S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

S e s s io n 1. Inv e nto ry Ma na g e me nt : O rd e r P la nn ing .

O bje c tiv e s :
・ Ide ntify types of inve ntory a nd how they a re assessed from the ir diffe re nt require me nts a nd impacts on
the pla nning process .
・ Describe orde r review methodologies a nd a pply the m to diffe re nt types of inve ntory a nd inve ntory
strategies .
・ Ide ntify lot- s izing techniques , including the effects of orde r- qua ntity constra ints a nd modifies .

1. De f in it io n o f Inve nto ry .
De fin itio n o f Inv e nto ry .
- Thos e stocks o r ite ms us e d to s uppo rt productio n, s uppo rting a ctivitie s , a nd custome r s e rvice .
- De ma nd fo r inve nto ry may be de pe nde nt o r inde pe nde nt.
- Inve nto ry functio ns a re a nticipation, he dge , cycle , fluctua tion, tra ns po rtation, a nd s e rvice pa rts .
- In the the o ry of constra ints .
・ Inve nto ry is define d a s thos e ite ms purcha s e d fo r re s a le a nd include s finis he d goods ,
ra w ma te ria ls .
・ Inve nto ry is a lways va lue d a t purcha s e d p rice a nd include s no va lue - a dde d costs , a s
o ppos e d to the tra ditio na l cost a ccounting pra ctice of a dd ing dire ct la bo r a nd a lloca ting
ove rhe a d a s wo rk in proce s s prog re s s tho ugh the p roduction proce s s .

Ty pe s o f Inv e nto ry .
- Raw Mate ria ls (RAW).
・ RAW re p re s e nts a ny mate ria l inputs us e d in a ma nufa cturing p roce s s .
・ This include s ma nufa cture d products fro m othe r compa nie s , refe rre d to a s finis he d
goods a t s upplying compa ny.
・ Ra w mate ria ls fo rm the lowe st leve l of a bill- of- mate ria l structure , a nd typica lly
constitute the lo nge s t po rtio n of c u mulative le a d time .
- Wo rk in P roce s s (W IP).
・ While ra w ma te ria ls a re in va rious sta ge s of co mpletio n, the y a re refe rre d to a s
wo rk- in- proce s s inve nto ry.
・ The a mount of wo rk in proce s s diffe rs g re atly from co mpa ny to co mpa ny, de pe nding
o n the pa rticula r prod uction proce s s .
・ WIP fo rm the middle leve ls of a bill- of- mate ria l structure .

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

- Finis he d Goods (FG).

・ Finis he d goods , o r e nd ite ms , ca n be a co mplete d product o r a s e rvice pa rt.
・ A finis he d goods is a n ite m that is s old to a custome r o r tra nsfe rre d to a s iste r
d ivis io n in a ve rtica lly inte g rate d co mpa ny.
・ Ma nufa cturing compa nie s ma y ke e p a stoc k of finis he d goods a t the producing fa cility
o r in a wa re ho us e o r d istribution ce nte r to re duce de live ry le a d time s .
- Ma inte na nce , Re pa ir, a nd Ope rating Supplie s (MRO).
・ O pe ratio n s upplie s a re ofte n low cost, but nume rous , a nd include office a nd ja nito ria l
s upplie s .
・ Ma inte na nce a nd s pa re pa rts a re ma inta ine d to s uppo rt uptime a nd ava ila bility
re quire me nts , a nd may include ite ms ra nging from ce nts to te ns of thousa nds of dolla rs .
・ Re ple nis hme nt is typica lly by vis ua l review, direct one- for- one re place me nt, or reo rde r point.

C la s s ific a tio ns o f Inv e nto ry .

- This ca te go rie s re la te to time - fe nce s that cla s s ify inve nto rie s in stock in re la tions hip to the ir
us efulne s s in s uppo rting the inve nto ry strate gy.
- Cla s s ificatio ns .
・ Exce s s .
・ S urplus .
・ Ina ctive .
・ O bs olete .
・ Cons ignme nt.
・ Ve ndo r Ma na ge d.

