Diploma Logistics Management Program

Integrated Recourse Planning

ASSIGNMENT TITLE PAGE

COURSE: Logistics Management Program

MODULE: Integrated Recourse Planning

ASSIGNMENT: Individual Assignment

VENUE: Business Studies Unit

CAMPUS: Richards Bay

DATE SUBMITTED: 10-8-2010

STUDENT INFORMATION

NAME IDENTITY NUMBER STUDENT No.

GJ Van Niekerk 6401055013084 0100676

FACILITATOR: K. Pearson MARK: _______

COORDINATOR: Daphne Chetty

INDIVIDUAL ASSIGNMENT DECLARATION

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 Diploma Logistics Management Program
Integrated Recourse Planning
I declare that this assignment is an original work submitted by myself. Any other
work of a similar nature has been appropriately referenced in this assignment.
Material referred to/quoted has been referenced in the Bibliography.

COURSE: Logistics Management Program

MODULE: Integrated Recourse Planning

ASSIGNMENT: Individual Assignment

VENUE: Business Studies Unit

CAMPUS: Richards Bay

DATE SUBMITTED: 10-8-2010

INITIALS & SURNAME STUDENT NUMBER SIGNATURE

GJ van Niekerk 0100676

MARK: ____________

FACILITATOR: K. Pearson Signature: _____________ Date: _____

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 Diploma Logistics Management Program
Integrated Recourse Planning

1. TABLE OF CONTENTS Page #

1. Table of Contents 3
2. Question 4
3. Executive Summary 5
4. Introduction

7. Conclusion
8. Bibliography

2. Question:

BUSINESS STUDIES UNIT

INTEGRATED RESOURCE PLANNING
INDIVIDUAL ASSIGNMENT
TOTAL MARKS: 100
Question 1:
Discuss the acquisition of two parts purchased by your business, one imported, and the
other locally; describe the lead-time, demand source, transport, insurance, storage and
possible safety stock requirements. (50)
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 Diploma Logistics Management Program
Integrated Recourse Planning

Question 2:
The obvious solution to most production bottle-necks or restraints would be to study the
production system and come up with a better simpler way of achieving the finished result.
Discuss a case study which has allowed the business where you are employed, to
achieve production improvements, listing old and new production processes and the
advantage gained by incorporation of new machinery, facilities and the pay back period.
(50)

Please note that as I work at a company that does not produce or manufacture
products, I had to use the following fictational scenario in order to answer these
questions.

M EMO RA
N DUM

TO: MATT FORD

FROM: BEN SCHULTZ

SUBJECT: MATERIAL REQUIREMENTS PLANNING (MRP) FOR FISKARS BRANDS,

INC.
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 Diploma Logistics Management Program
Integrated Recourse Planning

DATE: 12/4/2006

Introduction:

This memo: (1) outlines the design of the Fiskars scissors by means of a product
tree, (2) serves as a detailed layout of the material planning function in the
manufacturing of component parts and their assembly into finished scissors, while (3)
providing a description of what and when items will be ordered in order to fulfill the
customer’s request.

Summary:

We will be able to complete the order for Emmons Business Interiors by the last
day of the given 6 day period, if all parts are ordered from suppliers and assembled as
outlined in the Table 1 (MRP Timeline).

Analysis:

Table 1 (the MRP Timeline) summarizes by means of a backwards schedule

what and when supplies need to be ordered, as it is the objective of an MRP system to
provide the right parts at the right time to meet the customer’s request. The idea of a
backwards schedule is to start everything as late as possible and still be able to meet
the deadline. “MRP begins with a schedule for finished goods that is converted into a
schedule of requirements for subassemblies, component parts and raw materials

needed to produce the finished items in the specified time frame.”1 This is the heart of
an MRP system.

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 Diploma Logistics Management Program
Integrated Recourse Planning
Table
1

MRP
Timelin
e
quantities
in
thousands

1 2 3 4 5 6
Day
s

Figure 1 (the product tree) offers a visual depiction of the requirements

Customer in a bill
Deliver to

(600
of materials, where all components are listed by levels. AFinal
product
Scissor tree also presents
Assembly
(600
a listing of all of the raw materials, parts, -subassemblies,
Subassemble and assemblies needed to
Blades from
Suppli
produce one unit of a product.2 er
(560 Top and 600
Bottom)
Order Blades
1 from
The University of Texas at Dallas.Suppli
MRP and ERP. www.utdallas.edu/~kxz024000/13-MRP.ppt,
Order Plastic Grips er
from November 28, 2006.
Suppli
2 The Pennsylvania
Received order er
State University. Material Requirements Planning: MRP.
from Emmons
Business Interiors
www.personal.psu.edu/faculty/c/u/cul/hrim350/Chap015.ppt, November 28, 2006.
1

