MRP strategies: Effects on cash flow

As material requirements planning systems do not consider capacity limitations in their inherent logic, considerable effort must be spent to achieve feasible production plans. This simulation study examines the cash flow consequences of nine production planning strategies consisting of three master production scheduling methods and three component part scheduling methods. Experimentation examines different operational characteristics such as demand variability, cost of capital to hold inventories and setup cost to holding cost ratios. Evaluation criteria used are characterized by total cash flow and periodic variability of cash flow to support operating expenses for each planning strategy. Simulation results indicate that sophisticated methods for planning do not necessarily cause significant savings. A second finding is that a smoother master production schedule tends to result in more stable cash outflow patterns. In comparison, component scheduling efforts are found to have relatively insignificant consequences when compared to the effects of master production schedules.