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


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. 2

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


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.



inventory transaction s

Customers orders


Engineerin g changes

Inventory status file [finished items, WIP, planned orders

Master production schedule [which product to produce, in what quantity & when]

Bill of materials file [product structure and routing]




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 6

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



Orders [production plan]

Bill of materials

Inventory records

Material requirement planning [MRP]

Capacity requirement planning [CRP]

No Realistic? yes Execute capacity plans

Execute materials plan


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


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


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 1.scope 2.dependence for planning inputs DRP Outbound logistics Market MRP Inbound logistics Production Schedule worked out based on past data in the organization [forecast based on 3. Coordination responsibility Once the finished goods are produced. past data] Up to Finished Goods starting from raw materials 11

production. 4. Nature of plan 5. What is forecast? 6. Planning Tool Short term and accurate Finished goods Schedule prepared for delivery of supplies in the outbound logistical net work. 7. Inventory management of? 8. Planning availability of stock at? SKUs Market[retailers] & warehouses Raw Materials, components Raw material stores, Conversion process & finished goods store Dependent demand Production schedule


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 WHEN & HOW MUCH? 15 0 15 0




11 5 22 90 0 5

11 5 79 0

12 0 67 0

12 0 55 0

12 5 42 5

12 5 30 0 80 0

12 5 17 5

12 0 85 5 80 0

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?


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