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 Diploma Logistics Management Program
Integrated Recourse Planning
Figur
e1
The Product
Tree

(1) Pair of
Scissors

(1) Top Blade (1) (1) (1) Bottom Blade Assembly

Assembly Nut Screw

(1) Bent (1) Bent (1) Straight (1) Straight

Blade Plastic Grip Plastic Grip Blade

Additionally, the Aggregate Table 2 (the MRP tables) offers a practical visual
image, demonstrating the ideology of a backwards ordering and assembling schedule

in an effort to meet the customer’s request. Table 3 (MRP Legend)3 provides a

description for each line item on the MRP tables.
Aggregate
Table 2
MRP
Tables
Final Scissor
Assembly (In
thousands)
Period (Days) 1 2 3 4 5 6
Gross Requirements 600
On Hand
Net Requirement 600
Planned Order Receipts 600
Planned Order Releases 600

Top Blade Bottom Blade Assembly

Assembly
Period (Days) 1 2 3 4 5 6 Period (Days) 1 2 3 4 5 6
Gross 60 Gross 60
Requirements
On Hand 40 40 40 40 0 Requirements
On Hand 0
Net Requirement 40 56 Net Requirement 60
Planned Order 56 Planned Order 60
ReceiptsOrder Releases
Planned 0 Planned
Receipts Order Releases 600 0
Straight Blades
560
Bent Blades
Period (Days) 1 2 3 4 5 6 Period (Days) 1 2 34 5 6
Gross Requirements 56 Gross 60
On Hand 350 350 0
350 350 Requirements
On Hand 0
200 200 200
Net Requirement 210 Net Requirement 200 400
Planned Order 210 Planned Order 400
Receipts Receipts
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 Diploma Logistics Management Program
Integrated Recourse Planning
Planned Order Releases Planned Order Releases 400

210

Bent Plastic Straight Plastic Grip

Grip
Period (Days) 1 2 3 4 5 6 Period (Days) 1 2 3 4 5 6
Gross 60 Gross 60
Requirements
On Hand 4 40 40 0 Requirements
On Hand 0
Net Requirement 0 40 56 Net Requirement 60
Planned Order 56 Planned Order 60
Receipts 56 0 Receipts 60 0
Planned Order 0 Planned Order 0

Lead Times
(days)
Bent Plastic Grip 2
Straight Plastic Grip 2
Bent Blades 3
Straight Blades 1 Nuts and
Bottom Blade
Bolts
Assembly 1
Period (Days) 1 2 3 4 5 6
Top Blade Assembly 1
Gross Requirements 600
Final Scissors
On Hand
Assembly 1
Net Requirement 600
Nuts & Screws 1 Planned Order Receipts 600
Planned Order Releases 600
3
The University of Texas at 3-MRP.ppt, November 28, 2006.
Dallas. MRP and ERP. 2
www.utdallas.edu/~kxz024000/1

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 Diploma Logistics Management Program
Individual Assignment
2010

Gross Requirements
Table 3

MRP Legend
Total expected demand for an item or raw material in a time period

On Hand
Expected amount of inventory that will be on hand at the beginning of each time
period

Net Requirements
The actual amount that we need to procure in each time period

Planned Order Receipts

The quantity expected to be received by the beginning of
the period in which it is shown

Planned Order Releases

Planned amount to order in each time period; planned-
order receipts offset by lead time

Assumptions/Limitations:

The above account is presented with known and constant lead times,
which can often change in reality. Also, this memo is based on assumptions
that feature a dependent demand, adequate capacity, good demand forecasts,
predictable scrap rates, and accurate inventory records.4

NB. For the purposes of this assignment, the lead time for procurement of
the bent blades, which will be imported is assumed to be multiplied by a
factor of 10, and the locally supplied straight blades will be calculated in
actual days.

4
University of California, Berkeley. Mechanical
Engineering 101: Lecture #15.
http://www.me.berkeley.edu/ME101/Lectures/2006_
lecture_15f.pdf

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1. Executive Summary
Question 1 (a) Imported part.

