Inventory Management , MRP, JIT and SCM

Prepared By,
Mr. Nishant Agrawal
Inventory Management
MRP, JIT and SCM

Inventory Management
 Inventory is stock in firm for future use
 In Manufacturing organization have inventories of raw materials,
components, tools and equipment etc.
 In Service organization such as banks, financial organization ,
hospitals. in hospital have inventories of medical equipment such as
glucose bottle etc.
 Inventory is maintained by organization to avoid stock out of item.
 Stock Out of any items results
 Loss of potential profit
 Loss of goodwill of customer

Continue…
 Low level of inventory and High level of inventory
 Inventory of an item should neither be high or low. It should just
optimal
How much size of order placed to suppliers?
When should order placed ?

Use of Inventory
1. Anticipation Inventory : to satisfied expected customer
2. Cycle Stock : Use EOQ , It will Min total cost of inventory
3. Safety or buffer stock : to avoid stock out
4. Inventory for Quantity discount / future price increases
5. Seasonal Inventory

Types of Costs
Costs
Ordering
Carrying
/
holding
•Ordering cost (OC) is cost of placing a single order.
•Carrying cost (CC) is cost of storing the inventory in the
warehouse.

Inventory Management System
 Dependent inventory is defined as the inventory of items that
are the components , parts, sub assemblies of Finished Goods.
 Independent demand inventory is defined as inventory of
finished goods .

 It is a planning technique which converts master production schedule
of end products into detailed schedule for raw materials and parts
used in those end products.
 MPS is the plan that a company has developed for production,
inventory, staffing, etc.
 MRP is a means for determining the number of parts, components,
and materials needed to produce a product
 MRP is a production planning, scheduling, and inventory control
system used to manage manufacturing processes.
Material Resource Planning (MRP)

 Inventory reduction:
Determines how many components are needed and when in order to
meet MASTER PRODUCTION SCHEDULE.
 Reduction in production and delivery lead times.
It helps to meet delivery deadlines by coordinating inventories,
procurement and production decision
 Realistic commitments
Improves customer satisfaction.
Objectives of MRP

 Based on actual customer orders and predicted demand.
 Indicates when each ordered item will be produced in coming weeks,
and in how much quantity.
 It is a plan specifying timing and quantity of production for each end
item.
 MPS inputs come from sales and marketing .
Master production schedule(MPS)

 A listing of all of the raw materials, parts, subassemblies, and
assemblies needed to produce one unit of a product .
 BOM Shows way a finished product or parent item is put together
from individual components.
Bill of Materials (BOM)

BOM example
A(2) B(1)
D(5)C(2)
X
C(3)

 Detailed information regarding the quantity of each item, available
in hand, on order to be released, for use in various time periods.
 MRP system using inventory master file is used to determine the
quantity of material available for use in a given period.
 If sufficient items not available , the system includes the item on the
planned order release report.
Inventory Status File

1. Work orders / Planned orders report
2. Order Release
3. Action Notices or Rescheduling Notices or order change
MRP outputs

Planned orders report
 It helpful in preparing for the funds required for payment to
suppliers in future according to dates and order size.
 Ex. January is current month and finance manager wants to see
what quantities of raw material purchases have to be made in
March.
Order Release Report
 It gives information about planned order to be released on presentr
date. It helps purchase managers to release purchase order (PO) to
suppliers.
 Authorization for the execution of planned orders.

Order change report
 Open order are those which have been placed in the past,
and supplier of items in preparing for supplier to be made in
the company.
 which orders are to be released, revised and canceled
during the current time period.

 Keep inventory levels to a minimum.
 Keeps track of inventory that is used.
 Tracks the amount of material that is required.
 Set safety stock levels for emergencies.
 Plan for future needs of raw materials or components.
Benefits

 Inaccurate information can result in mis-planning , overstock,
under-stock, or lack of appropriate resources.
 The inaccurate master schedule will provide wrong lengths of
time for production . Hence affecting planning.
 MRP systems can be costly and time-consuming to set up
Drawbacks

Just-in-time / Toyota Production System
 “ A production system to produce the kind of units needed, at the
time needed and in the quantities needed”
 “A Philosophy of manufacturing based on planned elimination of all
waste and continues improvement of productivity”
 JIT was originally developed by Toyota Motor company in Japan
 Producing quantity of units that is needed, no more, no less
 Producing them on the date and time required, not before not after

Concept of JIT
 Three fundamental concept of JIT
1. Elimination of waste and variability
2. Pull versus Pull system
3. Manufacturing cycle time

1. Elimination of waste and variability
 “Anything that does not add value” is described as waste in
production of G & S.
 Products being stored, inspected or delayed, products waiting in
queue and defective product do not add value hence they are 100%
waste
 JIT Speeds throughput (converted from raw materials into finished
goods) allowing faster delivery and reducing work in process.

2) Pull Vs Push system
 The pull inventory control system begins with a customer's order. With this
strategy, companies only make enough product to fulfil customer's orders.
 One advantage to the system is that there will be no excess of inventory that needs
to be stored, thus reducing inventory levels and the cost of carrying and storing
goods. Ex. JIT (The goal is to keep inventory levels to a minimum by only having
enough inventory, not more or less, to meet customer demand)
 The push system of inventory control involves forecasting inventory needs to meet
customer demand. Companies must predict which products customers will
purchase along with determining what quantity of goods will be purchased.
 The company will in turn produce enough product to meet the forecast demand and
sell, or push, the goods to the consumer. Ex. MRP (it combines the calculations for
financial, operations and logistics planning.)