1. Exce s s Inve nto ry.

・ This is inve nto ry proc ure d o r ma nufa cture d in exce s s of curre nt ope rationa l ne e d.
・ The definition of "curre nt ne e d " must be e sta blis he d by po licy fo r e a ch raw mate ria l.
・ Exce s s inve nto ry may occur by pla n, s uch a s lot s izing rule s o r a nticipatio n builds , o r
by a ccide nt.
・ Re a s ons .
: Inve nto ry re co rd e rro r.
: O rde r ca nce llation.
: Engine e ring s upe rs e dure s .
2. Surplus Inve nto ry.
・ S urplus inve nto ry a pplie s to ite ms in de ma nd, but the a va ila ble ba la nce is we ll in
e xce s s of ne e d.
・ The compa ny co uld procure o r ma nufa cture this q ua ntity late r be ca us e the s upply is
longe r tha n the ite m's le a d time .

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inv e nto ry Ma na g e me nt : O rde r P la nning .

3. Ina ctive Inve nto ry.

・ Ina ctive inve nto ry is co ns ide re d a n a s s et fro m a n a ccounting pe rs pe ctive , but the re is
no fo re s e e a ble de ma nd.
・ It is the dire ct re s ult of s urplus inve nto ry tha t ha s not be e n us e d within 12 - 18 months
a nd will not be us e d in fo re s e e a ble future .
4. Obs ole te Inve nto ry.
・ O bs olete inve nto ry will neve r be us e d o r s o ld at full va lue be ca us e the products a re
no longe r p roduce d o r s uppo rte d .
・ Dis pos ing of the inve nto ry re duce s a compa ny's profit.
5. Cons ignme nt Inve nto ry.
・ Cons ignme nt inve nto ry occurs whe n the s up plie r p hys ica lly give s the custo me r the
inve nto ry fo r us e a nd the s upplie r reta ins the title of the product until us e d.
・ The s upplie r pe riodica lly inve nto rie s the co ns igne d product a nd, a s a re s ult, bills the
c usto me r a nd re ple nis he s the cons igne d inve nto ry.
6. Ve ndo r Ma na ge d.
・ Ve ndo r ma na ge d inve nto ry diffe rs fro m co ns ignme nt in s eve ra l re s pe cts .
・ The vis ibility of the custo me r's fo re ca sts , s uch a s p romotio ns a nd productio n ra te s , is
s ha re d with the s upplie r.
・ Vis ibility ca n be a chieve d with va rio us te c hnologica l a dva nta ge s s uc h a s point- of- s a le
info rma tion o r EDI.

2 . O rde r Re v ie w Me tho do lo g ie s .
Ty pe s o f O rde r Re v ie w Me tho do lo g ie s .
- Mate ria l Re q uire me nts Pla nning (MRP).
- Time - Pha s e d O rde r Po int.
- Re o rde r Po int.
- Pe riodic Review.
- Vis ua l Revie w.
- Ka nba n.

O rde r Re v ie w Ind e pe nde nt De pe nde nt

MRO
Me tho d De m a nd De m a nd

MR P

Re o rde r P o int

Pe rio d ic Re v ie w

V is ua l Re v ie w

Ka n ba n

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inv e nto ry Ma na g e me nt : O rde r P la nning .

W ha t T he y A ns w e r.
- What is the ne t de ma nd a fte r a ccounting fo r ava ila ble inve nto ry a nd s che dule d re ce ipts ?
- What is the a va ila ble ba la nce afte r a cco unting fo r s afety stock, a lloca tio ns , a nd yie ld a nd
s c ra p a llowa nce s ?
- What qua ntity will ne e d to be o rde re d afte r a cco unting fo r constra ints a nd mod ifie rs ?
- Whe n will o rde rs ne e d to be re le a s e d to p rovide s ufficie nt time fo r proc ure me nt a nd
ma nufa cturing ?
- Whe n will o rde rs ne e d to be re ce ive d to s uppo rt re quire d date s ?

