LOVELYPROFESSIONAL UNIVERSITY

Course code: MEC441

Course Title: Industrial Engineering
Test: CA2
Section: M1881
QUESTIONS
Q1. Explain different terms- Independent demand, Inventory status file, Lead time.
[10]
Q2. Explain MRP and output to MRP. [10]
Q3. Explain Forecasting & different forecasting methods. [10]

Name: G .SIVA NARASIMHA RAO

Section: M1881
Registration No: 11807863
Roll No: A10
Subject: INDUSTRIAL ENGINEERING
Course Code: MEC-441
 Answer:
1A)
Independent Demand:
In terms of the Demand Characteristics, there are two types of demand: a
demand occurs individually, and a demand is required depending on
another demand.
The Independent Demand occurs by the request of customers for
products, kit products, service parts. This demand also individually and
independently happens for each item, and has no relationship with other
items. Thus, it is used as it is to setup the production plan. In addition,
the item to be independently demanded is called Independent Demand
Item, which is usually used for production planning and is not used for
MRP.

Inventory status file line:

Inventory status file keeps an up-to-date record of each item in the
inventory. Information such as, item identification number, quantity on
hand, safety stock level, quantity already allocated and the procurement
lead time of each item is recorded in this file.
An inventory file is a document containing listings, usually electronic, of
every item in a company’s inventory, including items in stock or
expected to be in stock shortly. Items are listed and identified by
categories, and are put in a particular inventory group depending on item
attributes.
The common classifications of inventory include: currently in stock,
temporarily out of stock but on order, temporarily out of stock and not
yet on order, out of manufacture from suppliers, or available on special
order. Items are not listed in the inventory file if they not yet available,
and items permanently out of make are no longer carried on the file.
Lead time:
The lead time is the delay applicable for inventory control purposes.
This delay is typically the sum of the supply delay, that is, the time it
takes a supplier to deliver the goods once an order is placed, and the
reordering delay, which is the time until an ordering opportunity arises
again.
This lead time is usually computed in days.
By comparing results against established benchmarks, they can
determine where inefficiencies exist. Reducing lead time can streamline
operations and improve productivity, increasing output and revenue. By
contrast, longer lead times negatively affect sales and manufacturing
processes.

Supply Delay:
In most businesses, inventory cannot be instantly replenished by a
supplier. Hence, in order to guarantee that the frequency of stock-outs
remains sufficiently low, the demand planner needs to anticipate how
much inventory will be consumed between now and the next
replenishment, assuming that an order is made right away. Indeed, while
goods are in transit, inventory will gradually get depleted.

Reordering Delay:
A common mistake found in lead time calculation is to omit the reorder
delay. Indeed, if a shipment takes 3 days to be delivered from a supplier,
but reordering from the same supplier is only carried out once a week,
the inventory ordered on Monday 1st of any month is not just supposed
to last until Thursday 4th (3 days ahead), but until Thursday 11th (10
days later - 7 days of reordering delay + 3 days of supply delay).
2A)

Material Requirement Planning (MRP):

Computer-based information system for ordering and scheduling of
dependent-demand inventories, i.e. what is needed, how much is needed,
and when is it needed.

 Dependent demand – Demand for items that are sub-assemblies,

parts or raw materials to be used in the production of finished goods.
 Independent demand – finished products.

MRP Inputs:

 Master Production Schedule (MPS) – States which end items are to

be produced, when they are needed, and in what quantities.
 Bill of Materials (BOM) – a listing of all of the raw materials, parts,
and sub-assemblies needed to produce one unit of a product.
 Inventory Records – includes information on the status of an item
during the planning horizon, e.g. quantity, supplier, order lead time,
lot size.

MRP Planning:

Processes the following for each time period:

 Gross requirements

 Schedule receipts
 Projected on hand
 Net requirements
 Planned-order receipts
 Planned-order releases

MRP Outputs:

Primary Reports

 Planned Orders – schedule indicating the amount and timing of

future orders.
 Order Releases – Authorization for the execution of planned orders.
 Changes – revisions of due dates or order quantities, or cancellation
of orders.

Secondary Reports

 Performance-control reports – Evaluation of system operation,

including deviations from plans and cost information.
 Planning reports – Data useful for assessing future material
requirements.
 Exception Reports – Data on major discrepancies encountered.

Benefits of MRP:

 Low levels of inventories and reduction in manufacturing lead time.

