18th of May 2015

Operations Management For Competitive Advantage

Group 4

Azis Rizky Prawira 1406513344

Camelia Indah Murniwati 1406513376
Jejen Nugraha 1406589114
Muhammad Yuriansyah Putra 1406514100
Nasrul Nabil Sangadji 1406589303
 OUTLINE

 Company Background of A-CAT Corp.
 Problem Identification
 Theory of MRP
 Analysis
 Conclusion & Lesson Learned
 Company Background:
A-CAT Corp.

 Mid-sized manufacturer and distributor of domestic electrical
appliances.
 Operated two medium-sized facilities in Vidarbha region of
Maharashtra states of India.
 Focus on the rural segment (low-income customers).
 A-CAT’s manufacturing units had been in operation since 1986.
 Annual sales of Rs6,000,000 US$120,000.
 Had about 35 employees.
 Manufactured electrical appliances for household use:
television signal boosters, transformers, FM radio kits,
electronic ballasts, battery chargers, voltage regulators, etc.
 Problem Identification

 Sunita Menon was assigned the task of preparing
the operation plan for the next eight weeks for the
product P0110.
 The basic problem Menon Faced was deciding how
to produce economically.
 After collecting the data (Bill of Materials, Product
Structure Diagram, Master Schedule, On Hand
Inventory, Costs Associated), Menon reached a
different answer for every lot-sizing technique that
she applied.
 Theory of MRP

 MRP is a planning approach to material / material
that ignoring the past, but look to the demands or
needs of future production.
 MRP can be applied for planning materials / parts /
components or sub-assemblies that depend on the
product or inventory.
 MRP is a computerized information system is built
specifically to help manufacturers manage inventory
and schedule of reservations / reception material /
materials.
 MRP Input

Authorized Other
master production sources
schedule of demand

Engineering
Inventory Inventory MRP Bills of
and process
transactions records explosion materials
designs

Material
requirements
plan
 Information for MRP
 Bill of Materials (BOM) of all products for certain that consists of several
levels (level).
 Number parts / components are unique and permanent.
 The existence of Master Production Schedule (MPS) of production. The
final result contains the time and amount.
 The amount of material requirements / Notes Inventory (Inventory Record)
for each part / component products.
 Stock code number.
 Lead time for each part / component in an exact figure.
 The required amount equal to that of the production schedule.

BOM Sample
 Master Production Scheduling

Master production schedule (MPS): Total aggregate production for all types
of "family" seats
 Inventory Record

 Supply Notes : A record that shows an item’s lot-size policy,

lead time, and various time-phased data.
 Gross requirements : The total demand derived from all parent
production plans.
 Scheduled receipts are orders that have been placed but not yet
completed.
 projected on-hand inventory: An estimate of the amount of
inventory available each week after gross requirements have
been satisfied.
 planned receipts : Orders that are not yet released to the shop
or supplier.
 planned order releases : An indication of when an order for a
specified quantity of an item is to be issued.
 Lot Sizing in MRP Systems

Lot sizes – the part quantities issued in the planned order receipt and
planned order release sections of an MRP schedule.
 Analysis

 Based on the data (Bill of Materials, Product
Structure Diagram, Master Schedule, On Hand
Inventory, Costs Associated), Lot Sizes will be
determined by using Lot Sizing Strategies below:
1. Lot for Lot (L4L)
2. Economic Order Quantity (EOQ)
3. Least Total Cost (LTC)
4. Least Unit Cost (LUC)
 Bill of Material (BOM)

Level
0 (Quantity) (1) Independent
Demand

1 (2) (2)
Dependent
Demand
2 (4) (3)
Master Production Schedule
The End Item: P0110
On Hand Inventory
Cost
 1. Lot for Lot (L4L)

 Lot-for-Lot (L4L) is the most commont technique. It
 Sets planned orders to exactly match the net
requirements
 Produces exactly what is needed each week with no
inventory carroed over into future periods.
 Minimizes carrying cost.
 Does not take into account setup costs or capacity
limitations.
 Step 1: MRP Explosion Calculations