Ma te ria l Re q u ire m e nts P la nn ing (MR P )

- MRP is a proce s s , s uppo rte d by co mpute r logic, fo r ca lculating a n e ntire de ma nd ve rs us
o rde ring p rofile through the pla nning ho rizon.
- MRP's prima ry be nefit is its a bility to a ccommodate o rde ring strate gie s fo r pa rts with va ria ble
de pe nde nt a nd inde pe nde nt de ma nd profile s .
- This a bility a llows the pla nne r to e sta blis h pla ns a nd co ntrols by ite m cate go ry, a nd ite m a s
re quire d, to a chieve the inve nto ry strate gy ta rgets .
- S ome co ns ide ratio ns fo r MRP.
・ End- ite m de ma nd is ba s e d on a fo re ca st a nd/o r ma ste r s che dule .
・ De ma nd tre nds to be lumpy a n dis continuo us if not s che dule d in da ily ba tc he s .
This is mo re notice a ble at the lowe r bill of ma te ria l leve ls tha n a t the highe r one s .
・ Lowe r leve l de ma nd is not fo re ca ste d if the re is a define d bill of mate ria l re latio ns hip ;
it is ca lcula te d .
・ Little o r no s a fety stock is ne e de d to e ns ure a 100 % s e rvice le ve l fo r thos e pa rts
that a re s ubje ct to o nly de pe nde nt de ma nd , a nd that have s ufficie nt le a d time to me et
s c he dule d re quire me nts .

Re o rde r Po int
- Definitio n of Re o rde r Point.
・ A s et inve nto ry leve l whe re , if the tota l stock o n ha nd plus on o rde r fa lls to o r be low
that po int, a ctio n is ta ke n to re ple nis h the stock.
・ RO P = DDLT + S S
whe re RO P = Re o rde r Point.
. DDLT = De ma nd During Le a d Time
. SS = Sa fe ty Stock.

- The re o rde r point te chnique a s s ume s tha t a re ple nis hme nt o rde r ca n be re le a s e d a nd
re ce ive d befo re a stock- o ut occu rs .
- Be ca us e this te chnique is typica lly us e d fo r inde pe nde nt de ma nd ite ms , a s afety stock is
commo nly ma inta ine d.
- An a s s umption of ste a dy de ma nd is a ls o re quire d, whe re the pa st is a n a de qua te ind icato r of
the future .

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

- Co ntinuous De ma nd a nd Inve nto ry Cha ra cte ristics

・ The s a le s fo r this ite m a re fa irly re gula r o n a we e kly ba s is .
・ As units a re withd rawn from inve nto ry to me et the de ma nds , the inve nto ry de cline s
g ra dua lly until it be ca us e ze ro (o ut of stock).
・ If re ple nis hme nt o rde rs a re pla ce d at judicious time s , the n a n inve nto ry re ce ipt of s o me
p re dete rmine d qua ntity s hould come in at just a bout the time the inve nto ry would be
de plete d.
・ This bottom g ra ph, ofte n refe rre d to a s a s aw- toothe d g ra ph, is a cla s s ica l mode l of
inve nto ry be ha vio r whe n us a ge is unifo rm a nd re la tive ly co ntinuous .

Fig u re 1. De ma nd a nd Inv e nto ry G ra phs

- Initia l Dete rmination of the Re o rde r Point

Fig u re 2 . A P re lim ina ry Re o rde r Po int

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

- The Effe cts of Unce rta inty

・ Patte rns of de ma nd
1. De ma nd is exa ctly a s pre dicte d
2. De ma nd exce e ds the ave ra ge during the le a d time
3. De ma nd is le s s tha n fo re ca st

Fig u re 3 . The Effe c ts o f Unc e rta in De ma nd

- The Comple te Re o rde r Po int Mode l

・ To avo id the stockout s ituatio n, s ome s afety stock co uld be a dde d to the d ia g ra m.
・ The s afety stock is not expe cte d to be us e d if de ma nd fits the p re dicte d patte rn.

Fig u re 4 . The Co mp le te Re o rde r Po int Mo de l

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

T ime - Pha s e d O rde r Po int (T PO P).

- An a pproa ch that us e s time pe riods , thus a llowing fo r lumpy withd ra wa ls inste a d of a ve ra ge
de ma nd.
- TPO P ha s a n a dva nta ge ove r re o rde r po int be ca us e it co mbine s de pe nde nt a nd inde pe nde nt
de ma nd in a time - pha s e d ma nne r.
- It ca n be us e d with MRP a s lo ng a s a n a dditiona l ste p is a dde d to combine inde pe nde nt
with de pe nde nt de ma nd in the g ros s re quire me nt line .
- The logic of TPO P illustrate d.
・ Ste p 1. To dete rmine g ros s re quire me nts .
Technique
Orde r Qua ntity : 600 Fixe d.
Safety Stock : 80 Fixe d.
PART X
Allocated Qty : 0
Le a d- Time : 2 Wee ks . Pe rio ds .
Low Leve l Code : 4 1 2 3 4 5 6 7 8 9
S a le Fo re c a s t. 100 100 120 100 100 100 100 100 125
Inte rpla nt Orde rs . 50 140 10
S pe c ia l Eng ine e ring Ne e ds . 20
Cha rity Do natio ns . 30 30
S pe c ia l Pro motio n. 80
S afe ty S to c k Inc re a s e .
A ntic ipatio n build up . 5 5
De pe nde nt de ma nd . 40 30 10 20 50 40 20 10 0
Gro s s Re quire me nts . 170 190 130 280 180 160 205 125 125

