Multi-Echelon Inventory System:
The models of inventory commonly discussed are pertaining to inventory located at one particular place only, whereas in practice it is distributed at several places. In an organization with many projects, there is the central store and a number of Multi-Echelon Inventory Systems. We have to take a holistic look at the inventory rather than an isolated look. The decisions to be taken are regarding the number of echelons, the number of storage points of each echelon, the location of central stores. Each storage location has to optimize the inventory and its redistribution. Slow moving but capital intensive items are located at central stores, rather than at projects. Complex mathematics is involved in the analysis of multi-echelon systems.
Materials Requirements Planning (MRP):
MRP is extensively being used since it lends itself to computerization. It is applicable in production situation having products with inverted tree like structure. The master production schedule of end product dictates the demands for parts and sub-assemblies. MRP inputs are:
1) Master Production Schedule
2) Bill of Materials
3) Inventory Status
MRP software computes component requirements and procurement schedules.
In short, it is a system of order scheduling for dependent demand situation.
This system anticipates the requirements of finished products, and based on this information and other inputs, generates statements.
1) Sub-assemblies and components
2) Raw materials necessary to make the finished products.
Essentially MRP is a push system, unlike just in time (JIT) which is a pull system. It is push in the sense that statements of requirements are in line with the delivery schedules and thus assemblies, components and raw materials get pushed into the process.
In other words, MRP is time bound material ordering system. The basic element of MRP is the independent / dependent demand. Independent pattern of demand is shown by finished products, component and sub assemblies to be sold as spares. This demand is calculated by using known orders / forecasts. This constitutes MPs. MRP takes advantage of the facet that demand for all sub-assemblies, components and raw materials are dependent upon the demand for finished products. Thus they show dependent demand. For these items a forecast is necessary. The details of Master Production are given here.
Master Production Schedule or plan (MPS)
MPS is a production plan to manufacture different products. It is an essential input to the Materials Requirement Planning (MRP) system. It gives the volumes of production period wise. MPS is a productive plan, unlike aggregate planning where products are not distinguished. MPS prepares product wise schedule which is consistent with aggregate planning. In a sense, it is a process of dis-aggregation planning.
MPS spells out the size and timing of producing orders for specific items, the sequencing of individual jobs, allocation of resources to individual activities and operation.
MPS is done by cut and fit methods or mathematical programming methods or heuristic methods.
JIT (Just in time) System of Inventory:
It is also called zero inventory operation. It is actually a philosophy which can be installed after eliminating all unwanted operations and waste. It is a continuous process. It seeks to eliminate raw material stock and finished stock. It has to adhere to other norms of manufacturing excellence like right time delivery every time, perfect quality and right implementation of plan. It pre-supposes complete co-operation between management and workers.
JIT cannot be maintained if quality components are not continuously made available. Rejection of sub-standard components or faulty production operation leads to disrupted production. It consequently leads to non-delivery of finished product.
In India, it is difficult to get specified materials at the right time and at the right place. There is a factor where ancillary industry feeds the parent industry. In absence of proper tooling and equipment, ancillaries face rejections at their level or at the buyer’s level. The internal and external suppliers are the key to success in JIT system. Quality and timely supply schedule are necessary for it. JIT has been successfully employed in Taiwan, Korea and Japan. On installing JIT, they have reduced inventory level of only 2 days in place of 8–12 weeks inventory levels. Overseas supplies in a country like India also impede the installations of JIT. JIT reduces inventory carrying costs. There is scope to implement JIT in integrated companies where there is no reliance on external sources.
JIT in our situation therefore can be installed if suppliers carry stocks for us, which make them participators in our JIT program. Perhaps this is easier said than done in our situation. Even a slight trend towards JIT will be big step forward.
Companies often mistake JIT for inventory elimination, missing delivery schedules and increasing machine idle time.