2 Current Trends Material Requirements Planning (MRP) Finished good, independent demands, previous models are most appropriateDemand for raw materials, components + sub-assemblies is said to be dependent on finished goodsMRP is technique to manage dependent demand inventories- computer system using master production schedule for finished goods, bill of materials (assembly) and inventory records file
3 PRODUCTION Without MRP ROP SS WD ROP LT FinishedProductInv.levelROPSSComponentPartWDInv.levelROPLTOrder
4 Re-order Point Re-order point R is level of inventory when order is placedR = L x DWhere L is lead timeInventory position is stock on hand + size ofoutstanding orderIn reality:- demand fluctuates and lead timevaries so most organisations build a safetystock (S.S) into their inventory policyR=LxD+SS
5 Re-order Point Cont’dEOQ assumes stock should be ordered when it falls below re-order levelBuffer stock acts as a safety net in order to cushion the effects of variability in lead timeThe re-order point can be defined as the sum of demand during the lead time and buffer stockTherefore R=LxD+SS
7 Modern Methods of Inventory Management Just-In-TimeKanban SystemsFlexible Manufacturing Systems (FMS)Lean Inventory ControlAgile Inventory ControlVendor Managed Inventory (VMI)Time CompressionABC – Inventory Priority
8 Just-In-TimeTo produce the right units in the right quantity at the right timeInventories are minimised – just enough components produced to produce final product. Traditional inventory systems, including MRP, are referred to as PUSH systems – once a sub-component has been produced as a result of forecasted demand for finished goods they are ‘pushed up’ to the next level.
9 A JIT system is a PULL system. A sub-component is produced only on request from the work centre thatutilises the sub-component in assembly. Henceinventory is pulled through the system.Batch size:- in small – minimum safety stock. Thereforefailure in production process at some point can causeentire production process to shut down.- Use assemblies utilising that component run out ofinventory and have to stop- Assemblies that go into making the componenthave sufficient inventory build-up – not stopproduction
10 Effect of avoiding problems and solving them quickly The factory and its suppliers must be completely coordinatedSuppliers must make JIT deliveries – smaller deliveries to accommodate the manufacturers production schedulesImproved profile resulting from reduced inventory costImproved qualityPopular in Japan less so in the USA
11 KANBAN SystemsOrdering of inventory from one production level to the next is frequently done using a KANBAN system. Ticket based, originated in Japan, keeps track of flow of component through the factory. 1. Component produced in a small batch , attached to a production ordering KANBAN which is shipped to an intermediary storage location (store). 2. The assembly that needs the component collects it from store to a holding area. Production order KANBAN is removed and replaced by a withdrawal KANBAN.
12 KANBAN Systems (cont’d) When a component is removed from the holding area for use in production the withdrawal KANBAN is placed in a KANBAN port. When a sufficient number of these are reached another delivery to the holding store is initiated.When production ordering KANBAN reach a predetermined amount, production of the component is resumed.
13 Flexible Manufacturing Systems (FMS) Computer – controlled machine, capable of performingseveral different operations in the production process asoffered to traditional production line/assembly linewhere machine has dedicated function.Advantages:-Reduced WIP inventoryReduced manufacturing LTReduced labour costsReduced plant space requirementsIncreased machine utilisationIncreased range of products producedHowever, increased cost of sophisticated machines.
14 Modern Methods Lean Inventory Control (cont’d) Lean refers to waste elimination form of NVA (non value added) stock holding seen as waste (sat on rack in store)Lean inventory stresses smooth, uninterrupted flow of product through the warehouse and down supply chainNote:- lean suited to conditions where supply chain cost rank higher than customer satisfaction. Main priority lies with elimination of NVA activityUnlike agile which aims for flexibility by allowing necessary non value added (NNVA) activity to be present
15 Modern Methods Agile Inventory Control (cont’d) Agile INV. (control differs from lean in that it allows non value adding activity to be present in the system. If necessary in order to gain level of flexibility i.e. inventory could be stored if related to flexibility this is known as necessary non value adding (NNVA)Agile approach to management of inventory suited to customers satisfaction as the main priorityMarks and SpencerM & S classic example i.e. flexible inventory management approach of being able to react to large, fluctuating patterns suited to such an organisation
16 Modern Methods Vendor MGE. Inventory (cont’d VMI – An approach to inventory and order fulfilment whereby supplier, not customer is responsible for management and replenishing inventoryDecisions made with retailerSuppliers take over task of stock replenishment by tracking product sales/inventory levels at customerSend goods only when stocks at ROL lowSuppliers need to see stock levels at customers (often customer warehouse via EDI)
17 Modern Methods Time Compression (cont’d Time compression based on idea customer needs constantly changingCustomers do not accept their needs cannot be met responsive flexibility needed to quickly adapt to demand changesTime compression not easy to implement. Re-eng of supply chain req’dSupply Chain more responsive, via fewer inventories held throughout supply chain, therefore less inventory to manageReduced stock = reduced wasteMove closer to “make-to-order” scenario which release working capital. Pressure on efficient warehouse
18 Modern Methods ABC – Inventory Priority (cont’d ABC analysis with a warehouse used to manage inventory relative to usage Allows manager’s time to concentrate, control more significant items of stock Class A –20% high usage = 80% total usage value Class B – 30% med.usage = 10% total usage value Class C – 50% low usage = 10% total usage value ABC analysis useful to organisations who have a wide variety of products with various different levels of usage and volume. The approach allows a better coordinated approach to these items