Tec hnique
Orde r Qua ntity : 600 Fixed.
Safety Stock : 80 Fixed.
Allocated Qty : 0
Le a d- Time : 2 Wee ks . Pe rio ds .
Low Leve l Code : 4 1 2 3 4 5 6 7 8 9
Gros s Re quire me nt. 170 190 130 280 180 160 205 125 125
S c he dule d Re ce ipts . 600
Proje cte d Ava ila ble . 370
X
Ne t Re quire me nts .
Planne d Orde r Re ce ipts .
Planne d Orde r Re le as e .

・ Ste p 2. To ca lculate the time - pha s e d o rde r po int(s ).

Tec hnique
Orde r Qua ntity : 600 Fixed.
Safety Stock : 80 Fixed.
Allocated Qty : 0
Le a d- Time : 2 Wee ks . Pe rio ds .
Low Leve l Code : 4 1 2 3 4 5 6 7 8 9
Gros s Re quire me nt. 170 190 130 280 180 160 205 125 125
S c he dule d Re ce ipts . 600
Proje cte d Ava ila ble . 370 200 610 480 200 620 460 255 130 605
X
Ne t Re quire me nts . 60 75
Planne d Orde r Re ce ipts . 600 600
Planne d Orde r Re le as e . 600 600

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

Pe rio d ic Re v ie w .
- Known a s a fixe d- inte rva l o rde r syste m, o r fixe d re o rde r cyc le inve nto ry mode l.
- This is a fo rm of inde pe nde nt de ma nd ma na ge me nt mode l in which a n o rde r is pla ce d eve ry
n time units .
- The o rde r qua ntity is va ria ble a nd e s s e ntia lly re pla ce s the ite ms cons ume d du ring the cu rre nt
time pe riod.
- The o rde rs qua ntity mode l be come s mo re co mplicate d whe ne ve r the re ple nis hme nt le a d time
exceeds the review inte rva l, be ca use outsta nding o rde rs the n have to fa cto red into the equation.
- M - x mode l.
・ M = DD ( L + R ) + S S
・ Q= M - x - O
whe re M = Maximum inve nto ry le ve l.
DDL = De ma nd during le a d time .
DDR = De ma nd during revie w pe riod.
S S = Sa fety stock.
Q = O rde r q ua ntity.
x = Inve nto ry

V is ua l Re v ie w .
- The inve nto ry re o rde ring is ba s e d on a ctua lly loo king a t the a mount of inve nto ry on ha nd.
- This methodology is us ua lly us e d fo r low- va lue ite ms .
- A commo n te chnique is to e sta blis h minimum a nd maximum leve ls .

Ka nba n .
- Ka nba n is a s igna l fo r re ple nis hme nt.
- The qua ntity fo r re ple nis hme nt is dete rmine d fro m the rate - ba s e d MRP a s a fixe d- o rde r
q ua ntity, o rde r po int method .
- In a ma nufa cturing e nviro nme nt the upstre a m sta tion doe s not sta rt producing pa rts until it
re ce ive s a s igna l s uch a s a n e mpty bin, o r e mpty floo r s pa ce de s igne d a s a ka nba n.

