuous (make­to­stock) company;
of labor required, cash needs, purchase requirements, and timing. (2) Customer   orders   in   a   job   shop   (make­to­order)
company; and
3. The   similarities   between   material   requirements   planning
(3) Modules in a repetitive (assemble­to­stock) company.
(MRP)  and   distribution  resource   planning  (DRP)   are  that   the
procedures and logic are analogous. 10. Virtually all functions of the firm impact an MRP system.
For instance, purchasing performance affects delivery, changes
4. The   difference   between   material   requirements   planning
in   capacity   (i.e.,   labor,   maintenance,   breakdowns)   impact
(MRP) and material resource planning II (MRP II) is that MRP II
throughput,   sales   impact   the   master   schedule   as   do   financial
includes or integrates functions within the firm in addition to the
issues   such   as   capital   expenditure   for   capacity,   engineering
management   of   dependent   demand   inventories.   Examples   of
performance   such   as   meeting   schedules   and   preference   (or
these   additional   functions   include:   Order   entry,   invoicing,
flexibility) for particular approaches to design/processing.
billing,   purchasing,   production   scheduling,   capacity   planning,
and warehouse management. 11. The   rationale   for:   (a)   A   phantom   bill   of   material   is   a
subassembly   that   exists   only   on   the   production   line—say   a
5. There is no one “ideal” lot sizing technique that should be
mixture/ glue that only exists a few minutes and then must be
used by all manufacturing organizations. Lot­for­lot is the goal
used   or   discarded.   Such   items   are   never   inventoried.   (b)   A
to  be  sought.  However,  where  setup  costs  are  significant  and
planning bill of material may be used to issue a mixture of parts
demand is not particularly lumpy, EOQ is a simple method and
that   only   makes   sense   to   reduce   material   handling—say   the
typically provides satisfactory results. Too much concern with
hardware for a washing machine assembly. (c) A pseudo bill of
lot sizing yields spurious results because of MRP dynamics.
material   is   another   name   for   planning   bill   to   meet   the   same
6. In a DRP system, inventory residing within the system is conditions.
moved  within  the  system,   rather  than  entering  or  leaving  the
12. An effective MRP system requires:
system.   Therefore,   although   effort   should   be   made   to   reduce
total inventory to minimize overall carrying cost, carrying cost  A good schedule of what is to be made
per se does not have a significant effect on appropriate lot size.  An accurate BOM
 Accurate inventory records
7. MRP is usually a part of the overall production planning
 Accurate purchases data
process. Its most important capability is including the timing/
 Lead times that will be met
scheduling   factor   in   inventory   planning.   MRP   II,   of   course,
addresses the timing/scheduling of other resources in addition to 13. The benefits of ERP include:
inventory.  Provides  integration  of  the  production,  supply chain,
8. (a) When a work center is only over capacity for one week and administrative functions.
(or a short time), the production planner has a number  Increases   collaboration   between   functions   and
of options, including: locations
 Often has a common database
 Splitting an order to an earlier or later week
 Can   add   effectiveness   and   efficiency   to   the
 Requesting   overtime,   an   alternate   (perhaps   more
organization.
expensive) production process
 Subcontracting 14. Distinctions between MRP, DRP, and ERP, are: MRP is a 
set   of   software   programs   designed   to   schedule   material
requirements.   These   programs   include   an   integrated   set   of
programs  

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203 CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P

that determine an item master for each part, a bill of material, an

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CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P 204

explosion scheme, a lead­time file, an inventory status file, and  Life­cycle collaboration
vendor information. DRP is a time­phased stock­replenishment  Quality management
 Environment health & safety
plan for all levels of the distribution network. Its focus is on
(See www.sap.com/solutions.)
retail  and  wholesale  distribution  network.   On  the  other  hand,
enterprise   resource   planning   (ERP)   systems   are   systems   that 19. Moving toward JIT and kanban suggest that the traditional
often integrate MRP and a variety of other accounting systems, weekly  “buckets”  (or  even  daily  buckets)  in  an  MRP  system
human resource management, and communication with vendors may be inadequate. MRP systems may need to move to hourly
and suppliers. buckets   for   some   items.   Some   MRP   systems   now   deliver   to
“positions” in the production process—a “flow” criterion rather
15. In MRP, demand need not be constant. Also, in an MRP than a bucket criteria.
system, the demand for one item depends on the demand for Additionally, if tracking of small lots is necessary (and it may
others—in particular, the end item. (There are exceptions such not be) then not only will such “buckets” be necessary, but ease of
as spare parts and maintenance orders.) inputs via bar codes or other automated means may be necessary.
16. The disadvantages of ERP include:
ETHICAL DILEMMA
 Is very expensive to purchase and even more costly to
customize. ERP is going to cost more than expected.
 Implementation   may   require   major   changes   in   the What do you do? Certainly, any sense of fairness and decency
company and its processes. suggest   that   the   customer   must   be   told   the   truth.   However,  
 Is so complex that many companies cannot adjust to it. a sales representative can be expected to try to solve the problem
 Involves   an   ongoing   process   for   implementation, for his customer. This may mean that:
which may never be completed.  The first stop is the sales representative’s manager to see
 Expertise in ERP is limited, with staffing an ongoing if another customer or pending customer may have dealt
problem. with   this   problem   and   solved   the   problem   or   may   be
17. (a) The Web sites of most of the major ERP vendors will willing to share development costs.
include   “successful   solutions”   using   their   software.  A   second   option   is   to   ask   the   manager   “Is   there   any
See Web pages of the major vendors: budget or pending budget for this type of enhancement or
American Software: www.amsoftware.com can we help the customer out by paying for part of the
JD Edwards: www.jdedwards.com enhancement?”
The Baan Company: www.baan.com The bottom line is that not telling the customer the truth and/or
Oracle: www.oracle.com selling the customer something that will not do the job is not
SAP: www.sap.com only unethical, but also probably bad business—certainly bad
IQMS: www.iqms.com business in the long run.
(b) The poor ERP efforts or installations may take a little
more digging, but a look at www.CIO.com and www.
ACTIVE MODEL EXERCISE
Information Week.com should get students started. ACTIVE MODEL 14.1: Order Releases
18. (a) PeopleSoft   includes   the   following   in   its   CRM 1. Suppose that item B must be ordered in multiples of dozens.
offerings   (see Which items are affected by this change?
http://www.oracle.com/applications/peoplesoft/ Items D and E
CRM/ent/index.html):
2. Suppose that the minimum order quantity for item C is 200
Supplier Relationship Management Manage supplier units. Which items are affected by this change?
relationships   including   indirect   and   direct   goods,   as Items E, F, G, and D
well as services procurement with:
END-OF-CHAPTER PROBLEMS
Partner relationship management solution

 Sales solution 14.1 An exploded bill yields the following:
 Service solution Item J: 200 units; Item K: 200  1 = 200 units; Item L: 200  4 =
 CRM analytics 800 units; Item M: 200  2 = 400 units.
 CRM industry solutions 14.2 The time­phased assembly plan for the gift bags is:
 Marketing solution

