EBQ processing determines the cost

[hisrik]

Hi,

Our MRP system is set the way that the EBQ defines the cost of the part. But since we do not have an annual demand...(we do not have standard orders for manufacturing) can anybody suggest a way to use EBQ?


Mechanical Engineer

 

[griffengm]

EBQ? Economic break-even quantity?

Griffy

 

[BillPSU]

Do you mean EOQ, economic order quantity?

 

[hisrik]

I mean Economic Batch quantity..for production

Mechanical Engineer

 

[BillPSU]

MRP systems are planning systems and are not the cost setting mechanism in any plant I've worked. The BOM and labor standards are the cost setting mechanism.

In today's lean thinking world the goal is to have the batch quantity equal one. This is not to say all batches equal one but to force setup times between jobs to be reduced to as low as possible.

Batch quantities may also be based on other criteria than setup time. One piece of raw material such as one length of barstock makes 10 parts. Instead of storing a partial bar the batch quantity will equal one complete piece of raw material.

The real problem of EOQ or as you call it EBQ is the over-production of parts which you may not ever use.

 

[Drazen]

It seems you are manufacturing spare parts so you cannot use typical planning close to just-in-time when you have known customer or on the other hand marketing-based planning?

I know about use of what EBQ just for that, spare parts, because in that case you can use some statistic and models to predict demand, but only decision that you make in agreggate planning is just that, which EBQ to use; it is the reason why it is set as a variable in some calculating systems.

 

[griffengm]

hisrik,
Economic order/batch/lot sizing assumes that you have some yardstick to measure against. It may be competitive pricing, process cost goals or process comparison. It can be used to compare costs to market information but is irrelevant without the comparative factor.
Our mrp system allows the use of EOQ for generating order quantities but until the Great CFO/Beancounter issues a Rule for Comparison we will not use it.

Griffy