Publications: Extending the Pareto Principle to MRP Controlled Parts and Regaining MRP Control

 

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 Click here to download:Extending the Pareto Principle to MRP Controlled Parts and Regaining MRP Control

 

Introduction

This article discusses the outcome of an extensive research project. The research focused on ‘B’ Class items, since ‘A’ Class items are often successfully controlled (eg using JIT) and ‘C’ class items using a two-bin system. ‘B’ Class items are usually controlled by MRP. The completion of the project has led to the development of a decision-aid that allows the prediction of eventual MRP System Performance by using the Pareto Principle and setting the MRP Parameters to suit this.

The article focuses on six main areas:


1) Problems with MRP

This section looks at the limitations of MRP, for example, frequent order rescheduling, unpredictable numbers of new orders and other limitations which result in erratic and unstable Inventory levels. The workload caused by and the inventory resulting from the set MRP parameters was not well understood by the majority of MRP users. This was also borne out by the fact that parameters were usually set during system implementation and then left.

2) Outcomes of the IBM/ACME Research Project

A description of a collaboration project is given where a method sets parameters on a more scientific level and the Pareto Principle is extended to MRP controlled parts. This method allowed MRP performance to be better managed. The research and method is described and examples of working results are discussed and how they have benefited at the IBM Havant Plant from this method.


3) IBM Havant Background

This section contains a description of the IBM Havant Plant, including Havant’s use of the Pareto Principle and a description of their other usage of MRP systems.


4) Inventory and Workload Reduction Principle

Here the article describes IBM’s approach to MRP controlled parts, including how top level decisions can have a huge impact on Inventory. JIT control is explained and how a reduction of inventory can be achieved by implementing the JIT principle. However, the increase in order frequency for the higher number of parts moved to JIT ordering, has to be offset. In this example the offset is achieved by the setting and management of more accurate MRP parameters on the ‘B’ Class parts, a reduction in the ordering frequency for these parts, and an increase in the amount of inventory held in this area. Since the value of these parts is low compared to the parts moved to JIT ordering, the balance remains very favourable and the overall inventory holding is reduced.


5) Ordering Methodology

This section details the main research findings. It gives a detailed description of the method used behind balancing workload and inventory by classification of the MRP parts. It gives research findings and results and how the method can be effectively used. It compares Pareto distributions and traditional ABC groups, strongly suggesting that 6 classes rather that the traditional 3 ABC classes brings great benefits. This section explains how to determine the optimum group sizes when using the classification system. Also, other areas of research, for example, more logical methods are described and the results of testing are explained.


The advantages and disadvantages of EOQ are outlined. Calculations and detailed equations are specified to assist with calculating the average inventory. An alternative to EOQ is suggested: ‘K’ Curve analysis. ‘K’ Curve analysis eliminates the need to determine absolute costs needed for EOQ. The exchange curve is explained, plotted and discussed and how management can take the findings on the plotted exchange curve and move forwards to reduce inventory.

 

 


6) Rescheduling Methodology

During this section, ‘dampening’ is discussed and explained in detail. It is also described when this logic is likely to be used. It is explained how the same effect achieved by dampening can also be achieved by filtering orders through a suitable database.


Results

This section details the results found during the project and implementation at the IBM Havant Plant. The exact reflection on business benefits can be seen in statistical evidence.
A simulation Model is discussed and how this has been developed as a PC based model. The benefits of this are listed.

Summary

Inventory reductions using JIT have invariably been shown for Pareto class ‘A’ parts where the additional ordering and delivery workloads are offset by the high value of these parts.
It is the middle ground where it is most often difficult to manage the inventory optimally. MRP users will know the problems of setting parameters that are accurate and current, and the high workload that can cause. The solution this paper discusses shows a simple and effective method of inventory management.

The paper was authored by Dr Geoff Relph, Sandeep Shah and Peter Burcher, and published in BPICS Control Journal, April/May 1990.
 

Publications

The First Steps to Inventory Management

This paper is the first in a set of three that all look at different options available to optimise inventory. This article looks at the basics of ABC control. IOM Control Journal, Vol. 28 - No. 10, December 2002/January 2003.

 


Professional Inventory Management

The main part of this paper focuses on the development of options available for managers to improve inventory performance and discusses inventory optimisation at aggregate and item level. IOM Control Journal, Vol. 29 - No. 05, July/August 2003.

 

 


Extending the Pareto Principle to MRP Controlled Parts and Regaining MRP Control

This article discusses the outcome of an extensive research project. The completion of the project has led to the development of a decision-aid that allows the prediction of eventual MRP System Performance by using the Pareto Principle and setting the MRP Parameters to suit this.
 






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