 Ability to track material requirements hence reducing shortages.
 Ability to evaluate capacity requirements.
 Means of allocating production time

3A)
Forecasting:
Forecasting is a technique that uses historical data as inputs to make
informed estimates that are predictive in determining the direction of
future trends. Businesses utilize forecasting to determine how to allocate
their budjects or plan for anticipated expenses for an upcoming period of
time. This is typically based on the projected demandfor the goods and
services offered.

Different methods of forecasting:

Qualitative and Quantitative Forecasting Methods:

Whereas personal opinions are the basis of qualitative forecasting

methods, quantitative methods rely on past numerical data to predict the
future. The Delphi method, informed opinions and the historical
lifecycle analogy are qualitative forecasting methods. In turn, the simple
exponential smoothing, multiplicative seasonal indexes, simple and
weighted moving averages are quantitative forecasting methods.

Casual Forecasting Methods:

Regression analysis and autoregressive moving average with exogenous
inputs are causal forecasting methods that predict a variable using
underlying factors. These methods assume that a mathematical function
using known current variables can be used to forecast the future value of
a variable. For example, using the factor of ticket sales, you might
predict the variable sale of movie-related action figures, or you might
use the factor number of football games won by a university team to
predict the variable sale of team-related merchandise.

Naive Forecasting Methods:

The naïve forecasting methods base a projection for a future period on

data recorded for a past period. For example, a naïve forecast might be
equal to a prior period’s actuals, or the average of the actuals for certain
prior periods. Naïve forecasting makes no adjustments to past periods
for seasonal variations or cyclical trends to best estimate a future
period’s forecast. The user of any naïve forecasting method is not
concerned with causal factors, those factors that result in a change in
actuals. For this reason, the naive forecasting method is typically used to
create a forecast to check the results of more sophisticated forecasting
methods.

Judgmental Forecasting Methods:

The Delphi method, scenario building, statistical surveys and composite

forecasts each are judgmental forecasting methods based on intuition
and subjective estimates. The methods produce a prediction based on a
collection of opinions made by managers and panels of experts or
represented in a survey.

Business Barometers Method:

This is also called Index Number Method. Just as Barometer is used to

measure the atmospheric pressure similarly in business Index numbers
are used to measure the state of economy between two or more periods.
When used in conjunction with one another or combined with one or
more index numbers, provide an indication of the direction in which the
economy is heading.

Extrapolation Method:

Extrapolation method is based Time series, because it believes that the

behaviour of the series in the past will continue in future also and on this
basis future is predicted. This method slightly differs from trend analysis
method. Under it, effects of various components of the time series are
not separated, but are taken in their totality. It assumes that the effect of
these factors is of a constant and stable pattern and would also continue
to be so in future.

Regression Analysis Method:

In this method two or more inter-related series are used to disclose the
relationship between the two variables. A number of variables affect a
business phenomenon simultaneously in economic and business
situation. This analysis helps in isolating the effects of various factors to
a great extent.
For example- there is a positive relationship between sales expenditure
and sales profit. It is possible here to estimate sales on the basis of
expenditure on sales (independent variable) and also profits on the basis
of projected sales, provided other things remain the same.
Trend Analysis Method:

This is also known as ‘Time Series Analysis’. This analysis involves

trend, seasonal variations, cyclical variations and irregular or random
variations. This technique is used when data are available for a long
period of time and the trend is clearly visible and stable. It is based on
the assumption that past trend will continue in future. This is considered
valid for short term projection. In this different formula are used to fit
the trend.

Economic Input Output Model Method:

This is also known as “End Use Technique.” The technique is based on

the hypothesis of various sectors of the economy industry which are
inter-related. Such inter-relationship is known as coefficient in
mathematical terms. For example—Cement requirements of a country
may be well predicted on the basis of its rate of usage by various sectors
of economy, say industry, etc. and by adjusting this rate on the basis of
how the various sectors behave in future.
As the data required for this purpose are easily available this technique
is used in forecasting business units.

Time Series Forecasting Methods:

The time series type of forecasting methods, such as exponential

smoothing, moving average and trend analysis, employ historical data to
estimate future outcomes. A time series is a group of data that’s
recorded over a specified period, such as a company’s sales by quarter
since the year 2000 or the annual production of Coca Cola since 1975.
Because past patterns often repeat in the future, you can use a time
series to make a long-term forecast for 5, 10 or 20 years. Long term
projections are used for a number of purposes, such as allowing a
company’s purchasing, manufacturing, sales and finance departments to
plan for new plants, new products or new production lines.