MRP Explosion Calculations Week

Item -4 -3 -2 -1 1 2 3 4 5 6 7 8
P0110 Gross requirement 400 350 300 450 300 450 225 525
Q L4L Scheduled receipts
LT 2 Projected available balance 240 240 240 240 0 0 0 0 0 0 0 0
OH 240 Net requirements 160 350 300 450 300 450 225 525
SS 0 Planned order receipts 160 350 300 450 300 450 225 525
Planned order release 160 350 300 450 300 450 225 525

MRP Explosion Calculations Week

Item -4 -3 -2 -1 1 2 3 4 5 6 7 8

POX Gross requirement 320 700 600 900 600 900 450 1050
Q L4L Scheduled receipts
LT 1 Projected available balance 500 500 180 0 0 0 0 0 0 0
OH 500 Net requirements 0 520 600 900 600 900 450 1050
SS 0 Planned order receipts 0 520 600 900 600 900 450 1050
Planned order release 0 520 600 900 600 900 450 1050
MRP Explosion Calculations Week
Item -4 -3 -2 -1 1 2 3 4 5 6 7 8

POY Gross requirement 320 700 600 900 600 900 450 1050
Q L4L Scheduled receipts
LT 1 Projected available balance 340 340 20 0 0 0 0 0 0 0
OH 340 Net requirements 0 680 600 900 600 900 450 1050
SS 0 Planned order receipts 0 680 600 900 600 900 450 1050
Planned order release 0 680 600 900 600 900 450 1050

MRP Explosion Calculations Week

Item -4 -3 -2 -1 1 2 3 4 5 6 7 8

P1X1 Gross requirement 2080 2400 3600 2400 3600 1800 4200
Q L4L Scheduled receipts
LT 1 Projected available balance 500 500 0 0 0 0 0 0 0
OH 500 Net requirements 1580 2400 3600 2400 3600 1800 4200
SS 0 Planned order receipts 1580 2400 3600 2400 3600 1800 4200
Planned order release 1580 2400 3600 2400 3600 1800 4200

MRP Explosion Calculations Week

Item -4 -3 -2 -1 1 2 3 4 5 6 7 8

P1X2 Gross requirement 1560 1800 2700 1800 2700 1350 3150
Q L4L Scheduled receipts
LT 1 Projected available balance 600 600 0 0 0 0 0 0 0
OH 600 Net requirements 960 1800 2700 1800 2700 1350 3150
SS 0 Planned order receipts 960 1800 2700 1800 2700 1350 3150
Planned order release 960 1800 2700 1800 2700 1350 3150
Step 2: Lot-for-Lot Run Size for an MRP Schedule
P0110
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
1 160 160 0 0 500 500
2 350 350 0 0 500 1000
3 300 300 0 0 500 1500
4 450 450 0 0 500 2000
5 300 300 0 0 500 2500
6 450 450 0 0 500 3000
7 225 225 0 0 500 3500
8 525 525 0 0 500 4000

P0X
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-1 520 520 0 0 400 400
1 600 600 0 0 400 800
2 900 900 0 0 400 1200
3 600 600 0 0 400 1600
4 900 900 0 0 400 2000
5 450 450 0 0 400 2400
6 1050 1050 0 0 400 2800

POY
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-1 680 680 0 0 350 350
1 600 600 0 0 350 700
2 900 900 0 0 350 1050
3 600 600 0 0 350 1400
4 900 900 0 0 350 1750
5 450 450 0 0 350 2100
6 1050 1050 0 0 350 2450
 P1X1
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-2 1580 1580 0 0 430 430
-1 2400 2400 0 0 430 860
1 3600 3600 0 0 430 1290
2 2400 2400 0 0 430 1720
3 3600 3600 0 0 430 2150
4 1800 1800 0 0 430 2580
5 4200 4200 0 0 430 3010

P1X2
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-2 960 960 0 0 400 400
-1 1800 1800 0 0 400 800
1 2700 2700 0 0 400 1200
2 1800 1800 0 0 400 1600
3 2700 2700 0 0 400 2000
4 1350 1350 0 0 400 2400
5 3150 3150 0 0 400 2800

Step 3: Total Cost Calculation for L4L

Item Cost
P0110 4,000
P0X 2,800
P0Y 2,450
P1X1 3,010
P1X2 2,800
Total Cost L4L 15,060
2. Economic Order Quantity (EOQ)

Economic order quantity (EOQ) is the order quantity that
minimizes total inventory holding costs and ordering costs. It is one
of the oldest classical production scheduling models.