(b) SAP’s Supply Chain Management product includes:
 Supply strategy development
 Supplier qualification
 Supplier selection
 Contract negotiation and management

(c) SAP’s   Product   Lifecycle   Management   product  


includes:
 Life­cycle data management
 Asset life­cycle management Someone should start on item M by noon.
 Program & project management

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205 CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P

14.3 (a) Product structure:

(b) 

Week Lead
Time
Ite 1 2 3 4 5 6 7 8 (weeks)
m
W Gross req 120
On hand  30
14.4 Gross material requirements plan: Net req  90 3
Order receipt  90
Week Lead Order release 90
Time
X Gross req  60
Ite 1 2 3 4 5 6 7 8 (weeks) On hand  25
m Net req  35 1
S Gross req 100 Order receipt  35
Order 10 2 Order release  35
release 0 Y Gross req 24
T Gross req 10 0
0 On hand 24
Order 100 1 0
release Net req   0 2
U Gross req 20 Order receipt   0
0 Order release
Order 20 2 Z Gross req 36
release 0 0
V Gross req 100 On hand  40
Order 100 2 Net req 32 1
release 0
W Gross req 200 Order receipt 32
Order 20 3 0
release 0 Order release 32
X Gross req 100 0
Order 10 1
release 0
Y Gross req 40
0 14.6 Gross material requirements plan, modified to include the
Order 40 Week Lead
2 20 units of U required for maintenance purposes:
release 0 Time
Ite
Z Gross req 1 2 603 4 5 6 7 8 (weeks)
m 0
Order 600 1
S Gross req 100
release
On hand  20
Net
14.5  req
Net material requirements plan:  80 2
Order receipt  80
Order release  80
T Gross req  80
On hand  20
Net req  60 1
Order receipt  60
Order release  60
U Gross req 160
On hand  40
Net req 120 2
Order receipt 120
Order release 12
0
V Gross req Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
 60
On hand  30
CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P 206

14.7 Net material requirements plan, modified to include the
20 units of U required for maintenance: Week Lead
Time
Week Lead Ite 1 2 3 4 5 6 7 8 (weeks)
Time m
Ite 1 2 3 4 5 6 7 8 (weeks)
S Gross req 100
m
Order release 100 2
S Gross req 100 T Gross req 100
On hand  20 Order release 100 1
Net req  80 2
Week Lead U Gross req 200 20*
Order receipt  80
Time Order release 200  20 2
Order release  80
Ite 1 2 3 4 5 V Gross req 100
T Gross req  80 6 7 8 (weeks)
m On hand Order release 100 2
 20
W Gross req 20
U Net reqreq
Gross  60 20
160 1
Order receipt  60 * 0
Order release 200 3
On hand  40  0
Net req 120 20 2 X Gross req 10
Order 120 20 0
receipt Order release 100 1
Order
*needed for maintenance. 120 20 Y Gross req 400 40
release Order release 400 40 2
V Gross req  60 Z Gross req 600 60
On hand  30 Order release 600 60 1
Net req  30 2
Order  30
receipt
Order 30
Level
14.8 (a) 
release 0
W Gross req 12
0
On hand  30
Net req  90 3 1
Order  90
receipt
Order 90
release 2
X Gross req  60
On hand  25
Net req  35 1
3
Order  35
receipt
Order  35
release (b) For  50  brackets,   the  gross  requirements  are  for  50
Y Gross req 240 40 bases,   100   springs,   250   clamps,   250   handles,   250
On hand 240 0 castings, 100 housings, 200 bearings, and 100 shafts.
Net req 40 2 (c) For 50 brackets net requirements are: 25 bases, 100
Order 40 springs, 125 clamps, 125 handles, 125 castings, 50
receipt housings, 100 bearings, and 50 shafts.
Order 40
release
Z Gross req 360 60
On hand  40 0
Net req 320 60 1
Order 320 60
receipt
Order 320 60
release

*  To achieve these results in POM for Windows, add Part U as a new
BOM   line,   level   O,   so   that   the   software   will   recognize   an   additional
independent demand, not scheduled receipts.

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207 CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P

14.9 (a) Time­phased product structure for bracket with start 14.10 (a) Gross material requirements plan:
times: Note:   Elements   have   been   listed   in   the   gross   material
requirements plan in the order of level, and within a level, from
left to right as viewed in the product structure.

Week
Ite 1 2 3 4 5 6 7 8 9 1 11 12
m 0
X1 Gross 50 20 10
req 0
Order rel 5 20 10
0 0
B1 Gross 5 20 10
req 0 0
Order rel 50 2 100
0
B2 Gross 10 40 20
req 0 0
Order rel 100 4 200
0
A1 Gross 50 2 100
req 0
Order rel 5 20 100
0
C Gross 200 8 400
req 0
Order rel 20 80 400
0
D Gross 100 4 200
req 0
(b) Castings need to start in week 4. Order rel 100 40 200
E Gross 200 50 80 2 400 100
req 0
Order rel 20 50 80 20 400 100
0

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CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P 208

Level: 2   Parent: B2 Quantity: 1X


Item: D Lead Time: 1 Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 20 200
Scheduled receipt
On hand 0 0
Net requirement 20 200
Planned order receipt 20 200
Planned order release 20 200

Level: 2&3   Parent: B1 & D Quantity: 1X &


2X
(b) Net material requirements (planned order release) plan:
Item: E Lead Time: 2 Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Level: 0 Parent:— Quantity:
Lead Time: Gross requirement 40 400 100
Item: X1 1 Lot Size: L4L
Week No. 1 2 3 4 5 Scheduled
6 7 8 receipt
9 10 11 12
On hand 10 0 0
Gross Net requirement   10 30 400 100
 requirement 50
Planned order 20
receipt 100 30 400 100
Scheduled Planned order release 30 400 100
 receipt
On hand  50 50 0 0
Net
 requirement 0 20 100
Planned order
 receipt 20 100
Planned order Level: 1   Parent: X1 Quantity: 1X
 release 20 10 Lead Time: 2
Item: B1 Lot Size: L4L
0
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement  20 100
Scheduled receipt
On hand     20  20   0
Net requirement   0 100
Planned order receipt 100
Planned order release 100

Level: 1   Parent: X1 Quantity: 2X


Item: B2 Lead Time: 2 Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement  40 200
Scheduled receipt
On hand     20  20   0
Net requirement  20 200
Planned order receipt  20 200
Planned order release 20 200

Level: 2   Parent: B1 Quantity: 1X


Item: A1 Lead Time: 1 Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 100
Scheduled receipt
On hand     5 5
Net requirement 95
Planned order receipt 95
Planned order release 95