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

3 . Fa c to rs in Lo t- S iz ing De c is io ns .
O rde r Q ua ntity Co ns t ra ints a nd Mo d ifie rs .
- O rde r qua ntity co nstra ints p rovide uppe r a nd lowe r ma c roa djustme nt limits to the ca lcula te d
q ua ntity.
- They co nstra in the fina l qua ntity betwe e n inclus ive maximum a nd minimum limits .
- Uppe r a nd lowe r limits .
・ Uppe r limits : They re strict the day's s upply o r do lla rs fo r a ny o rde r.
・ Lowe r limits : They pre ve nt numbe ro us o rde rs fo r inexpe ns ive pa rts from be ing pla ce d.
- O rde r qua ntity modifie rs p rovide a mic roa djustme nt me cha nis m fo r fine - tuning ca lculate d
q ua ntitie s . This ca n be us e d to a djust the qua ntity to s upplie r o r co mpa ny- s pe cifie d o rde r
multiple s , o r to ta ke a dva nta ge of price bre a ks .
- Sc ra p a nd yie ld fa cto rs a re mod ifie rs .

Fig u re 5 . O rd e r Q ua ntity Mo d ifie rs .

- O rde r Qua ntity Constra ints .

・ Minimum qua ntity ca n be us e d to me et a s upplie r minimum, o r e ns ure that a t le a st a
pa rticula r price bre a k le ve l is me t.
・ Maximum q ua ntity ca n be s et to re cognize sto ra ge o r tra ns po rt limits (e .g., ta nk ca r).
・ Minimum dolla r ca n be us e d to o rde r at le a st a s upplie r- o r purcha s ing- e sta blis he d
minimum purcha s e o rde r c ha rge .
・ Maximum dolla r ca n be us e d to limit inve nto ry inve stme nt leve ls a nd day's s upply, o r
limit ce rta in ite m to co rre s po nd with s igna tu re a utho rization leve ls .
・ Minimize da y's s upply ca n be us e d to pre ve nt multiple o rde rs fo r the s a me pe riods a s
ca n occ ur with lot- fo r- lot o rde rs in a co ntra ct e nvironme nt, o r limit the numbe r of s ma ll
but fre que nt o rde rs which ca n incu r ino rdina te ha ndling a nd fre ight costs .
・ Maximum day's s upply is us e d to s uppo rt inve nto ry turns a nd ta rgets , a nd to re cognize
s he lf- life co ns ide ra tio ns .

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

- O rde r Qua ntity Mod ifie rs .

・ A price bre a k qua ntity ca n be e ns ure d on a n individua l o rde r ba s is by s etting o ne of
the price bre a k qua ntitie s a s the s upplie r minimum.
・ Ro unding qua ntitie s ca n be us e d to me et conta ine r multiple s , s imple numbe rs , a nd to
s implify the cycle counting proce s s .
・ Minimum de ma nd qua ntity re cognize s tha t ce rta in ite ms a re s ubje ct to la rge is s ue s . A
minimum de ma nd qua ntity e ns ure s that no s ma ll re mna nts a re left p rio r to re ce ipt of
the next o rde r fo r floo rstock a nd othe r bulk- is s ue ite ms .
・ O rde r qua ntity mod ifie r a cco unts fo r p roce s s yie ld o r s c ra p conditio ns , which must be
a cco unte d fo r in the sta rting inve nto ry qua ntity to a chieve the re quire d e nding qua ntity.

The Co s t As s o c ia te d w ith O rde r Q ua ntity De c is io ns .

- The cost to Ca rry Inve nto ry.
・ Sto ra ge fa c ility costs .
・ Counting, tra ns po rting, a nd ha ndling costs .
・ Ris k of obs o le s ce nce due to e ngine e ring cha nge s o r s poila ge .
・ Ins ura nce a nd ta xe s .
・ Ris k of los s d ue to pilfe ra ge .
・ O ppo rtunity costs .
: Typica lly the la rge st po rtio n of the ca rrying costs .
: The cost of ca pita l re pre s e nts the rate of return tha t the compa ny co uld e a rn fro m
its be st inve stme nt o ppo rtunitie s .
- The cost of Pla cing O rde rs .
・ The cost of pla cing o rde rs diffe r betwe e n o rde rs pla ce d by purcha s ing to o uts ide
s upplie rs a nd o rde rs pla ce d in a fa cto ry fo r prod uction of the ne e de d p roduct.
・ This cost pa ra mete r is us ua lly expre s s e d a s the cost to pla ce a s ingle pa rt in a bs o lute
dolla rs .
・ P rod uction co ntro l costs : Is s uing a nd clos ing o rde rs , s che duling, loa ding, dis pa tching,
a nd expe d iting.
・ Setup a nd te a rdown costs .
・ Lost ca pa city cost : The time ta ke n to s et up is lost, pa rticula rly impo rta nt a nd costly
with bottle ne ck wo rk ce nte rs .
・ Purcha s e o rde r cost : O rde r pre pa ratio n, follow- up, expe diting, re ce iving, a utho rizing
payme nt, a nd the a cco unting cost of re ce iving a nd paying the invoice .

