Production Planning and Inventory Control
Candidates must master demand forecasting, aggregate planning, master scheduling, MRP, and inventory models. Forecasting: moving averages, exponential smoothing (F = α·actual + (1−α)·previous forecast), and measures of error (MAD, MSE, MAPE); higher α makes the forecast more responsive and more volatile. Aggregate planning strategies include chase, level, and mixed; know the cost tradeoffs.
MRP logic is heavily tested: gross requirements, scheduled receipts, projected on-hand, net requirements, planned order receipts, and planned order releases offset by lead time. The lot-sizing rules (lot-for-lot, EOQ, fixed order quantity, periodic order quantity, Wagner-Whitin) change the planned orders. Traps: forgetting safety stock in the projected on-hand calculation; releasing orders late (must offset by lead time); and confusing independent demand (finished goods, forecast-driven) with dependent demand (components, MRP-driven).
Inventory models: EOQ = √(2DS/H), where D is annual demand, S is order/setup cost, and H is annual holding cost per unit. The reorder point with deterministic demand is ROP = d·L (demand rate × lead time); add safety stock z·σ_L for uncertainty. Total cost at EOQ equals ordering cost plus holding cost, which are equal at the optimum. The production order quantity (EPQ) model uses √(2DS / (H(1 − d/p))). Know ABC classification (Pareto: A items are few but high value) and the costs of stockouts versus carrying.
Worked example
D = 10,000 units/yr, S = $50/order, H = $4/unit/yr. EOQ = √(2×10,000×50/4) = √250,000 = 500 units. Annual ordering cost = (10,000/500)×50 = $1,000; holding cost = (500/2)×4 = $1,000; total = $2,000.