Level: 2   Parent: B2 Quantity: 2X


Item: C Lead Time: 1 Lot Size: L4L
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 40 400
Scheduled receipt
On hand 0 0
Net requirement 40 400
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
Planned order receipt 40 400
Planned order release 40 400
14.12 (a) Net material requirements plan:
Week
Item 1 2 3 4 5 6 7 8 9 10 11 12

A Gross requirement 100 50 150


On hand: — 0 0 0 0
Net requirement 100 50 150
Order receipt 100 50 150
Order release 100 50 150
H Gross requirement 100 50
On hand: — 0 0 0
Net requirement 100 50
Order receipt 100 50
Order release 100 50
B Gross requirement 100 50 150
On hand: 100 100 0 0
Net requirement 50 150
Order receipt 50 150
14.11 (a)  Order release 50 150
Week
Item 1 2
C Gross requirement 3 4 5 6 7 8 9 10 11
100 12100 50 50 150
A On
Gross req hand: 50 100 50 50 150 0 0 0 0
Net requirement
Order rel 100 50 50
150 100 50 50 150
Order receipt 50 100 50 50 150
H Gross req 100 50
Order release 50 100 50 50 150
Order rel 100 50
J Gross requirement 100 50
C Gross req 100 100 50 50 150
On hand: 100 100 0
Order rel 100 100 50 50 150
Net requirement 0 50
Order receipt 0 50
(b)  Level: 0
Order        Parent:
release —    Quantity: 50
Item: A Lead Time: 1 Lot Size: L4L
Week No. K Gross requirement
1 2 3 4 5 6 7 8 9 10 11 12100 50
On hand: 100 100 0
Gross requirement 100 50 150
Net requirement
Scheduled receipt 0 50
On hand Order receipt 0 0 0 0 50
Net requirement Order release 100 50 15050
Planned orderD receipt
Gross requirement 100 50 50 150 150
Planned order release 100 50 150
On hand: 50 50 0
Net requirement 150
Order receipt 150
Level: 0     Parent: —    Quantity:
Order release 150
Item: H Lead Time: 1 Lot Size: L4L
Week No. E Gross requirement
1 2 3 4 5 6 7 8 9 10 1150 12100 150
Gross requirementOn hand: 75 100 5075 25 0
Scheduled receiptNet requirement 75 150
On hand Order receipt 0 0 75 150
Net requirement Order release 100 75 50
150
Planned order receipt 100 50
Planned orderF release
Gross requirement 100 50 100
50 50 100 150
On hand: 75 75 25 0 0 0
Net requirement 75 50 100 150
Level: 1 Order receipt
     Parent: A, Quantity: 1X 75 50 100 150
Order release H 75 50 100 150
Item: C Lead Time: 2 Lot Size: L4L
G Gross requirement 50 100 50 100 150
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
On hand: 75 75 25 0 0 0
Gross requirementNet requirement 100 100 50 50
75 150
50 100 150
Scheduled receipt
Order receipt 75 50 100 150
On hand 50 0 0 0 0
Order release 75 50 100 150
Net requirement 50 50 100 50 50 150
Planned order receipt 50 100 50 50 150
Planned order release 50 100 50 50 150
(b) 14.13 (a) 

 (b) 

Level: 0
(c) 
Parent: — Quantity:
Item: 20 fan Lead Time: 1 Lot Size:
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 1,000
Scheduled receipt
On hand 100 100
Net requirement 900
Planned order receipt 900
Planned order release 900

Level: 1 Parent: 20 fan Quantity: 1X


Item: housing Lead Time: 1 Lot Size: L4L
week
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 900
Scheduled receipt
On hand 100 100
Net requirement 800
Planned order receipt 800
Planned order release 800

Level: 1 Parent: 20 fan Quantity: 2X


Item: grills Lead Time: 2 Lot Size: 500
weeks
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 1,800
Scheduled receipt
On hand 200 200 400
Net requirement 1,600
Planned order receipt 2,000
Level: 1    Parent: 20 Level: 2 Parent: fan assembly
Quantity: 1X Quantity: 5X
fan Item: blades Lead Time: 2 Lot Size: 100
Item: fan assembly    Lead Time: 3 Lot Size: L4L weeks
weeks Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Week No. 1 2 3 4 Gross
5 requirement
6 7 8 9 10
3,75011 12
Gross requirement Scheduled receipt
900
Scheduled receipt On hand 50
On hand 150 Net requirement
150 3,750
Net requirement Planned order
750 receipt 3,800
Planned order receipt Planned order
750 release 3,800
Planned order release 750
Level: 2 Parent: electrical unit Quantity: 1X
Level: 1 Parent: 20 fan Item: motor Quantity: 1X Lead Time: 1 Lot Size: L4L
Item: electrical unit Lead Time: 1 week Lot Size: L4L week
Week No. 1 2 3 4 Week5 No.6 7 8 1 9 2 10 3 11 4 12 5 6 7 8 9 10 11 12
Gross requirement Gross requirement
900 900
Scheduled receipt Scheduled receipt
On hand On hand
Net requirement Net requirement
900 900
Planned order receipt Planned order
900 receipt 900
Planned order release Planned
900 order release 900

Level: 2 Parent: housing Level: 2 Quantity: 1XParent: electrical unit Quantity: 1X


Item: frame Lead Time: 2 Item: switchLot Size: L4L Lead Time: 1 Lot Size: 12
weeks week
Week No. 1 2 3 4 Week5 No.6 7 8 1 9 2 10 3 11 4 12 5 6 7 8 9 10 11 12
Gross requirement Gross
800requirement 900
Scheduled receipt Scheduled receipt
On hand On hand 20 20 8
Net requirement Net800
requirement 880
Planned order receipt Planned
800 order receipt 888
Planned order release 800 Planned order release 888

Level: 2 Parent: housingLevel: 2 Parent: electrical unit


Quantity: 2X Quantity: 1X
Item: supports Lead Time: 1 Item: knob Lot Size: 100 Lead Time: 1 Lot Size: 25
week week
Week No. 1 2 3 4 Week
5 No.6 7 8 1 9 2 10 3 11 4 12 5 6 7 8 9 10 11 12
Gross requirement Gross requirement
1,600 900
Scheduled receipt Scheduled receipt 200
On hand On hand
50 200 200 200
Net requirement Net requirement
1,550
Planned 14.14 (a) 
Planned order receipt 1,600 order receipt 700
Planned order release Planned
1,600 order release 700

Level: 2 Parent: housing Level Component


Quantity: 1X Quantity
Item: handle Lead Time: 1 0 A Lot Size: 500 1
week 1 B 1
Week No. 1 2 3 4 25 6 7 8 9C 10 11 12
1
Gross requirement 2
800 D 1
Scheduled receipt 3 E 1
On hand 1
400 100 F 1
Net requirement 400
2 G 1
Planned order receipt 500
2 H 1
Planned order release 500
3 E 1

