Production Planning and Inventory Control
Domain 4 tests material and capacity planning logic, inventory policies, and the assumptions behind lot-sizing and safety stock.
Planning logic
The MPS disaggregates the aggregate plan into end items. MRP explodes the BOM into gross requirements, subtracts scheduled receipts and projected on-hand, adds safety stock, and offsets net requirements by lead time to create planned order releases. Capacity must be checked with rough-cut capacity planning and CRP. EOQ = sqrt(2DS/H) balances order cost and holding cost under stable demand. Safety stock for demand variability is z × sigma × sqrt(lead time). ABC analysis focuses control on high annual usage value; cycle counting verifies inventory accuracy.
Worked example
Annual demand D = 10,000 units, order cost S = $50, holding cost H = $2 per unit per year. EOQ = sqrt(2×10,000×50/2) = 707 units. Total relevant cost at EOQ is sqrt(2DSH) = $1,414. If a supplier minimum is 1,000 units, ordering cost is 10×$50 = $500 and holding cost is (1,000/2)×$2 = $1,000, total $1,500. EOQ is still cheaper by $86, so the minimum should be negotiated or the cost accepted with a documented reason.
Traps that cost marks
Applying EOQ to lumpy demand; forgetting safety stock in net requirements; trusting MRP with inaccurate BOMs or lead times; treating planned orders as firm; ignoring capacity when releasing orders.