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

O rde r Q ua ntity Co s t Co m pa ris o n .

Fig u re 6 . Co s t o f C a rry ing v s . P la c ing O rde rs .

4 . Lo t S iz e Te c hn iq ue s .
Ec o no m ic O rde r Q ua ntity (EOQ ).
- The EOQ co nce pt is prima rily us eful a s a te c hnique fo r dete rmining the re latio ns hip betwe e n
ca rrying a nd o rde ring costs .
- The EOQ fo rmula .
2A ×S
・ EOQ =
C×i
whe re A = Annua l Us a ge . S = Cost pe r O rde r.
C = Cost of Ite m. i = Annua l Cost to Ca rry.
- Ca rrying, O rde r, a nd Tota l Cost.
・ Ca rrying cost.
Q
CC = ×C×i
2
・ O rde r cost.
A
OC = ×S
Q
・ Tota l cost = Ca rrying cost + O rde r cost.
Q A
TC = × C×i + ×S
2 Q

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

Fix e d- O rd e r Q ua ntity .
- Us e of a fixe d- o rde r qua ntity is us ua lly dicta te d by s ome co ndition re la te d to s hipping,
ha ndling, o r line re ple nis hme nt.
- Re ga rdle s s of de ma nd va ria bility, s upplie rs re ce ive cons iste nt o rde rs with co ns iste nt o rde r
q ua ntitie s , but a va ria ble fre que ncy.
- It may be dete rmine d ve ry info rma lly, s uch a s a s e at- of- the - pa nts e stimate , o r it might be
ba s e d on s o me fo rm of ca lcula tio n, s uch a s EOQ.
- The fixe d o rde r qua ntity is s hown in :
Tec hnique
Orde r Qua ntity : 600 Fixed.
Safety Stock : 80 Fixed.
Allocate d Qty : 0
Pe rio ds .
Lea d- Time : 2 Wee ks .
Low Leve l Code : 4 1 2 3 4 5 6 7 8 9
Gross Requirement. 130 160 120 260 130 120 185 115 125
Scheduled Receipts .
Projected Available. 370 240 80 460 200 570 450 265 150
X
Net Requirements. 120 10 85
Planned Order Receipts. 500 500 500
Planned Order Release. 500 500 500

Fig u re 7 . Fix e d- O rde r Q ua ntity .

Pe rio d- O rde r Q ua ntity .

- Pe riod o rde r qua ntity rule s a re s imila r to pe riod- of- s upply, exce pt that the o rde r cycle is
dete rmine d mo re s cie ntifica lly.
- The a pp roa c h us e s a fo rmula ba s e the EOQ but is s o lve d fo r the optimum numbe r of
pe riods to be cove re d by e a c h o rde r rathe r tha n fo r the optimum qua ntity.
- Thus , the o rde r cycle is ca lcula te d a s we ll a s the o rde r qua ntitie s , whic h cove r the ne e ds
fo r a dis c rete numbe r of pe riods .

Safety Stock = 80
Pe rio d s
Orde r Qua ntity = POQ
Lead Time = 2 1 2 3 4 5 6 7 8
Forecast De ma nd 130 160 120 260 130 120 185 115
Scheduled Rece ipts
Y Projected Ava ila ble 370 240 80 590 330 200 80 ? ?
Pla nned Rece ipts 630 ?
Pla nned Orde r Re leases 630 ?