Level: 2 Parent: fan assembly Quantity: 1X


Item: hub Lead Time: 1 Lot Size: L4L
week
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 750
Scheduled receipt
(b)  Low Low
Lot Lead
LotOn Lead
SafetyOn SafetyLevel ItemLevel Item Period (week)
Period (week)
Size Time HandTime
Size Stock Allocate
Hand StockCode ID Code
Allocate ID 1 2 31 42 5 3 6 4 75 8 6 7 8
d d
Lot 1 Lot 0 2— 10 — — 0 — A Gross
3 requirement
C Gross requirement     H10  8B
  0
for for Scheduled receipt
Scheduled receipt
Lot Lot Projected onProjected
hand on hand 10 10 10  10 10 010 2 2
Net requirement
Net requirement    0 10 0
Planned receipt
Planned receipt    0 10 0
Planned release
Planned release 0 0 10

Low Low
Lot Lead
LotOn Lead
SafetyOn SafetyLevel ItemLevel Item Period (week)
Period (week)
Size Time HandTime
Size Stock Allocate
Hand StockCode ID Code
Allocate ID 1 2 31 42 5 3 6 4 75 8 6 7 8
d d
Lot 1 Lot 2 1— 4 — — 1 — B Gross
3 requirement
E Gross requirement   10

A

for Scheduled receipt 3 H,D

Lot for Projected onScheduled


hand 2 receipt
2 2 2 2  2  2 0
Lot Net requirement
Projected on hand 4 4 4   4  84 1 1 1
Planned receipt
Net requirement    80
Planned release
14.15 (a)   Planned receipt  8 0
Planned release 0
Low
Lot LeadTen units are required for production, and 10 each of B and F for field service repair
On Safety Level Item Period (week)
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
Componen    Quantity d
t
Lot 1 5 — — 1 F Gross requirement     10A
for A    10 Scheduled receipt
Lot B    20 Projected on hand 5 5 5 5  5  5  5 0
C    40 Net requirement    5
D    20 Planned receipt     5
E    40 Planned release  5
F    20 (b) 
G    20
H    20 Low
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
d Low
Lot 1 Lot 5 Lead — On — Safety 2 D Level Item
Gross requirement Period
 8B (week)
for Size Time Hand Stock Allocate Code ScheduledID receipt 1 2 3 4 5 6 7 8
Lot d Projected on hand 5 5  5 5 5 5 0 0
Lot 1 0 — — Net
0 requirement
A Gross requirement 3 10
for Planned receipt
Scheduled receipt 3

Lot Planned release
Projected on hand 0 0 30 0 0 0 0 10
Net requirement 10
Planned receipt 10
Low Planned release 10
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
d Low
Lot Lead On Safety Level Item Period (week)
Lot 3 1 — — 2 G Gross requirement    5F
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
for Scheduled receipt
d
Lot Projected on hand 1 1 1 1 1 1 0 0
Lot 1 2 — — 1 requirement
Net B Gross requirement 4  10M  10A
for Scheduled receipt
Planned receipt 4
Lot Projected on hand
Planned release 42 2   2 2 2  2  0 0
Net requirement  8 10

Low
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
d
Lot 1 10 — — 2 H Gross requirement    5F
Low 14.16 (a) Only item G has
Lot Lead On Safety Level Item changed   because   it   hasPeriod  no (week)
Size Time Hand Stock Allocate Code ID subassem    blies
1 2   3 or4 5 6 7 8
d components.
Lot 1 5 — — 1 F Gross requirement
(b) If week 1 on the  10M  10A
for Scheduled receipt production   plan
Lot Projected on hand 5is   now,
5   then 5   an5 5  5  0 0
Net requirement increase   in   the  5 10
Planned receipt lead   time   for   G  5 10
Planned release means   only   one 5 10
unit of G will be
Low available   for
Lot Lead On Safety Level Item component   Period F   in (week)
Size Time Hand Stock Allocate Code ID 1week 2   3 5.4 5 6 7 8
d Setups: 5  150 = $750
Therefore,   F   and
Lot 1 5 — — 2 Holding: (allowing for 12 time periods) 2.50  352 = $880
D Gross requirement consequently   8B 10B
for ScheduledSetup + holding = total cost = $1,630
receipt four units of “A”
Lot Projected on hand 5will   5be   delayed
5 5  5  0 0 0
Net requirement one week.  3 10
Theoretical total cost:
Planned receipt (c) As   production  3 10
DS
Planned release
planner,   several   options   are3 10 CT = Order cost + Holding cost = +
Q
possible:
Low 330 �150 57 �(12 �2.50)
 Tell   the = +
Lot Lead On Safety Level Item Period (week) 57 2
customer   that
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 =7 8 + 855.00 = $1,723.42
868.42
d the   four   units
(which   are
Lot 3 1 — — 2 G Gross requirement probably 5F 10F
for Scheduled receipt
“spares”)   are
Lot Projected on hand 1 1  1 1 1  0 0 0
Net requirement
going   to   be 4 10
Planned receipt delayed   one 4 10
Planned release week.
4 10
 Ask   the
Note: M (in items B and F) means a repair or maintenance item.
14.17 Lot­for­Lot Ordering Policy: supplier   of   G
Low to   expedite
Week  
Lot Lead On Safety Level Item production or Period (week)
1 2 3 4 5 6 7 8 9 10 11 12
Size Time Hand Stock Allocate Code ID 1 delivery.
2 3 4 5 6 7 8
d Gr req 30 40 30
 Reduce   the
70 20 10 80 50
Beg inv 40 10 10  0  0  0  0  0  0  0  0  0
Lot 1 10 — — 2 inv H Gross production
10 requirement  5 0 10  0
F F
End 10  0  0  0  0  0  0  0  0
for Ord rcpt Scheduled receipt
30
time for item F
30 70 20 10 80 50
Lot Ord rel Projected30
on hand 10 30or A.
10 70 10 20 10 10  5 10 0 80 0 50
Net requirement  5
CT = Order cost + holding cost = 7 orders  $150/order + 20 units  $2.50/unit/period = $1,100
Planned receipt  5
Planned release  5
14.18 Economic order quantity:
Low 2 DS 2 �330 �150
Q= = = 57.4,  or 57 units
Lot Lead On Safety Level Item H 2.50 �Period
12 (week)
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
where D = period demand, S = setup or order cost, H = holding cost.
d
Reorder point:
Lot 2 10 — — 3 C Gross requirement 13H,  10B
B