Lead time (1)

A lead time is the period of time between the initiation of any process of production
and the completion of that process. In industry, lead time reduction is an important
part of lean manufacturing.
A more conventional definition of lead time in the supply chain management realm
is the time from the moment the customer places an order to the moment it is
received by the customer. In the absence of finished goods or intermediate (work
in progress) inventory - it is the time it takes to actually manufacture the order
without any inventory other than raw material.
In the manufacturing environment, lead time has the same definition as that of
Supply Chain Management, but it includes the time required to ship the product to
the purchaser. The shipping time is included because the manufacturing company
needs to know when the parts will be available for material requirements planning.
It is also possible for lead time to include the time it takes for a company to
process and have the part ready for manufacturing once it has been received. The
time it takes a company to unload a product from a truck, inspect it, and move it
into storage is non-trivial. With tight manufacturing constraints or when a company
is using Just in Time manufacturing it is important for supply chain to know how
long their own internal processes take.
In project management lead time is the time it takes to complete a task or a set of
interdependent tasks. The lead of the entire project would be the overall duration
of the critical path for the project.
Lead time is also the saved time by starting an activity before its predecessor is
completed.

In this case study the LEAD TIME for importing the bend blades will be 30
days and the lead time for straight blades will be one day. This would result
in lower costs an inventory keeping, risk management for the straight
blades.
Safety stock (2)
Safety stock is a term used by inventory specialists to describe a level of extra
stock that is maintained below the cycle stock to buffer against stock outs. Safety
Stock (also called buffer stock) exists to counter uncertainties in supply and
demand. Safety stock is defined as extra units of inventory carried as protection
against possible stock outs (shortfall in raw material or packaging). By having an
adequate amount of safety stock on hand, a company can meet a sales demand
which exceeds the demand they forecasted without altering their production plan.
It is held when an organization cannot accurately predict demand and/or lead time
for the product. It serves as an insurance against stock outs.

With a new product, safety stock can be utilized as a strategic tool until the
company can judge how accurate their forecast is after the first few years,
especially when used with a material requirements planning worksheet. The less
accurate the forecast, the more safety stock is required. With material
requirements planning (MRP) worksheet a company can judge how much they will
need to produce to meet their forecasted sales demand without relying on safety
stock. However, a common strategy is to try and reduce the level of safety stock to
help keep inventory costs low once the product demand becomes more
predictable. This can be extremely important for companies with a smaller
financial cushion or those trying to run on lean manufacturing, which is aimed
towards eliminating waste throughout the production process.
The amount of safety stock an organization chooses to keep on hand can
dramatically affect their business. Too much safety stock can result in high holding
costs of inventory. In addition, products which are stored for too long a time can
spoil, expire, or break during the warehousing process. Too little safety stock can
result in lost sales and, thus, a higher rate of customer turnover. As a result,
finding the right balance between too much and too little safety stock is essential.

The safety stock on the bent blades in this case study will be a minimum of
what are being the projected sales for one month’s production in order to
counter any delays in shipping and importing. It can be assumed that the
production forecasts could be four times the 6 day production period thus
the safety stock n the bent blades will be 4 * 600k units = 2.4 million units.
This directly influences costs in warehousing, capital employed to fund this
exercise as opposed to the straight blades which could be available with a
proper JIT agreement with a trusted supplier locally.

The Law of Demand

The law of demand states that, if all other factors remain equal, the higher the price
of a good, the less people will demand that good. In other words, the higher the
price, the lower the quantity demanded. The amount of a good that buyers
purchase at a higher price is less because as the price of a good goes up, so does
the opportunity cost of buying that good. As a result, people will naturally avoid
buying a product that will force them to forgo the consumption of something else
they value more. The chart below shows that the curve is a downward slope.

A, B and C are points on the demand curve. Each point on the curve reflects a
direct correlation between quantities demanded (Q) and price (P). So, at point A,
the quantity demanded will be Q1 and the price will be P1, and so on. The demand
relationship curve illustrates the negative relationship between price and quantity
demanded. The higher the price of a good the lower the quantity demanded (A),
and the lower the price, the more the good will be in demand (C).

