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There are four important techniques of inventory management. These techniques include:
economic order quantity
materials requirement planning
manufacturing resource planning
just-in-time inventory planning
Two basic decisions that can help minimise inventory are:
how much raw material to order
when to order it from suppliers
The economic order quantity, is designed to minimise the sum of both ordering costs and of holding costs. Ordering costs are the costs associated with actually placing the order such as administrative paperwork, delivery, receiving, and inspection. Holding costs are those costs associated with keeping the items on hand such as storage, finance charges, and materials handling costs.
A more complicated inventory problem occurs with dependent demand inventory, The most common inventory control system used for handling dependent inventory is materials requirement planning (MRP).
MRP is dependent demand inventory planning and involves the implementation of a control system that schedules the exact amount of all materials required to support the desired end product. MRP is computer based and requires sophisticated calculations to coordinate information on inventory location, bills of materials (a listing of all components including partially assembled pieces and basic parts that make up an end product), purchasing, production planning, invoicing, and order entry specified in the master schedule.
Inventory levels are based on past consumption and are aimed at reducing inventory costs and keeping the production line supplied with the materials necessary to keep it running smoothly.
Manufacturing Resource Planning (MRP II) - a technique for managing inventory. It is a computer-based information system that integrates the production planning and control activities of basic MRP systems with related financial, accounting, personnel, engineering and marketing information.
Just-in-time (JIT) inventory planning is a system designed to reduce the level of an organisation's inventory to zero. Sometimes these systems are referred to as stockless systems or zero inventory systems.
JIT is called a demand-pull system because each workstation produces its product only when the next workstation says it is ready to receive more input. This is in contrast to the traditional batch-push system, in which parts are made in large, supposedly efficient batches and pushed to the next operation on a fixed schedule, where they sit until used.
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