for Scheduled receipt


Lot Projected on hand 10 10 10 10 10 0 0 0
Net requirement  3 10
Planned receipt  3 10
Level: Planned releaseParent:  3 10 Quantity:
Item: Lead Time: 1 Lot Size: EOQ
Week No. 1 2 3 4 5 6 7 8 9
10 11 12
Low
Gross requirement 30 40 30 70 20 10 33080 50
Lot Lead On Safety Level Item
Scheduled receipt Reorder point =Period (week)
Demand during lead time = units week �1 week
Size Time Hand Stock Allocate On
Code 12
hand ID 40 40 10 1 10 2 27 3 27 4 545 416 217 8 21 11 45 45 52
d = 27.5,  or 28 units
Net requirement 0 30 3 16 69 5
Lot 1 4 — — Planned
3 order
E Gross requirement   3D  
receipt 57 57 57 114 57
Planned order
release 57 57 57 114 57
Note:   Order   and   carrying fashion,   the  EOQ  ordering
costs   are   not   equal   due   to policy   can   be   made   more Reorder   when   ending 14.19 Solution   with   lead
rounding   of   the  EOQ  to   a efficient. Note, however, that inventory 70 time   =   1:   Holding
whole   number.  Actual  total this   optimal   timing   requires Combined   reorder   + cost   =   $2.50;   Setup
cost: that   we  accurately  forecast safety stock: cost   =   $150.   PPB
demand—something   that   for
CT = Order cost + Holding cost + Stockout cost ordering policy:
varying   demand   we   are Demand
= 5 orders �$150 order + 454 units
usually   unable   to   do.   Note, during Week
�$2.50 unit period + 33 unitsalso,
�$10 unit stockout Lead Time Frequency 1 2 3 4 5 6 7
  that   this   “optimal”
= 750 + 1,135 + 330 timing   does   not   reduce   the  0 4 Gr req 30 40 30 70 20
likelihood of a stockout and, 10 1 Beg inv 40 10 10 30 30 0 30
= $2,215 20 1
by   increasing   the   customer End inv 10 10 30 30 0 30 10
Note:   The   actual   cost   of 30 2 Ord rcpt 60 100
“wait” period, may contribute
using the  EOQ  policy under 40 1 Ord rel 60 100
to   additional   customer 50 1
this case of varying demand dissatisfaction.   The 60 0
is   more   than   the   theoretical elimination   of   stockouts   can Calculating EPP:
70 1
cost.   In   addition,   we   were only   be   accomplished   by 80 1 Setup cost 150
forced   to   use   backorders using   a   higher   reorder   point EPP = = = 60
when stockouts occurred. The To reduce the likelihood of a Holding cost 2.50
(reorder + safety stock).
poor   performance   with stockout   to   approximately
respect to stockout is due to EOQ   ordering   policy, 10%,   we   must   use   a Periods Cumulativ
the fact that “average demand modified   to   include   safety combined   reorder e
during   lead   time”   is   not   a stock: point/safety stock of 70 units. Combined Net Req. Part Per
particularly good measure of Note that this “reorder” point
Week
the necessary reorder point. 1 2 3 is approximately two and one
4 5 6 7 81 9 10 011 12
Note   that   the   present half   times   the   reorder   point 1, 2 0
Gr req 30 40 30 70 20 10 80  50
versions of the Excel OM and calculated using the measure 1, 2, 3   30
Beg inv 40 10 67 84 84 54 41 78 78 68  45 102
POM   for  Windows   software of “average demand over lead 1, 2, 3, 4   30
End inv 10 67 84 84 54 41 78 78 68 45 102  52
do   not   consider   reorder time.” 1, 2, 3, 4, 5*  60 30  0 + 30  2 =
Ord rcpt 57 57 57 57 57  57
1, 2, 3, 4, 5, 130 30  0 + 30  2 +
points,   stockouts,   or Ord rel 57 57 Actual total cost:
57 57 57 57  57
6 270
backorder costs. CT = Order cost + Holding cost + Stockout cost
You may wish to make *  The  part periods  for  an order
use of the following: = 6 orders �$150 order + 763 units
encompassing periods 1, 2, 3, 4,
�$2.50 unit period + 0 units � and 5 most nearly approximates
$10 unit stockout
EOQ   ordering   policy, the EPP of 60.
= 900.00 + 1907.50 + 0 = $2,807.50
modified   for   delayed   order Note:   (1)   We   have   assumed
placement: that:   (a)   a   product   ordered
Note   that   as   we   might
during   a   calendar   week   is
expect, the holding cost
available at the beginning of
has increased.
the   following   week;   (b)
Week shipments during a week take
1 2 3 4 5 6 7place at the beginning of the
8 9 10 11 12
Gross requirement 30 40 30 70 week. (2) POM for Windows
 20 10 80  50
Beginning inventory 40  0 67 27 84 54 –16
will   21produce78  the 68   same–12 –12
Ending inventory 10 10 27 27 54 –16*  21
answer. 21  Excel 68   OM –12*
  will–12 –
produce   the   same   answer 5*
Order receipts 57 57  57 57  57
when lead time is zero.
Order release 57 57 57 57  57  57
Total inventory = 10 + 10 +
27 + 27 + 54 + 21 + 21 + 68 * Stockouts = 16 + 12 + 5 = 33
Periods Cumulative Costs
= 238 Combined Net Req. Part Periods Order Hold
Actual total cost: 6 70 70  0 = 0 150 +   0
70  
CT = Order cost + Holding cost + Stockout cost 6, 7 90 0 + 20 1 = 20  50
6, 7, 8 90 70  0 + 20  1 = 20  50
= 6 orders �$150 order + 238 units 6, 7, 8, 9* 100 70  0 + 20  1 + 10  3 = 50 125
6, 7, 8, 9, 10
�$2.50 unit period + 33 units �$10 unit stockout 180 70  0 + 20  1 + 10  3 + 80  4 =
370
= 900.00 + 595.00 + 330.00 = $1,825.00
* The part periods for an order encompassing periods 6, 7, 8, and 9 most nearly approximates the EPP of 60.

