Inventory and resource planning
This is a chapter on inventory management and resource planning. All the materials and products in the supply chain represent inventory investment; all the products waiting in warehouses are inventory items; all the goods on the shelves in a retail store are inventory items. Therefore, it makes sense to have a good understanding of the strategic role inventory takes in organisations and some of the tools and techniques for managing inventory investments.
The opening perspective features the Fonterra Co-operative Group, a New Zealand-based co-operative, and one of the world’s largest producers of dairy nutrition for export.
Many businesses invest thousands, if not millions, of dollars implementing planning systems, but few of these systems are successful. Many organisations have tried material requirements planning systems over the past 50 years, but the design breaks down when implementing them in a demand-pull environment. This chapter introduces demand driven material requirements planning as a forward-looking concept for managing supply chain inventories.
The current chapter discusses the fixed reorder quantity model and the fixed reorder cycle model with worked examples to illustrate the newsvendor problem. The chapter describes the actual process for sales and operations planning and the hierarchical flow-on to master production scheduling, material requirements planning, and throughput planning.
The chapter closes by examining the theory of constraints, which throws a different light on inventory, inventory investment, and production scheduling.