Step 1: EOQ Calculations

D = Annual Demand
H = Annual Holding Cost
S = Setup Cost
 Step 2: MRP Explosion Calculations

Lv 0 (P0110) EOQ = 588

LT :2 -2 -1 1 2 3 4 5 6 7 8
Gross requirement 400 350 300 450 300 450 225 525 D= 17940
schedule receipts H= 52
projected on hand 240 S= 500
net requirements 160 350 300 450 300 450 225 525 2DS/H = 345000
Planned order receipts 588 588 588 588 588 EOQ = 588
Planned Ending Inventory 428 78 366 504 204 342 117 180
Planned order releases 588 588 588 588 588 Total Cost : 4719

Lv 1 (POX) EOQ = 1287

LT :1 -3 -2 -1 1 2 3 4 5 6 7 8
Gross requirement 1176 0 1176 1176 0 1176 0 1176 D= 34970
schedule receipts H= 16.9
projected on hand 500 S= 400
net requirements 676 1176 1176 1176 1176 2DS/H = 1655385
Planned order receipts 1287 1287 1287 1287 1287 EOQ = 1287
Planned Ending Inventory 611 722 833 944 1055
Planned order releases 1287 1287 1287 1287 1287 Total Cost : 3354

Lv 1 (POY) EOQ = 1665

LT :1 -3 -2 -1 1 2 3 4 5 6 7 8
Gross requirement 1176 0 1176 1176 0 1176 0 1176 D= 36010
schedule receipts H= 9.1
projected on hand 340 S= 350
net requirements 836 0 1176 1176 0 1176 0 1176 2DS/H = 2770000
Planned order receipts 1665 1665 1665 1665 EOQ = 1665
Planned Ending Inventory 829 1318 142 631 1120
Planned order releases 1665 1665 1665 1665 Total Cost : 2107
Lv 2 (P1X1) EOQ = 10418
LT :1 -4 -3 -2 -1 1 2 3 4 5 6 7 8
Gross requirement 5148 0 5148 5148 0 5148 0 5148 D= 164060
schedule receipts H= 1.3
projected on hand 500 S= 430
net requirements 4648 0 5148 5148 0 5148 0 5148 2DS/H = 108532000
Planned order receipts 10418 10418 10418 EOQ = 10418
Planned Ending Inventory 5770 622 5892 744 6014
Planned order releases 10418 10418 10418 Total Cost : 1766

Lv 2 (P1X2) EOQ = 4994

LT :1 -4 -3 -2 -1 1 2 3 4 5 6 7 8
Gross requirement 3861 0 3861 3861 0 3861 0 3861 D= 121582.5
schedule receipts H= 3.9
projected on hand 600 S= 400
net requirements 3261 0 3861 3861 0 3861 0 3861 2DS/H = 24940000
Planned order receipts 4994 4994 4994 4994 EOQ = 4994
Planned Ending Inventory 1733 2866 3999 138 1271
Planned order releases 4994 4994 4994 4994 Total Cost : 2351
Step 3: EOQ Run Size for an MRP Schedule
P0110
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
1 160 588 428 428 500 928
2 350 0 78 78 0 1006
3 300 588 366 366 500 1872
4 450 588 504 504 500 2876
5 300 0 204 204 0 3080
6 450 588 342 342 500 3922
7 225 0 117 117 0 4039
8 525 588 180 180 500 4719

P0X
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-2 676 1287 611 199 400 599
-1 0 0 0 0 0 599
1 1176 1287 722 235 400 1233
2 1176 1287 833 271 400 1904
3 0 0 0 0 0 1904
4 1176 1287 944 307 400 2611
5 0 0 0 0 0 2611
6 1176 1287 1055 343 400 3354

POY
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-2 836 1665 829 145 350 495
-1 0 0 0 0 0 495
1 1176 1665 1318 231 350 1076
2 1176 0 142 25 0 1101
3 0 0 0 0 0 1101
4 1176 1665 631 110 350 1561
5 0 0 0 0 0 1561
6 1176 1665 1120 196 350 2107
 P1X1
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-3 4648 10418 5770 144 430 574
-2 0 0 0 0 0 574
-1 5148 0 622 16 0 590
1 5148 10418 5892 147 430 1167
2 0 0 0 0 0 1167
3 5148 0 744 19 0 1186
4 0 0 0 0 0 1186
5 3861 10418 6014 150 430 1766