Thus, if we are able to “time” Periods Cumulative Costs


order placement in an optimal Combined Net Req. Part Periods Order Hold
10  80 80  0 = 0 150 +   0
10, 11  80 80  0 = 0   0
10, 11, 12* 130 80  0 + 50  2 = 100 250
* The part periods for an order encompassing periods 10, 11, 12 most nearly approximates the EPP of 60.
14.24
14.20 Always order 100 units; fixed order quantity (FOQ) = 100
Capacit Capacity1 2 3 4 5 6 7 8 9 10
y
Gross requirement  35
Require Availabl Over/  30 40  0  10  40 30  0  30  55
Calculate total cost: Scheduled receiptd e
Projected
Week on hand
Units (Time) 35(Time) 35   0 Production
(Under 70 30Scheduler’s
 30  20
Action80 50  50  20
CT = Order cost + Holding costNet requirement   0 )  30  0  0   0  20  0  0   0  35
= 3 orders �$150 order + 230 units
Planned order receipt 100 100 100
1
Planned 60
order 3,900
release 2,250100  1,650 Lot split. Move 300100 minutes (4.3 units) to week 2
100and 1350
�$2.50 unit period minutes to week 3.
= $1,025.00 3 setups at $100 each + 350 units @ $1 = $650.
2 30 1,950 2,250  (300)
3 10  650 2,250 (1,600
14.21 Periodic order quantity (POQ)—3 periods; Every three weeks, order for 3 wks ahead.
)
4 40 2,600 2,250 1    3502 Lot split.
3 Move
4 250 5 minutes6 to week
7 3. Operation
8 9split. 10
Move 100 minutes to another machine, overtime, or
Gross requirement 35 30 40 0 10 40 30  0 30 55
subcontract.
Scheduled receipt
5 70 4,550 2,250  2,300 Lot split. Move 1600 minutes to week 6. Overlap operations
Projected on hand 35 35  0 40 0  0 70 30  0 85 55
to get product out door. Operations split. Move 700 minutes
Net requirement  0 30  0 0 10  0  0  0 30  0
to another machine, overtime, or subcontract.
Planned order receipt 70 80 85
6 10  650 2,250 (1,600
Planned order release 70 80 85
)
3 setups each at $100 + 280 units @ $1 = 580
7 40 2,600 2,250   300 Lot split. Move 300 minutes to week 8. Overlap operations
to get product out the door.
14.22
8
 A modification of the part­period balancing shown in the text yields the following costs:
30 1,950 2,250  (300)
1 2 3 4 5 6 7 8 9 10
14.25 (a) 
Gross requirement 35 30 40  0 10 40 30  0 30 55
Scheduled receipt
B
Projected on hand 35 35  0 50 10 10  01 230 3 4
 0 5  06 7
55 8
Net requirement  0 30 Gross  0
 0 requirement
 0 40 30  0 3090  0
Planned order receipt 80 On hand 30 70  0 8530
Planned order release 80 Net 70 85 60
3 setups each at $300 + 155 units @ $1 = $455 P.O. receipt 60
P.O. release 60
14.23 The firm has 22,500 minutes available to produce 330 units, which require 21,450 minutes of work. One
possible solution is:
(b)  F 1 2 3 4 5 6 7 8
Capacity Capacity
Required Available Over/ Gross requirement 180 40
Week Units (Time) (Time) (Under) Production
On hand Scheduler’s Action  20 0
20
 1  0     0 2,250 (2,250) Net 160 40
 2 40 2,600 2,250    350 LotP.O.split.
receipt
Use 350 minutes in week 1.160 40
 3 30 1,950 2,250   (300) P.O. release 160 40
 4 40 2,600 2,250    350 Lot split. Use 300 minutes in week 3. Use 50 minutes
on another machine or in week 1 or 5.
 5 10  650 2,250 (1,600)
 6 70 4,550 2,250   2,300 Lot split. Use 1900 minutes in week 1. Operations split.
Use 400 minutes on another machine, overtime, or
subcontract.
 7 40 2,600 2,250    350 Overlap operations so that next operation can begin.
(c) 
Lot split. Use 350 minutes in week 5.
 8 10   650 2,250 (1,600)
Stepper 1 2 3 4 5 6 7 8
 9 30 1,950 2,250
Gross  (300)
requirement 50
10 60 3,900 2,250   1,650 Lot
On hand 20split. 1250 minutes in Week 8 and 30020
minutes in
Net week 9. Operations split. 100 minutes on 30
another
P.O. receipt machine, overtime, or subcontract. 30
P.O. release 30
There are other possible solutions.

A 1 2 3 4 5 6 7 8
Gross requirement 30
On hand 10 10
Net 20
P.O. receipt 20
P.O. release 20
14.26 Lot for 1 — — — 2 Long Gross requirement 1,28 1,280 256 256
Lot Brace 0
Lead Scheduled receipt
Time Projected on hand
(# of Low- Net requirement 1,28 1,280 256 256
Lot period On Safety Allo- Level Item 0
Size s) Hand Stock cated Code ID Planned order receipt 1,28
Period
1,280(day)
256 256
0
1 2 3 4 5 6 7 8
Planned order release 1,280 1,28 256 256
Lot for 1 — — — 0 Table Gross requirement 640 640 128 128
0
Lot Scheduled receipt
Projected on hand
Lot for 1 — — — 2 Leg Gross requirement 2,56 2,560 512 512
Net requirement 640 640 128 128
Lot 0
Planned order receipt 640 640 128 128
Scheduled receipt
Planned order release 640 640 128 128
Projected on hand
Net requirement 2,56 2,560 512 512
Lot for 1 — — — 1 Top Gross requirement 0 640 640 128 128
Lot Scheduled receipt
Planned order receipt 2,56 2,560 512 512
Projected on hand 0
Net requirement
Planned order release 2,560 2,56 640
512640512128 128
Planned order receipt 0 640 640 128 128
Planned order release 640 640 128 128
14.27 Hrs
Lot for 1 — — Table
Coffee — 1
RequireStain
Lead Gross requirement 80 80 16 16
Lot Master Schedule d (gal.)
Time Scheduled
Day 1 receipt
Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
Projected on hand
640 640 128 128
gallons Net requirement 80 80 16 16
Table Assembly 2 1 1,280 1,280 256 256
Planned order receipt 80 80 16 16
Top Preparation 2 1 1,280 1,280 256 256
Planned order release 80 80 16 16
Assemble Base 1 1 640 640 128 128
Long Brace (2) 0.25 1 320 320 64 64
Lot for 1 — — — 1 Glue Gross requirement 40 40 8 8
Lot Short Brace (2) 0.25 (gal.) 1 Scheduled receipt
320 320 64 64
Leg (4) 0.25 1 Projected on hand
640 640 100 128 12 100 100
100 100 60 20 12 4
gallons 100 Net requirement 8
Total Hours 0 order
Planned 1,280 3,200 3,456 1,920
receipt 640 256
Planned order release

