Contrast the Significance of the Term Lead Time in the Traditional Eoq Context and in an Mrp System.

2729 Words Oct 13th, 2010 11 Pages
Question 1 - Contrast the significance of the term lead time in the traditional EOQ context and in an MRP system.
In the traditional context, lead time is fixed—either as a discrete time or as a probability distribution. Such lead time constancy or variation is outside of the inventory model. Lead time in an MRP system is assumed to be a variable. While specific lead times are stated for planning purposes, these times may be speeded up or delayed as conditions warrant. Indeed, it is this ability to detect needed changes in lead times, either by expediting or de-expediting, that many users cite as one of the most valuable features of MRP.
MRP has had some degree of success in environments where requirements are relatively certain and
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Raw materials must be kept as inventory stock. As they are used, stock must be replenished through reordering MRP fulfils 3 main functions: 1. MRP makes sure that dependent demand items are kept in stock. 2. MRP maintains the optimal level of inventory that is most cost effective for a company. 3. MRP us used to purchase new stock, deliver finished products, and plan the daily manufacturing processes.
MRP is effective due to it working backwards from a plan for producing finished products in order to develop the amount of raw materials that a company needs. How this works is MRP breaks down inventory requirements into separate stages. This helps to manage production and keep it flowing at an even level. It also helps to keep inventory costs to a minimum.

The drawback is that MRP systems can be expensive to implement and the costs can be quite high, offsetting the amount of money that a company could save in inventory costs. Larger companies that produce large volumes of finished products may find it beneficial but the same may not be true for smaller companies. Plus, for MRP to produce accurate results, you need to have accurate data. Information such as orders, bills, item numbers and records must be accurate or the results will be off.

To get results, you have to input information into the MRP system. There are 3 main sources of information for input: 1. Bill of sale for materials 2. A