Making decisions regarding the shaping of inventory levels in the supply sphere involves solving three interrelated problems:
– which physical goods should be subject to warehousing
– in what quantity should they be ordered to replenish inventory levels
– when should a commercial delivery order be placed to replenish inventory levels.
Solving the above problems leads to determining the level of inventory. In the case of the first one, a decision must be made whether stocks will be maintained for all types of assortments, or whether warehousing will be selective, i.e., it will apply only to selected goods. Formulating answers to the other two questions allows, as a result, to determine the level of inventory.
Discussed in the article titled “A brief review of classical inventory theory” by Stanisław Krzyżaniak, classical inventory control models answer the questions posed above and for a long time were used both at the input to the enterprise, i.e., in the supply phase, as well as at the output, i.e., in the distribution phase. In the 1960s, it was noticed in certain planning areas that statistical forecasting, on which classical inventory control models are based, only takes into account the problem of determining the demand for individual items, abstracting from the fact that each element of inventory is part of a specific set. In the case where each element is subject to forecasting and ordering in isolation from the others, the size of the stocks of these elements may not correspond to the needs resulting from the production of entire assemblies, and the total level of availability may be significantly lower than the level of availability of individual elements. The reason for this is the accumulation of forecast errors regarding groups of elements needed at one time to complete an assembly.
Material Requirements Planning
(Material Requirements Planning)
An alternative to statistical inventory control in the area of dependent demand is the Material Requirements Planning method, known by the acronym MRP, which allows for the precise determination of demand for a given raw material or part. In systems based on this method, only the demand for finished products, i.e., those directed to the market (output from the enterprise), is subject to forecasting. On the other hand, material needs, resulting from the necessity to produce the components of the finished product, are calculated directly based on the product structure, which serves to describe the product in detail to determine the relationships between individual elements and the demand at each level of the final product expansion. The above statement can be considered the first principle on which material requirements planning is based. The second, equally important, is the principle of time phasing, i.e., the distribution of data on inventory status over time. The demand for finished elements (finished products) is specified in the operational production plan and results from orders placed by customers, from cooperative orders, and also – as mentioned above – from forecasts.
The article comes from the magazine “Logistyka” 1/2003.