3) Manufacturing cycle time
 It is time between the arrival of raw material and shipping
of finished products.
 JIT helps to reduce the manufacturing cycle time.

Overview of JIT Manufacturing
 Inventory reduction : JIT is system for reducing inventory levels at all
stages of production
 Quality Management: JIT provide procedure for improving both
quality within the firm
 Lead time reduction: With JIT, lead time components such as Set up
and move times are significantly reduced.
 Continuous Improvement: JIT system, existing problems are
corrected and new problem identifies

Characteristics of JIT
 JIT system focus on reducing inefficiency and unproductive time in
production process to improve continuously the process and quality.
1. Pull method of material flow
2. Constantly High Quality
3. Uniform Workstation Loads
4. Standardized components and work methods
5. Close Supplier Ties
6. Flexible workforce
7. Automated Production

Elements of JIT
1. Eliminating waste
2. Enforced Problem Solving
3. Continuous Improvement / Kaizen
4. Involvement of People
5. Total Quality Management

Benefits of JIT
 Lower Warehouse Costs (Storing excess inventory can cost a lot
of money)
 Better Customer Satisfaction (model can allow companies to
serve their customers faster and more efficiently)
 Reduce Waste
 Improved Supplier Relationships

Drawback of JIT
 A supplier that does not deliver goods to the company exactly on time
 An investment should be made in information technology to link the
computer systems of the company and its suppliers,
 A company may not be able to immediately meet the requirements of
a massive and unexpected order
 Risk of running out of stock
 More Planning required

Supply Chain Management
 The supply chain involved in the transformation of goods from the
raw material stage to the final stage, when the goods and services
reach the end customer.
 “Supply chain management involves planning, design and control of
flow of material, information and finance along the supply chain to
deliver superior value to the end customer in an effective and
efficient manner”
 Management of material, funds and information flows both in and
between facilities such as vendors, manufacturing and assembly
plants and distribution centers.

Supply Chain Stages
A typical supply chain may involve a variety of stages.
 These supply chain stages include: Customers, Retailers,
Wholesalers/distributors, Manufacturers, Raw material suppliers.
 Each stage in a supply chain is connected through the flow of products,
information, and funds. These flows often occur in both directions and may
be managed by one of the stages or an intermediary.
Supplier Manufacturer Distributor
RetailerCustomer

Overview of SCM
 Basic purpose of SCM iis to control inventory by managing the flow of
material.
 In manufacturing organisation, there is a inward flow of input material
such as raw materials. The rate of production depends on the demand
for finished goods.
 Managing flow of material is common to organization in every
segment of the economy: manufactures, wholesalers, retailers,
governments departments hospitals etc
 That’s why Supply chain management is becoming a key competitive
weapon.

Continue…
 A supply chain consists of all stages involved, directly or indirectly in fulfilling
a customer’s request.
 It not only include manufacturer and supplier but also transports,
warehouses, retails etc.
 Supply chain is dynamic (Active) and involve the constant flow of
information, product and funds between different stages.
 Each stage of the supply chain performs different processes and interact
with other stages of supply chain.
 Primary purpose of the existence of any supply chain is to satisfy customer
needs.
 Supply Chain activities begin with customer order and end when a satisfies
customer has paid for his purchase.

Objective of Supply Chain
 To maximize the overall value generated.
 To achieve maximum Supply Chain profitability.
 To reduce the supply chain cost to minimum possible level.
 Satisfy customer service requirements
 Face Global Competition

Kaizen
 Kaizen (改善), Japanese for "improvement“
 kaizen refers to activities that continuously improve all functions and
involve all employees from the CEO to the assembly line workers.
 By improving standardized activities and processes, kaizen aims to
eliminate waste
 Kaizen is a daily process, the purpose of which goes beyond simple
productivity improvement.
 The Toyota Production System is known for kaizen, where all line
personnel are expected to stop their moving production line in case of
any abnormality

Kanban
 Kanban (signboard) ( かんばん ) is a scheduling system
for lean(elimination of waste ) and just-in-time (JIT) production
 Kanban cards are a key component of kanban and they signal the
need to move materials within a production facility or to move
materials from an outside supplier into the production facility.
 In the last few years, systems sending kanban signals electronically
have become more widespread.
 In various software systems, kanban is used for signalling demand to
suppliers through email notifications.
 Electronic kanban help to eliminate common problems such as
manual entry errors and lost cards

Benefits of Kanban
 Highly visible systems
 Simple, effective, and inexpensive
 Reduces inventory and eliminates stock-outs
 Improves the quality of service
 Improves lead times

Lean manufacturing
 Lean manufacturing or lean production, is a systematic
method for the elimination of waste (Muda) within a
manufacturing system.
 Lean also takes into account waste created through
overburden ("Muri") and waste created through
unevenness in work loads ("Mura").
 Lean manufacturing is a management philosophy derived

Key Lean Manufacturing Techniques
5S
Kanban

5S
Strategy for creating a well organized, smoothly flowing
manufacturing process

Benefits of 5S
 Increases organization and efficiency
 Avoids wasted motion
 Increases safety
 Eliminates unnecessary inventory
 Offers improvements

Assignments
Que 1) What do you mean by JIT? Explain basic elements of JIT.
OR
 Explain the benefits of JIT with a schematic Diagram
OR
 Depict your understanding for “Just in Time” manufacturing system.
Que.2) Explain the MRP System in detail with inputs of MRP.
Que.3) What is supply chain management? How it is important for
organization?

"I don't know the key to
success,
but the key to failure is trying
to please everyone."

Inventory Management , MRP, JIT and SCM

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