Lot for 1 — — — 1 Base ADDITONAL


Gross requirement 640 640 128 128
Lot Scheduled receipt (c) 
HOMEWORK
Projected on hand
Week 1 2 3 4 5 6
Required Date 10
PROBLEMS
Net requirement Order Release 640 640 128 128
10 A
Herereceipt
Planned order   are   solutions   to 640 640 128 128
Required Date 30
additional
Planned order release   homework 640 640 128 128
Order Release 30 D
problems   14.28–14.32   that
Required Date 20
Lot for 1 — — — 2 Short appear   on   our   Web   site,
Gross requirement 1,28 1,280 256 256
Order Release 20 F
Lot Brace www.myomlab.com. 0
Scheduled receipt
14.28 (a) 
Projected on hand
Net requirement 1,28 1,280 256 256
0
Planned order receipt 1,28 1,280 256 256
0
Planned order release
(b)  1,28 1,28 256 256
14.29 F 1 2 3 4 Theoretical
5 6 7   total
8
cost:
Level: 0 Parent: — Quantity:
Gross 180 40
Item: A Lead Time: 1 week Lot Size: L4L
requirement D
CT = Order cost + holding cost =
Week No. 1 2 3 4 5 On hand
6 7
20 8 9 10 20  0 Q
Gross requirement Net 10 160 40 275  50 105  0.25  10
Scheduled receipt P.O. receipt 160 40 = +
105 2
On hand 2 2 2 2 2 2 P.O. release
2 160 40
= 130.95 + 131.25 = $262.20
Net requirement Periods8 Cumulati Costs
Planned order receipt 14.31  (a) Economic Order Quantity
8 ve Note:   Order   and
Planned order release 8 Combined Net Req. Part Periods
carrying   costs   areOrder Hold
Week
1 Now 1 2 35 0 =
 3 0 4 5 6 not 7   equal
8  9due10   to 50 +
Level: 1 Parent: A Quantity: 3 rounding the EOQ 0.00
Gr req  35 30  45   0  10 40  30   0  30 55
30  1 = 30
70  40  –5 100 90 to  50    20
a 125
  whole
Item: D Lead Time: 1 week 1, 2 Lot Size: 65 21.25
Beg inv   0   0L4L 95
Week No. 1 2 3 4 5 1,End
2, 36 7 110 8 30  9  2 = 120
1 + 4510 number. 13.75
inv   0*  70 40  –5* 100  90 50  20* 12  95 40
1, 2, 3, 4 110 30  1 + 45  2 + 0Actual cost:
 3 = 120 2.50
Gross requirement 24 5
1, 2, 3, 4, 5* 120 30  1 + 45  2 + 10  4 = 160 2.50
Scheduled receipt Ord rcpt 10 105 10
1, 2, 3, 4, Note:
5,   160
If   the   30  1 + 45  2 + C
five T =
10  Order cost
4 + 40  5 + holding cost
On hand 4 4 4 4 4  4
Net requirement 20
6 units not produced = 360 = 3 orders  $50 order + 630 un
Planned order receipt 20 in   period   3    $0.25 unit period
Planned order release 20 (because   of   five­ = 150 + 157.50 = $307.50
unit   shortage)  are
             (b)
produced  Lot for Lot:
  in   week
Level: 1 Parent: A Quantity: 2
Item: F Lead Time: 2 weeks 4,
Lot Size:  then   actual Week
L4L inventory drops by This
Week No. 1 2 3 4 5 6 five7  units  8(from wee9 1 10 2 3 4 5 6 7 8 9 10
Gross requirement 16 680   to   675).   Thisk
Scheduled receipt analysis
Gr req  includes 35 30 45  0 10 40 30  0 30 55
On hand 0 0 0 0 0 holdingBeg   cost
inv   for 0  0  0  0  0  0  0  0  0  0  0
Net requirement 16 the   40
End  units
inv  held 0  0  0  0  0  0  0  0  0  0  0
Planned order receipt 16 Ord rcpt
from period 10 for 35 30 45 10 40 30 30 55
Planned order release 16 Ord rel
period 11. 35 30 45 10 40 30 30 55
Calculating   total
Orders   are   placed
cost:
14.30 (a)  14.30 (c) in the weeks with
ending   inventory CT = Order cost + holding cost
Stepper 1 2 3 4 5 6 7 8
below   the   reorder = 8 orders  $50 order + 0 (no h
Gross requirement 50
point (i.e. 27.5) as = $400.00
On hand 20 20
Net
noted   30 with
             (c)  Part­period balancing
P.O. receipt asterisks. 30
Economic30   Order Week
P.O. release
Quantity: Now 1 2 3 4 5 6 7 8 9 10
Gr req  35 30 45  0  10  40 30  0 30 55
2 DS 2  275  50
A 1 2 3 Q4 = 5 6Beg= 7inv 8   0    =0104.9 or 105 units
85 55 10  10   0 60 30 30  0
(b)  Gross requirement
H30  10  85 55 10 10   0  60 30 30  0  0
End inv0.25  0
On hand 10 Ord rcpt
10  D  = period 120 100 55
where
Net 20Ord rel 120 100 55
demand, S = setup
P.O. receipt 20
or   order   cost, Calculating EPP:
P.O. release 20
H = holding cost. Order cost 50
EPP = = = 200
Reorder point: Holding cost 0.25
B 1 2 3 4 5 6 7
Reorder point =8demand during lead time
Gross requirement 90
275
On hand 30 30 = units period  1 period
Net 60 10
P.O. receipt 60 = 27.5 or 28 units
P.O. release 60
(2) The   POM   for
Windows program
Note: (1) We have is   unable   to
assumed that: (a) a handle   the   non­
product   ordered zero   lead­time—
during   a   calendar thus   will   produce
week   is   available a different answer.
at the beginning of Excel   OM   does
the   following not   perform   Part­
week;   (b) Period balancing.
shipments   during
a week take place Periods Cumulative Costs
at the beginning of Combined Net Req. Part Periods Orde Hold
the   week;   (c)   no r
carrying   cost 6 40 40  0 = 50 +  15.00
occurs   during   the 6, 7 70 40  0 + 30  1 = 30 7.50
week   the   order   is 6, 7, 8 70 40  0 + 30  1 = 30 7.50
received. 6, 7, 8, 9* 100 40  0 + 30  1 + 30  3 = 120
6, 7, 8, 9, 10 155 40  0 + 30  1 + 30  3 + 55  4 =
340
* The part periods for an order encompassing periods 6, 7, 8, and 9, most nearly approximates the
Calculating   total
cost:
CT = Order cost + holding cost
= 3 orders  $50 order + 280 units
   $0.25 unit period
= 150.00 + 70.00 = $220.00
14.32
Item A
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Total req. 10 10 5
On hand 3 3 3 3 3 3 3 3 — —
Net req. 7 10 5
Ord rec. 7 10 5
Ord rel. 7 10 5
 
Item B
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Total req. 10 7 10 5 3
On hand 2 2 2 2 2 2 2 — — — —
Net req. 8 7 10 5 3
Ord rec. 8 7 10 5 3
Ord rel. 8 7 10 5 3

Item C
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Total req. 10 7 10 10 5 5 3
On hand 10 10 10 10 10 — — — — — —
Net req. 7 10 10 5 5 3
Ord rec. 7 10 10 5 5 3
Ord rel. 7 10 10 5 5 3