Ta b le 5 Pe rio ds O rde r Q ua ntity

130 + 160 + 120 + 260 + 130 + 120 + 185 + 115
* Ave rage pe r pe riod = = 152.5
8

.* A = 152.5 × 52 = 7930
2A S 2×7930× 10
.* E OQ = = = 650
C× i 1. 50×0 . 25

EOQ 650
* POQ = = = 4.26 = 4
Ave ra ge Pe riod Usage 152.5

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

Lo t- fo r- Lo t.
- One definition of lot fo r lot is the s um of re quire me nts fo r a pe riod. With MRP re pla nning
nightly, pe riods ca n be a s s ho rt a s one day.
- Co mpa nie s that must o rde r a nd s e g re gate inve nto ry s e pa ra te ly fo r e a c h c usto me r o rde r o r
contra ct ta ke the lot- fo r- lot te chnique furthe r.
- To a ccount fo r the costs of e a ch o rde r, a nd to e liminate o r minimize a ny re s idua ls , ite ms a re
o bta ine d o nly fo r e a ch o rde r.
- No e xplos io n proce s s is re quire d.
- Eve n though, the re a re a dva nta ge s of us ing MRP fo r this o rde ring proce s s .
・ A common co mpute r syste m is us e d fo r a ll pla nning a nd o rde ring.
・ The s a me ite m may be s ubje ct to lot- fo r- lot o rde ring fo r ce rta in type s of o rde rs , a nd
re gula r pe riod o r othe r type of o rde ring te chnique fo r othe r o rde rs .
・ Re s idua ls may exist due to a minimum purc ha s e on a nothe r o rde r, a n o rde r
ca nce llation which le ft inve nto ry in stock, a nd s o o n. The s e re s idua ls will be a pplie d
a utomatica lly by MRP prio r to trigge ring a new o rde r.
Safety Stock = 80
Pe rio ds
Orde r Qua ntity = L4L
Lead Time = 2 1 2 3 4 5 6 7 8
Forecast De ma nd 130 160 120 260 130 120 185 115
Scheduled Rece ipts 130 160
Y Projected Ava ila ble 80 80 80 80 80 80 80 80 80
Pla nned Rece ipts 120 260 130 120 185 115
Pla nned Orde r Re leases 120 260 130 120 185 115

Ta b le 6 . Lo t- fo r- Lo t

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

■ Pe rfo rma nc e Che c k.

1. Which of the fo llowing a re cha ra cte rist ics of the time - pha s e d o rde r point (TPO P) me thod ?
Ⅰ. Accommoda te lumpy de ma nd patte rns .
Ⅱ. Us e s a re o rde r po int .
Ⅲ. S hows the timing of pla nne d re ple nis hme nt o rde rs .

A. Ⅱ. B. Ⅰ, Ⅲ C. Ⅱ, Ⅲ D. Ⅰ, Ⅱ, Ⅲ.

2. If ca rrying costs we re a djuste d fo r a ll ite ms , with a ll othe r pa ra mete rs re ma ining the s a me , e cono mic
o rde r qua ntitie s would te nd do which of the following ?
A. De c re a s e s lightly fo r o ne o rde ring cycle o nly.
B. Inc re a s e fo r eve ry o rde ring cycle until the ca rrying cost is revis e d downwa rd a ga in.
C. De c re a s e fo r e ve ry o rde ring cycle until the ca rrying cost is revis e d downwa rd a ga in.
D. Not be a ffe cte d at a ll.

3. Which of the fo llowing is a va lid re a s on to o rde r a qua ntity othe r tha n tha t s ugge ste d by the EOQ
fo rmula , give n tha t a ll othe r co nditions fo r us e of the fo rmula a re met ?
Ⅰ. Ina de quate s e lf s a pce .
Ⅱ. Ite m s ubje ct to s po ila ge .
Ⅲ. Cost of the ite m.

A. Ⅱ B. Ⅰ, Ⅱ C. Ⅱ, Ⅲ D. Ⅰ, Ⅱ, Ⅲ

4. A s che dule d re ce ipt is

A. An o pe n o rde r. B. A pla nne d o rde r.
C. A firm pla nne d o rde r. D. A re ce ive d o rde r.

5. The compa ny ha d ma de a majo r e ngine e ring de s ign cha nge to the ir most po pula r prod uct line . This
ha s re s ulte d in the tota l re pla ce me nt a nd pha s e d- out of a numbe r of pu rcha s e d ite m. The re is no
futu re de ma nd fo r a ny of the s e ite ms . Which of the fo llowing a ctions a re a pp ropriate in o rde r to e ns u re
that the pla nne r doe s not re ce ive a ction me s s a ge s from MRP fo r the s e ite ms ?
A. Cha nge the low leve l code to ze ro .
B. Cha nge the pla nne r ID to a non- existe nt pla nne r.
C. No a ctio n is re quire d by the pla nne r.
D. Add a la rge qua ntity to a de s igne d "s u rplus " loca tion s o no o rde r a ction is eve r re quire d.

