What are the aims of inventory management?
The aims of inventory management are the following: a) provide both internal and external customers with the required service levels in terms of quantity and order rate fill, b) ascertain present and future requirements for all types of inventory to avoid overstocking while avoiding ‘bottlenecks’ in production, c) keep cost to a minimum by variety reduction, economical lot sizes and analysis of costs incurred in obtaining and carrying inventories, and d) provide upstream and downstream inventory visibility in the supply chain.
What is MRP?
Material Requirements Planning or MRP is a computer – based inventory management system and a dependent demand technique that uses bill – of – material, inventory, expected receipts, and a master production schedule to determine material requirements. MRP systems have been installed almost commonly in manufacturing firms and also in other business field, even those considered small. The reason is that MRP is a logical, easily understandable approach to the problem of determining the number of parts, components, and materials needed to provide each end item or result. MRP also provides the schedule specifying when each of these materials, parts, and components should be ordered or produced.
Effective use of dependent inventory models requires that the operations manager know the following: a) Master Production Schedule - what is to be made and when, b) Specifications or bill of material - materials and parts required to make the product, c) Inventory availability - what is in stock, d) Purchase orders outstanding - what is on order, e) Lead times - how long it takes to get various components.
The following article is according to Robert Jacobs, author of the book Operations and Supply Management; The Core (2008):
What are the inputs to MRP?
MRP system creates schedules identifying the specific parts and materials required to produce end items, the exact numbers needed, and the dates when orders for these materials should be released and be received or completed within the production cycle. A Master Production Schedule (MPS) specifies what is to be made and when. This schedule must be in accordance with a production plan. The production plan sets the overall level of output in broad terms (for example, product families, or standard hours. The plan also includes a variety of inputs, including financial plans, customer demand, engineering capabilities, labor availability, inventory fluctuations, supplier performance, and other considerations.
The master production schedule tells us what is required to satisfy demand and meet the production plan. While the aggregate production plan (provides the basis for development of the detailed Master Production Schedule) is established in gross terms such as families of products or tons of steel, the MPS is established in terms of specific products.
To ensure good master scheduling, the master scheduler must: a)...