P1X2
Week Net Requirements Production Quantity Ending Inventory Holding Cost Setup Cost Total Cost
-3 3261 4994 1733 130 400 530
-2 0 0 0 0 0 530
-1 3861 4994 2866 215 400 1145
1 3861 4994 3999 300 400 1845
2 0 0 0 0 0 1845
3 3861 0 138 10 0 1855
4 0 0 0 0 0 1855
5 3861 4994 1271 95 400 2351

Step 4: Total Cost Calculation for EOQ

Total EOQ Cost
ITEM COST (In Rs)
P0110 4719
POX 3354
POY 2107
P1X1 1766
P1X2 2351
TOTAL 14296
 3. Least Total Cost (LTC)

Least Total Cost (LTC) is a dynamic lot-sizing technique that
calculates the order quantity by comparing the carrying cost and the
setup (or ordering) cost for various lot sizes and then selects the lot in
which these are most nearly equal.
Step 1
Week Quantity Ordered
1 160
Carrying Cost Setup Cost Total Cost Different
0 500 500 500
LTC
1-2 510 350 500 850 150
1-3 810 950 500 1450 450 Level 0
1-4
1-5
1260
1560
2300
3500
500
500
2800
4000
1800
3000
P0110
1-6 2010 5750 500 6250 5250
1-7 2235 7100 500 7600 6600 Item Inventory
1-8 2760 10775 500 11275 10275 P0110 240
POX 500
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different POY 340
3 300 0 500 500 500 P1X1 500
3-4 750 450 500 950 50 P1X2 600
3-5 1050 1050 500 1550 550
3-6 1500 2400 500 2900 1900
3-7 1725 3300 500 3800 2800 Week Net Requirement
3-8 2250 5925 500 6425 5425 1 400
2 350
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different 3 300
5 300 0 500 500 500 4 450
5-6 750 450 500 950 50 5 300
5-7 975 900 500 1400 400 6 450
5-8 1500 2475 500 2975 1975 7 225
8 525
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
7 225 0 500 500 500
7-8 750 525 500 1025 25 Item Cost/Unit Set Up Cost
P0110 200 500
Step 2 Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost
POX 65 400
1 160 510 350 350 500 850
2 350 0 0 0 0 850 POY 35 350
3 300 750 450 450 500 1800 P1X1 5 430
4 450 0 0 0 0 1800 PIX2 15 400
5 300 750 450 450 500 2750
6 450 0 0 0 0 2750
7 225 750 525 525 500 3775
8 525 0 0 0 0 3775
 Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
Step 1 1 520 0 400 400 400 LTC
1-2 520 0 400 400 400
1-3 2020 975 400 1375 575 Level 1
1-4 2020 975 400 1375 575
1-5 3520 2925 400 3325 2525 P0X
1-6 3520 2925 400 3325 2525
1-7 5020 5850 400 6250 5450
Item Inventory Qty
1-8 5020 5850 400 6250 5450
P0110 240 1
POX 500 2
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
POY 340 2
3 1500 0 400 400 400
P1X1 500 4
3-4 1500 0 400 400 400
3-5 3000 975 400 1375 575 P1X2 600 3
3-6 3000 975 400 1375 575
3-7 4500 2925 400 3325 2525 Week Net Requirement Tot. Req
3-8 4500 2925 400 3325 2525 1 510 1020
2 0 0
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different 3 750 1500
5 1500 0 400 400 400 4 0 0
5-6 1500 0 400 400 400 5 750 1500
5-7 3000 975 400 1375 575 6 0 0
5-8 3000 975 400 1375 575 7 750 1500
8 0 0
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
7 1500 0 400 400 400
7-8 1500 0 400 400 400 Item Cost/Unit Set Up Cost
P0110 200 500
Step 2 Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost POX 65 400
1 520 520 0 0 400 400 POY 35 350
2 0 0 0 0 0 400 P1X1 5 430
3 1500 1500 0 0 400 800 PIX2 15 400
4 0 0 0 0 0 800
5 1500 1500 0 0 400 1200
6 0 0 0 0 0 1200
7 1500 1500 0 0 400 1600
8 0 0 0 0 0 1600
 Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
Step 1 1 680 0 350 350 350
LTC
1-2 680 0 350 350 350
1-3 2180 525 350 875 175 Level 1
1-4 2180 525 350 875 175 P0Y
1-5 3680 1575 350 1925 1225
1-6 3680 1575 350 1925 1225
1-7 5180 3150 350 3500 2800 Item Inventory Qty
1-8 5180 3150 350 3500 2800 P0110 240 1
POX 500 2
POY 340 2
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
P1X1 500 4
5 1500 0 350 350 350
P1X2 600 3
5-6 1500 0 350 350 350
5-7 3000 525 350 875 175
Week Net Requirement Tot. Req
5-8 3000 525 350 875 175
1 510 1020
2 0 0
3 750 1500
4 0 0
5 750 1500
6 0 0
7 750 1500
8 0 0

Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost Item Cost/Unit Set Up Cost
1 680 2180 1500 263 350 613 P0110 200 500
2 0 0 1500 263 0 875 POX 65 400
Step 2 3 1500 0 0 0 0 875 POY 35 350
4 0 0 0 0 0 875 P1X1 5 430
5 1500 3000 1500 263 350 1487.5 PIX2 15 400
6 0 0 1500 263 0 1750
7 1500 0 0 0 0 1750
8 0 0 0 0 0 1750
Step 1 Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different LTC
1 1580 0 430 430 430
1-2 1580 0 430 430 430 Level 2
1-3
1-4
7580
7580
300
300
430
430
730
730
130
130
P1X1
1-5 13580 900 430 1330 470
1-6 13580 900 430 1330 470 Item Inventory Qty
1-7 19580 1800 430 2230 1370 P0110 240 1
1-8 19580 1800 430 2230 1370 POX 500 2
POY 340 2
P1X1 500 4
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
P1X2 600 3
5 6000 0 430 430 430
5-6 6000 0 430 430 430
5-7 12000 300 430 730 130 Week Net Requirement Tot. Req
5-8 12000 300 430 730 130 1 520 2080
2 0 0
3 1500 6000
4 0 0
5 1500 6000
6 0 0
7 1500 6000
8 0 0

Item Cost/Unit Set Up Cost

P0110 200 500
Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost
Step 2 1 1580 7580 6000 150 430 580
POX 65 400
POY 35 350
2 0 0 6000 150 0 730
P1X1 5 430
3 6000 0 0 0 0 730
PIX2 15 400
4 0 0 0 0 0 730
5 6000 12000 6000 150 430 1310
6 0 0 6000 150 0 1460
7 6000 0 0 0 0 1460
8 0 0 0 0 0 1460
Step 1 Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different LTC
1 960 0 400 400 400
1-2 960 0 400 400 400 Level 2
1-3 5460 675 400 1075 275 P1X2
1-4 5460 675 400 1075 275
1-5 9960 2025 400 2425 1625
Item Inventory Qty
1-6 9960 2025 400 2425 1625
P0110 240 1
1-7 14460 4050 400 4450 3650
POX 500 2
1-8 14460 4050 400 4450 3650
POY 340 2
P1X1 500 4
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Different
P1X2 600 3
5 4500 0 400 400 400
5-6 4500 0 400 400 400
Week Net Requirement Tot. Req
5-7 9000 675 400 1075 275
1 520 1560
5-8 9000 675 400 1075 275
2 0 0
3 1500 4500
4 0 0
5 1500 4500
6 0 0
7 1500 4500
8 0 0

Item Cost/Unit Set Up Cost

P0110 200 500
Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost
Step 2 1 960 5460 4500 338 400 738
POX 65 400
POY 35 350
2 0 0 4500 338 0 1075
P1X1 5 430
3 4500 0 0 0 0 1075
PIX2 15 400
4 0 0 0 0 0 1075
5 4500 9000 4500 338 400 1813
6 0 0 4500 338 0 2150
7 4500 0 0 0 0 2150
8 0 0 0 0 0 2150
Step 3: Total Cost Calculation for LTC

