INVENTORY MANAGEMENT AND SCHEDULING

Inventory management and scheduling

Inventory management and scheduling

Introduction

Planning in logistical networks takes place on three hierarchical levels: strategic, tactical and operational (Shapiro, 1998). The planning at tactical level aims mainly at minimising the costs associated with the production and distribution of products under all sorts of constraints like available capacity, stock, personnel and finances, while there is a certain demand of customer service.

Discussion

In this paragraph all the historic planning systems will be described briefly, starting with statistical inventory control (SIC). After the description of Material Requirements Planning (MRP I), Manufacturing Resources Planning (MRP II), Distribution Resources Planning (DRP) and Enterprise Resources Planning (ERP), this paragraph will end with a short description of APS.

Statistical inventory control

SIC is static in nature and operates solely on the basis of a predicted forecast. This method of inventory management employs a number of mathematical techniques to control inventories, based on historical turnover data. This method of inventory management is easy to computerise.

Material Requirements Planning

The computerised data-processing techniques introduced in enterprises from 1950 made it possible to perform complex calculations and to process large amounts of data. In this period MRP I systems were developed. For the first time the factor ´time´ made its entry into inventory management. MRP I systems operate on the basic of the existence of so-called dependent demand that can be calculated from a requirement for a product with an independent, predictable demand and the factor time in controlling inventories.

MRP I comprises a number of information-science techniques to plan material acquisition (the inflow of the necessary raw and auxiliary materials and semi-manufactures) and the production process on the basis of an established production plan for end products. A production plan is determined on the basis of market and turnover expectations. The composition of each product in terms of components (raw materials, auxiliary materials and semi-manufactures) is known and set out in a bill of material.

Given an established production program for a specific period, the planner uses MRP I to calculate which components are required in what quantities and at what point in time, by examining the throughput time or delivery time of the component (scheduling).

Manufacturing Resources Planning

MRP II is an extension of MRP I, which assumes unlimited capacity. The extension to MRP II involved the calculation of the required capacity. On the basis of a required production program, MRP II calculates back from the delivery data to determine what capacity is required in what quantity and at what point in time in order to deliver the orders punctually. It is important to know at an early stage which capacity element in the process (machine, people, money, supplier, etc.) will constitute the bottleneck and when.

Distribution Resources Planning

A distribution network consists for the most part of several consecutive inventory points; for example the factory, a central distribution centre (DC) and national sales warehouses. In a distribution network, co-ordination of the various activities (sales forecast, orders, transport and inventories) is essential. The principles of MRP I/II (dependent demand and scheduling) are also used ...