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

6. The buye r ha s notice d that ce rta in ite ms a t bill of mate ria l leve l 1- 3 a re o rde re d individ ua lly fo r e a ch
custome r o rde r, but tha t multiple price bre a k a re ava ila ble if the o rde rs a re combine d. Which o ne of
the fo llowing s ugge stions s ho uld be ma de to ma na ge me nt fo r co ns ide ratio ns ?
A. Cha nge the bill of mate ria l leve l fo r the se ite ms to leve ls 4- 6 a nd continue to va lue by a ctua l cost.
B. Us e lot- fo r- lot o rde ring a nd va lue the ite ms a t sta nda rd cost, ba s e d on the most favo ra ble p rice
bre a k.
C. Us e multi- line ite m o rde rs to inte rna lly tra c k ite m qua ntity to custo me r o rde r numbe r, a nd va lue
e a ch ite m by a ctua l coat ba s e d o n tota l o rde r cost.
D. Ide ntify the custome r o rde r numbe r o n the purcha s e o rde r to the s upplie r a s "combine d " a nd
have the s upplie r cha rge a ctua l cost ba s e d o n the o rde r qua ntity.

7. A s upplie r ha s e sta blis he d a minimum qua ntity of 50 units of a pa rticula r ite m a nd a rounding qua ntity
of 10. The Fulbright Compa ny o nly ne e ds 10 units fo r a custom e ngine e ring prod uct. Whic h of the
following a ctio ns s hould be ta ke n ?
A. O rde r the rounding qua ntity of 10. B. O rde r the minimum qua ntity of 50.
C. O rde r 50 a nd reje ct 40 in re ce iving ins pe ction ba ck to the s upplie r.
D. O rde r 50 a nd dis pos e of 40 in re ce iving befo re the re ce ipt is p roce s s e d.

8. The compa ny ha s a prima ry a nd ba ckup s upplie r fo r a pa rticula r ite m. The p rima ry s upplie r ha s no
rounding qua ntity but the ba ckup s upplie r us e s a proce s s tha t produce s ba tc he s of 10. The re quire
o rde rs in multiple s of 10. Whic h of the following a ctio ns s hould the co mpa ny ta ke ?
A. Igno re the ro unding qua ntity fo r both s upplie rs a nd o nly o rde r from the p rima ry.
B. Esta blis h s e pa rate round ing qua ntitie s fo r both s upplie rs .
C. Esta blis h a sta nda rd rounding q ua ntity of 10 to s implify o rde ring re ga rdle s s of the s upplie r.
D. O rde r what is re quire d re ga rdle s s of s upplie r a nd a cce pt a ny exce s s from the ba ckup s upplie r.

9. The compa ny us e s a ca rrying cost va lue of 0.25. which of the fo llowing is the most effe ctive wa y fo r
a pla nne r to re duce a ctua l ca rrying costs ?
A. Re duce the ca rrying cost us e d in o rde r qua ntity ca lc ulatio ns to ze ro.
B. Us e a n o rde r qua ntity te chnique that is not ba s e d o n ca rrying cost.
C. Bypa s s ce ntra l sto re s a nd stock re ce ive d mate ria l ne a r the po int of us e .
D. Esta blis h a days s upply co nstra ints to limit la rge o rde r qua ntitie s .

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S pecia l Lecture : Deta iled Scheduling a nd Pla nning Inve nto ry Ma na ge me nt : Orde r P la nning .

10. The co mpa ny ha s just ne gotiate d to ha ve a ll of the e le ctro nic compo ne nts purcha s e d fro m a loca l
distributo r cha nge d to co ns ignme nt. Which of the fo llowing a ctio ns ne e d to be ta ke n p rio r to the next
re ce ipt fo r the existing inve nto ry ?
A. Co nve rt the ba la nce s to co ns ignme nt to sta nda rdize o n the inve nto ry cla s s ification.
B. Is s ue the ba la nce s to wo rk in proce s s to ze ro out raw mate ria l inve nto ry.
C. Re co rd the ba la nce s a s co mpa ny- owne d inve nto ry s o costs ca n be s e g re gate d.
D. Re d uce the unit costs to ze ro to e liminate payme nts to the s upplie r upo n is s ue .

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