Item Cost
P0110 3,775
P0X 1,600
P0Y 1,750
P1X1 1,460
P1X2 2,150
Total Cost 10,735
 4. Least Unit Cost (LUC)

 Least unit cost method – a dynamic lot-sizing
technique that adds ordering and inventory carrying
cost for each trial lot size and divides by the number
of units in each lot size, picking the lot size with the
lowest unit cost.
Step 1 LUC
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
1 160 0 500 500 3.13 Level 0
P0110
1-2 510 350 500 850 1.67
1-3 810 950 500 1450 1.79
1-4 1260 2300 500 2800 2.22
1-5 1560 3500 500 4000 2.56
1-6 1200 5750 500 6250 5.21
1-7 2235 7100 500 7600 3.40
1-8 2760 10775 500 11275 4.09

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
3 300 0 500 500 1.7
3-4 750 450 500 950 1.3
3-5 1050 1050 500 1550 1.5
3-6 1500 2400 500 2900 1.9
3-7 1725 3300 500 3800 2.2
3-8 2250 5925 500 6425 2.9

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
5 300 0 500 500 1.7
5-6 750 450 500 950 1.3
5-7 975 900 500 1400 1.4
5-8 1500 2475 500 2975 2.0

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
7 225 0 500 500 2.2
7-8 750 525 500 1025 1.4

Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost

Step 2 1 160 510 350 350 500 850

2 350 0 0 0 0 850
3 300 750 450 450 500 1800
4 450 0 0 0 0 1800
5 300 750 450 450 500 2750
6 450 0 0 0 0 2750
7 225 750 525 525 500 3775
8 525 0 0 0 0 3775
Step 1 LUC
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
-1 0 0 0 0 0 Level 1
-1-0
-1-1
520
1120
0
195
400
400
400
595
0.77
0.53
P0X
-1-2 2020 780 400 1180 0.58
-1-3 2620 1365 400 1765 0.67
-1-4 3520 2535 400 2935 0.83
-1-5 3970 3266.25 400 3666.25 0.92
-1-6 5020 5313.75 400 5713.75 1.14

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
2 900 0 400 400 0.44
2-3 1500 195 400 595 0.40
2-4 2400 780 400 1180 0.49
2-5 2850 1218.75 400 1618.75 0.57
2-6 3900 2583.75 400 2983.75 0.77

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
4 900 0 400 400 0.44
4-5 1350 146.25 400 546.25 0.40
4-6 2400 828.75 400 1228.75 0.51

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
6 1050 0 400 400 0.38

Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost
-1 0 0 180 58.5 0 58.5
Step 2 0 520 1120 600 195 400 653.5
1 600 0 0 0 0 653.5
2 900 1500 600 195 400 1248.5
3 600 0 0 0 0 1248.5
4 900 1350 450 146.25 400 1794.75
5 450 0 0 0 0 1794.75
6 1050 1050 0 0 400 2194.75
 LUC
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
Step 1 -1 0 0 0 0 0
Level 1
-1-0 680 0 350 350 0.51
-1-1 1280 105 350 455 0.36 P0Y
-1-2 2180 420 350 770 0.35
-1-3 2780 735 350 1085 0.39
-1-4 3680 1365 350 1715 0.47
-1-5 4130 1758.75 350 2108.75 0.51
-1-6 5180 2861.25 350 3211.25 0.62

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
3 600 0 350 350 0.58
3-4 1500 157.5 350 507.5 0.338
3-5 1950 315 350 665 0.341
3-6 3000 866.25 350 1216.25 0.41

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
5 450 0 350 350 0.78
5-6 1500 183.75 350 533.75 0.36

Step 2 Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost
-1 0 0 20 3.5 0 3.5
0 680 2180 1500 262.5 350 616
1 600 0 900 157.5 0 773.5
2 900 0 0 0 0 773.5
3 600 1500 900 157.5 350 1281
4 900 0 0 0 0 1281
5 450 1500 1050 183.75 350 1814.75
6 1050 0 0 0 0 1814.75
 LUC
Step 1 Level 2
Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost P1X1
-1 780 0 430 430 0.55
-1-0 3580 70 430 500 0.14
-1-1 5980 190 430 620 0.10
-1-2 9580 460 430 890 0.093
-1-3 11980 700 430 1130 0.094
-1-4 15580 1150 430 1580 0.10
-1-5 17380 1420 430 1850 0.11
-1-6 21580 2155 430 2585 0.12

