Leadtime errors in MRP: the lot-sizing effect

Abstract

‘Leadtime error’, the difference between the time actually used to manufacture an item and the planned leadtime used by MRP. is shown to play an important intermediary role in the MRP performance of dynamic lot-sizing rules. A simulation experiment was performed to measure the leadtime error effects of five lot-sizing rules: economic order quantity (EOQ): period order quantity (POQ); lot for lot (LFL); part period balancing (PPB); and the Silver and Meal heuristic (S&M). Some lot-sizing rules, which made inferior economic tradeoffs between the costs of inventory holding and ordering (such as LFL), were shown to induce tight leadtime error distributions and excellent overall performance, while others (notably POQ) were shown to result in larger errors and significantly poorer delivery performance. The experiment's computational results explain why the EOQ and POQ rules may not be appropriate for use with MRP. The best rules tested were PPB and S&M.