CHAPTER 11: MANUFACTURING & MATERIALS HANDLING

CHAPTER 11:      MANUFACTURING & MATERIALS HANDLING

INTRODUCTION

There is extensive literature available on a variety of inventory management practices, referred to as MRP I (materials requirement planning), MRP II (manufacturing resources planning), JIT (just-in-time), and the Japanese concept called Kanban. Although these are related to production scheduling, only two of them (MRP I and externally oriented JIT) are true concerns of logistics managers.

KANBAN

·         An internal production control technique for minimizing the capital invested in in-process parts inventories

·         Prevent accumulation of components that are defective

·         Reflects the deep concern of Japanese management with quality control

·         The cost savings possible from minimizing rejects

·         Frequently termed JIT

·         Control by production manager

MATERIALS REQUIREMENTS PLANNING (MRP I)

·         The preparation of a master production schedule for some period into the future

·         The preparation of a bill of materials for each item to be produced

·         The explosion of the units on the master production schedule into a component-by-component requirement schedule, in terms of both quantities and dates needed

·         The scheduling of component inventory replenishment according to necessary lead times and economic order, buying, or shipping quantities to conform with the requirement schedule rather than average demand over time

MANUFACTURING RESOURCES PLANNING (MRP II)

·         Embodies planning issues related plant capacity

·         Not the direct responsibility of the logistics manager

·         It involve the interest of logistics management when inputs on production materials availability are solicited to enable decisions concerning production materials

·         Decision regarding investment in added production facilities or reduction in plant capacity are normally made by corporate management

·         The resulting plant capacity will govern the decisions of the logistics manager concerning the materials provisioning required to support the projected production schedule

JUST-IN-TIME (JIT) SCHEDULING

·         The Japanese concept of externally oriented JIT is that shipments of materials for the production lines should arrive

·         The goal of JIT is to minimize inventories of production materials

·         Recently received a considerable amount of management attention and emphasis in the United States

QUANTITTIVE APPLICATIONS TO INVENTORY MANAGEMENT

·         The elementary methods used for analytical application to inventory management encompass considerations of cost optimization, essentiality, and confident based on predictability of demand patterns

·         The following are confidence based on predictability total inventory costs, economic order quantities, and inventory levels for consumable and reparable components

TOTAL INVENTORY COST

·          Inventory-level decisions would be relatively simple if users organized their requirements so that an equal number of all items were needed each day and if the time required to schedule, produce, and transport replenishment stock were known and constant

·         The two major factors affecting the order quality of a product are the cost of placing an order and the cost of carrying inventory

·         The cost of placing an order or setting up a production run is assumed to be constant regardless of the size of order

ECONOMIC IMPLICATIONS OF INVENTORY

·         The economic focus on the inventory manager of a commercial enterprise is the costs of inventory and the profitability of the inventory policy

INVENTORY COSTS

·         The predominant elements of inventory costs are

1.       Order processing or production setup costs

2.       Investment costs

3.       Warehousing costs

4.       Inventory risk

5.       Stock-out costs

ORDER PLACEMENT OR SETUP COSTS

·         Order placement costs are generated at a distribution center and in thye plant purchasing activity

·         The equivalent type of cost in the production process is the cost of setting up a machine or a production line to produce an items

INVENTORY INVESTMENT

·         Investment in an inventory item include the purchase price

·         To this must be added any costs of transportation to distribution centers where other inventories may be located for subsequent shipment to customers

·         The most significant impact of inventory investment takes the form of opportunity costs

WAREHOUSING COSTS

·         Warehousing costs, or inventory holding cost, include storage (facilities) cots, property taxes, and insurance costs, but not the costs of moving goods into and out of  warehouse

·         Unless capacity limits are being reached, the incremental cost of storing more inventory may be very small

·         Once capacity limit reached, the incremental cost could markedly increase

INVENTORY RISK

·         Costs of spoilage, damage, obsolescence, and pilferage are difficult to analyze and vary significantly by type of product

·         Spoilage or damage can result in the total loss of a product

·         The reworking of defective products, or the reallocation of a product from one distribution point to another

·         Inventory losses from pilferage have two adverse effects

·         Represent a financial loss

·         The pilfered goods may continue to be carried in the inventory as phantom assets and noted as available for sale until the loss is discovered

STOCK-OUT COSTS

·         Cost easy to count

·         Hard stock-out costs that are comparatively easy to assess include the costs

·         It is not abnormal to find such costs amounting to double or triple the costs for processing of a routine stock order

·         The soft costs of stock-outs, which are seldom analyzed and nearly impossible to measure, are those of lost selling time and profit