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
3 2400 0 430 430 0.18
3-4 3600 90 430 520 0.14
3-5 7800 180 430 610 0.078
3-6 11400 495 430 925 0.081

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
6 4200 0 430 430 0.10

Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost
Step 2 -1 780 9580 8800 220 430 220
0 2800 0 6000 150 0 370
1 2400 0 3600 90 0 460
2 3600 0 0 0 0 460
3 2400 7800 5400 135 430 1025
4 3600 0 1800 45 0 1070
5 1800 0 0 0 0 1070
6 4200 4200 0 0 430 1500
 LUC
Step 1 Level 2
Week
-1
Quantity Ordered
360
Carrying Cost
0
Setup Cost
400
Total Cost
400
Unit Cost
1.11
P1X2
-1-0 2460 157.5 400 557.5 0.23
-1-1 4260 427.5 400 827.5 0.19
-1-2 6960 1035 400 1435 0.21
-1-3 8760 1575 400 1975 0.23
-1-4 11460 2587.5 400 2987.5 0.26
-1-5 12810 3195 400 3595 0.28
-1-6 15960 4848.75 400 5248.75 0.33

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
2 2700 0 400 400 0.15
2-3 4500 135 400 535 0.12
2-4 7200 540 400 940 0.13
2-5 8550 843.75 400 1243.75 0.15
2-6 11700 1788.75 400 2188.75 0.19

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
4 2700 0 400 400 0.15
4-5 4050 101.25 400 501.25 0.12
4-6 7200 573.75 400 973.75 0.14

Week Quantity Ordered Carrying Cost Setup Cost Total Cost Unit Cost
6 3150 0 400 400 0.13
Week Net Requirement Prod. Qty Ending Inv. Holding Cost Setup Cost Total Cost
Step 2 -1 360 4260 3900 97.5 400 97.5
0 2100 0 1800 45 0 142.5
1 1800 0 0 0 0 142.5
2 2700 4500 1800 45 400 587.5
3 1800 0 0 0 0 587.5
4 2700 4050 1350 33.75 400 1021.25
5 1350 0 0 0 0 1021.25
6 3150 3150 0 0 400 1421.25
Step 3: Total Cost Calculation for LUC

Item Cost (Rs)

P0110 3,775
P0X 2,195
P0Y 1,815
P1X1 1,500
P1X2 1,421
TOTAL 10,706
 Conclusion

 Based on calculations, Total Cost for every lot-sizing
Method as follows
Lot-Sizing Method Total Cost (Rs)
Lot-for-Lot (L4L) 15,060
Economic Order Quantity (EOQ) 14,296
Least Total Cost (LTC) 10,735
Least Unit Cost (LUC) 10,706

 The lowest cost was obtained using the Least Unit Cost
Method of Rs10,706.
 Sunita Menon should choose the Least Unit Cost Method
as Lot Sizing Strategy at A-Cat Corp.
 Lesson Learned

 MRP system determines detailed schedules that show exactly what
is needed over time.
 MRP is most useful in industries where standard products are
made in batches from common components and parts.
 The system’s effectiveness depended on the inventory position and
policies, the bill of materials and the demand requirements for
finished goods and components.
 Lot sizes are the production (or purchasing quantities) that are
used by the MRP system. The simplest case is when the system
schedules exactly what is needed each period (known as lot-for-
lot), but when there are significant cost (set up cost & carrying cost)
lot-for-lot might not be the least costly method.
 The advantage of the least unit cost method is that it is more
complete analysis and would take into account ordering or setup
costs that might change as the order sizes increases.
 The lowest cost from the alternatives method of Lot Sizing can be a
consideration for Lot Sizing.
 References

 Jacobs, F. Robert, and Richard B. Chase. Operations
and Supply Chain Management. 14th. Global Ed.
New York: McGraw-Hill Companies Inc. 2014.
 Material Requirements Planning at A-Cat Corp.
2012. Richard Ivey School of Business Foundation.