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One of the important outputs of an MRP system is the material requirement plan. This plan shows the net requirements for materials or components to make the final product. Which of the following best describes the net material requirements?
The net requirements are worked out using the following equation:
Net requirements = Total requirements - Available inventory
Total requirements = Gross requirements
Available inventory = Inventory on-hand + Units on-order
In the other words: Net requirements = Gross requirements - Inventory on-hand - Units on-order
Inventory on-hand is also known as Inventory level, whereas Units on-order can be called Scheduled receipt.
The ABC approach involves classifying inventory items by unit cost, with expensive items classi-fied as ‘A' items and low cost items classified as ‘C' items. Is this statement true?
ABC analysis is an approach for classifying inventory items based on the items’ consumption val-ues. Consumption value is the total value of an item consumed over a specified time period, for example a year. The approach is based on the Pareto principle to help manage what matters and is applied in this context:
- A items are goods where annual consumption value is the highest. Applying the Pareto principle (also referred to as the 80/20 rule where 80 percent of the output is determined by 20 percent of the input), they comprise a relatively small number of items but have a relatively high consumption value. So it’s logical that analysis and control of this class is relatively intense, since there is the greatest potential to reduce costs or losses.
- B items are interclass items. Their consumption values are lower than A items but higher than C items. A key point of having this interclass group is to watch items close to A item and C item classes that would alter their stock management policies if they drift closer to class A or class C. Stock management is itself a cost. So there needs to be a balance between controls to protect the asset class and the value at risk of loss, or the cost of analysis and the potential value returned by reducing class costs. So, the scope of this class and the inventory management policies are determined by the estimated cost-benefit of class cost reduction, and loss control systems and processes.
- C items have the lowest consumption value. This class has a relatively high proportion of the total number of lines but with relatively low consumption values. Logically, it’s not usually cost-effective to deploy tight inventory controls, as the value at risk of significant loss is relatively low and the cost of analysis would typically yield relatively low returns.
LO 2, AC 2.1
Which of the following is the core idea of Lean manufacturing?
The core idea of lean manufacturing is actually quite simple…relentlessly work on eliminating waste from the manufacturing process. Waste is defined as any activity that does not add value from the customer’s perspective. According to research conducted by the Lean Enterprise Research Centre (LERC), fully 60% of production activities in a typical manufacturing operation are waste – they add no value at all for the customer.
On the other hand, agile manufacturing places an extremely strong focus on rapid response to the customer – turning speed and agility into a key competitive advantage.