Demand source in the case study is the actual order placed by the customer.
This activates the MRP process.
Transport (5)
Transport or transportation is the movement of people and goods from one
location to another. Modes of transport include air, rail, road, water, cable,
pipeline, and space. The field can be divided into infrastructure, vehicles, and
operations.
Transport infrastructure consists of the fixed installations necessary for transport,
and may be roads, railways, airways, waterways, canals and pipelines, and
terminals such as airports, railway stations, bus stations, warehouses, trucking
terminals, refueling depots (including fueling docks and fuel stations), and
seaports. Terminals may be used both for interchange of passengers and cargo
and for maintenance.
Operations deal with the way the vehicles are operated, and the procedures set
for this purpose including financing, legalities and policies. In the transport
industry, operations and ownership of infrastructure can be either public or private,
depending on the country and mode.
Freight transport has become focused on containerization, although bulk transport
is used for large volumes of durable items. Transport plays an important part in
economic growth and globalization, but most types cause air pollution and use
large amounts of land. While it is heavily subsidized by governments, good
planning of transport is essential to make traffic flow, and restrain urban sprawl.

The transport mode for the imported bent lades will be containers and an
intermodal type of delivery will be used as delivery takes place via sea and
road transport. The JIT agreement with the straight blade supplier would
include an agreement to have the blades delivered by the supplier resulting
in lower direct logistics costs.
Insurance. (3)
In law and economics, insurance is a form of risk management primarily used to
hedge against the risk of a contingent, uncertain loss. Insurance is defined as the
equitable transfer of the risk of a loss, from one entity to another, in exchange for
payment. An insurer is a company selling the insurance; an insured or policyholder
is the person or entity buying the insurance policy. The insurance rate is a factor
used to determine the amount to be charged for a certain amount of insurance
coverage, called the premium. Risk management, the practice of appraising and
controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate (indemnify) the insured in the case of a large, possibly
devastating loss. The insured receives a contract called the insurance policy which
details the conditions and circumstances under which the insured will be
compensated.
Insurance for importing the bent blades will cover non delivery, loss at sea
or in road accident and theft. Any or all these factors can result in no
delivery, loss of income and customer dissatisfaction which could result in
loosing competitive advantages. The insurance costs are also an added cost
to producing the scissors, and results in higher unit costs.

Insurance for the straight blades would be substantially less as it carries a

much lower risk than the bent blades due to the availability locally and the
resultant influence on inventory keeping.

Storage (4)
 Warehouse, a commercial building for storage of goods

• Self storage in the case for the locally supplied straight blades, with
the possibility of the supplier taking the burden for storing his blades
himself with a JIT agreement in place, reducing the need for storage
even more – another cost saving effect.
• Dry cask storage, storing high-level radioactive waste

• Food storage
• Intermodal container, cargo shipping in the case study with importing
the bent blades resulting in high storage and handling costs and the
effect of added risk.
• Storage tank
• use lower shelves for heavy things

• Storage (memory), a psychological and physiological process

• Data storage device, computer hardware
• Computer data storage, a computer process and result

• Specific storage of an aquifer

What is Safety Stock?

Safety stock as the name suggests is the stock level till which the dead stock or
stock out situation will not arise (probable figure based on past data maintained in
master).
As such this figure is not stock, it is cut-off figure maintained in master which is
used for Planning and once the stock level dips below this value, you can
configure system to generate PR, orders automatically. It has its relevance in MRP
and CBP.

Safety Stock is the quantity of stock held to satisfy unexpectedly high

requirements in the stocking-up period.
The purpose of the safety stock is to prevent a material shortage from occurring.
In order to determine the safety stock level, you must first specify the risk of a
material shortage and also the desired service level.
Usually the safety stock will not be used in production.

The purpose of the safety stock is to prevent a material shortage from occurring.
In order to determine the safety stock level, you must first specify the risk of a
material shortage and also the desired service level.
The safety stock depends on the service level that you specified in the MRP
2 view of the material master record and on the accuracy of the forecast. The
more accurate the forecast, the smaller your safety stock can be.
You can specify a minimum safety stock. If the result of the safety stock
calculation is lower than this limit, the safety stock is then automatically set to this
minimum value. You enter the minimum safety stock in the material master record
(MRP 2 screen).
7. Conclusion
8. Bibliography

1. http://en.wikipedia.org/wiki/Lead_time assessed 9-8-2010

2. http://en.wikipedia.org/wiki/Safety_stock assessed 9-8-2010
3. http://en.wikipedia.org/wiki/Insurance assessed 9-8-2010
4. http://en.wikipedia.org/wiki/Storage assessed 9-8-2010
5. http://en.wikipedia.org/wiki/Transport assessed 9-8-2010