Inventory Management

Overview of Inventory Control Systems 1. Many inventory control systems are customized by or for individual companies. Nonetheless, most of these systems are based on one of a few basic approaches. For controlling the flow of raw materials and components into production facilities, common approaches include just in time (JIT), materials requirements planning (MRP), manufacturing resource planning (MRPII), and continuous review approaches such as the Economic Order Quantity (EOQ) Model. For managing the flow of manufactured products throughout the distribution channel, including replenishment of retail inventories, common approaches are distribution resource planning (DRP), EOQ, vendor managed inventory (VMI), quick response (QR), continuous replenishment (CR), efficient consumer response (ECR) and collaborative planning, forecasting, and replenishment (CPFR). JIT, MRP, MRPII, and DRP are introduced in Coyle, “Managing Inventory in the Supply Chain,” pp. 365-377. We will examine VMI, QR, ECR and CPFR in more detail through the readings and case studies for this course. 2. One important way to differentiate among inventory management methods is to distinguish between approaches for dependent-demand items and independentdemand items. A dependent-demand item is an item whose demand depends upon the demand for another item in inventory. The classic examples of dependent demand are materials and components whose demand is dependent upon the demand for a finished manufactured product. Examples would be frame materials, brakes, gears, and tires used in bicycles. The production schedule for the finished bicycle in essence “drives” the quantity and timing of demand for the materials and components. Once the production schedule for the finished product is set, then the demand for materials and components is known with a high degree of certainty, unless the production schedule is frequently modified. JIT, MRP and MRPII are appropriate for managing dependent-demand inventory....