Item D
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Total req. 8 7 10 5 3
On hand 5 5 5 5 5 — — — —
Net req. 3 7 10 5 3
Ord rec. 3 7 10 5 3
Ord rel. 3 7 10 5 3
introduction   of  Item corporate
E disposed of at distress prices.
Week 1 2 3 4 wide5   goals
6   and7  performance
8 9 10 11 12 13 14 15 Moreover,
16   MRP   does   not
Total req. 3
measures   for   each   function;
9 20 10 3
work   without   accurate
On hand 5 5 5 5 (b) 2  development   of   labor— — — inventory.   As   in   any
Net req. standards
7   for   the   assembly,
20 10 3 dependent   manufacturing
Ord rec. and packaging operations; (c)
7 20 10 3 process,   shortage   of   a   part
Ord rel. 7 development   of  20quality 2.   A10  properly   used
3   MRP may mean that the entire end
  standards   for   all   production system   will   provide   the unit, in this case an expensive
and   purchased   Item items,F  to structure   needed   at   Hill’s ambulance,   cannot   be
Week 1 2 3 4 which
5   6suppliers
7  8 would9 10Automotive;
11 12  unneeded
13  
14and 15 assembled,
16   completed,   or
adhere;   (d)  improvements   in excess   inventory   and   poor delivered. Accurate inventory
Total req. 10 7 10 5
inventory   management bills —
  of   material   will —   be has cost implications for both
On hand 5 5 5 5 5 5 —
practices; (e) development of evident, the   units   in   which   the
Net req. 5 7 10   as   will   production 5
Ord rec. a   capacity5 7   planning schedules
10   beyond   the   firm’s
5 inventory   is   to   be   installed
Ord rel. procedure (i.e., determination
5 7 10capabilities. Lead times, order
5 (the   ambulance)   and   as   an
as to how many units can be release   dates,   shortages,   etc. asset. 
produced   during   what   time will   also   be   specified. 2. Excess   inventory   exists
Item G
periods);   (f)  implementation
Week 1 2 3 4 5 6 7 8 9 10Accuracy 
11 and  12 discipline
13   will 15 because
14 16   of   minimum   order
of   a   master   production be required.  requirements,   BOM   errors,
Total req. 5
schedule 7  (which   might 10 5
The instructor may then customer­change   orders,
On hand 1 1 1 1 1
encompass —  a  relatively   short — —
Net req. 4 7   to   the   typical 10
want to discuss the problems
5
purchasing   and  
horizon   due
Ord rec. 4 7 10one   would   encounter 5   in receiving  errors,   etc.   A  plan
short production cycle); and, implementing   some   of   the for   Wheeled   Coach   to   deal
Ord rel. 4 7 10 5
ultimately, proper use of an  changes discussed above. As with excess inventory is first
MRP   system.   When   this   is a   beginning,   one   might to see what can be returned to
completed,  everyone Item H  be
  will consider   that   the   individual the   vendor   for   near   full
Week 1 2 3 4 5   by
judged 6   corporate­based
7 8 9 10 11 12 13 14 15 16
departments   appear   to   be credit;  second,   see what  can
Total req. performance
5 7   measures,   using 10operating   in   a 5   relatively be substituted on subsequent
On hand 10 10 10 10 common
10 5  information,   in —informal   manner—  and   as units for the items called out
Net req. working  2 toward   common 10 5
separate entities. The student on the bills of material; and
Ord rec. goals. 2 10 5
might   be   asked   to   consider third,   work   at   some   sort   of
Ord rel. 2 10 5
how   the   persons   employed sale   or   scrap   or   supply   to
within   this   organization   will other auto dealers or truckers
CASE STUDY react to the changes suggested who   may   have   need   for   the
above,   which,   uniformly, items.
HILL’S  result   in   increased   demands 3. Wheeled Coach will find
AUTOMOTIVE, INC. on   employees   and   increased it   difficult   to   dispose   of
integration   among excess inventory. It is hard to
In this case, each department
departments. substitute excess components
argues that it is doing its job
well—“the   problem   is   with in units (and their related bills
them.” The result is confusion VIDEO CASE of material) as units are being
and   poor   results   for   the STUDY assembled. It takes innovation
company as a whole. Many of on the part of the engineering
the   problems   relate   to   the MRP AT WHEELED  shop and inventory personnel
classic MRP issues of (a) lack COACH to  make  this  work  and   keep
of master schedule; (b) lack of A   7­minute   video,   filmed the bills of material, through
capacity   planning;   and   (c) specifically   for   this   text,   is engineering   changes   notices,
few,   if   any,   accurate   lead available   from   Prentice   Hall accurate. For those items that
times,   all   resulting   in   poor and   is   designed   to are   changed   but   are   not
scheduling   and   chaos   in   the supplement the written case.  critical,   management
assembly   area.   There   seems instituted   an  effectivity   date.
1. Accurate inventory is an That is a date that the change
also   to   be   a   question   as   to
important   issue   at   Wheeled would be effective to the date
whether   the   various
Coach   because   of   the in   the   production   schedule
departments   are   working
dynamic   changes   that   occur that   allowed   all   of   the
toward   common   goals   and
in ambulances. Items that are components   in   stock  to   be
whether appropriate measures
purchased   but   not   used used.   Some   material   can   be
of   performance   are   in   place.
promptly   often   end   up   as returned   to   the   supplier,   but
The specific issues in a plan
excess inventory and must be most   suppliers   are   not
would   include   (a)
interested   in   taking   old ADDITIONAL CASE get   the   system   running,
merchandise back, so that is a $8   million   paid   to   IBM   for
difficult   option.   Finally,
STUDY* consulting and the remainder
selling   the   items   themselves IKON’S ATTEMPT AT  of   the   $25   million   paid   in
proved   a   reasonable   last ERP consulting   fees   since   the
resort. However, even this is system was turned on.)
1. IKON   needs
expensive.   It   requires 4. The project was canceled
comprehensive   marketing
cataloging,   publicity,   letter because   of   the   expense,
information   on   potential
writing,   phone   calls,   and combined   with   functionality
customers,   existing
follow­up.   It   is   a   real gaps   and   the   amount   of
customers,   and   their   copier
marketing   challenge,   and internal   business   procedures
installations,   and   then   a
Wheeled Coach does this by IKON would have to change.
service   history   on   each
having   occasional   sales   of
machine   sold   and   its   owner
excess   inventory   on
or   leaseholder.   Additionally,
Saturdays.   All   of   these
it needs the usual accounting
options   are   being   used,   and
information   on   payables,
all   do   reduce   inventory
receivables,   assets,   and
ultimately.
liabilities   as   well   as   good
inventory   information   on
copiers, parts, and supplies.
2. The  advantages  of   ERP
software are that it is usually
sold as an integrated system
that   ties   HR,   accounting,
manufacturing, and suppliers
together.   Consequently,   in
theory, it provides for a high
degree   of   timely,   accurate
information.   Most   of   these
systems   deliver   much   less
than the theory suggests.
The disadvantage of any
standard   software   product   is
that it may not (or will not)
fit   a   given   (in   this   case
IKON’s)   business.   IKON’s
problem   was   complicated
because   many   ERP   systems * This case study appears on our Companion Web site, 
are   an   outgrowth   of www.pearsonhighered.com/heizer.
manufacturing   systems.   This
manufacturing   base   often
means   they   are   weak   in   the
marketing, customer tracking,
service,   and   repair   features
critical   to   IKON’s
competitive   advantage.   A
wide   variety   of   special
programs   have   been   written
for   customer   sales   and
service tracking, but for SAP,
like   other   vendors   in   the
field,   that   was  not   an  initial
priority.
3. The bet was that the pilot
installation   would   work   at
reasonable   cost   and,   not
incidentally, do the job. This
did not turn out to be the case.
(It   cost   over   $14   million   to