| | | | | requirements for a particular part, it will not be |
| The difference between a | | | | replenished, even though the inventory level is low. |
| requirements philosophy and a replenishment | | | | This concept is important in manufacturing because |
| philosophy of inventory management can be | | | | demand for component parts is lumpy. When a lot is |
| discussed in terms of purpose, criteria of choice, | | | | scheduled, the component parts are needed for that |
| elements involved and their application. A crucial | | | | lot, but demand is then zero until another lot is |
| distinction in inventory management is whether | | | | scheduled. If order point system according to the |
| demand is independent or dependant. Independent | | | | replenishment philosophy are used for this type of |
| demand is exerted by externally imposed market | | | | lump demand pattern, material will be carried on hand |
| vacillations which are outside the control of internal | | | | during long periods of zero demand leading to |
| operations. Retail and whole sale finished goods | | | | problems related to storage (space abused) , quality |
| inventories; spare parts in manufacturing companies, | | | | (threat of expiry), price (profit loss in case of a price |
| service industry inventory are usually independent of | | | | reduction in open market) and many more. |
| operations. Dependant demand is related to the | | | | |
| demand of another item which is not independently | | | | With regard to forecasting, the |
| determined by the market. When products are built | | | | future demand is forecast in order point systems on |
| up from parts and assemblies, the demand for these | | | | the basis of past history of demand. These forecasts |
| components is dependant on the demand for the | | | | are used to replenish the stock levels. Various |
| final product. For instance, the demand for tires of a | | | | forecasting techniques can be used in a replenishment |
| particular gauge is related to the demand for vehicles | | | | approach. In MRP systems, the demand for |
| that require the particular gauge. | | | | component parts is immaterial since the ordering is |
| | | | | based on the requirements generated from the |
| Independent demand responds to | | | | master schedule. |
| random influences such as price, prices of substitutes, | | | | |
| customer income and taste, and so on which takes | | | | The ABC principle does not work |
| an irregular form of demand over the time. On the | | | | well for MRP systems. For instance, a computer can |
| other hand, a dependant demand exhibits a lumpy | | | | not be delivered if it lacks a mouse or a set of |
| pattern because the production is typically scheduled | | | | speakers even though these items are relatively |
| in lots at a given point of time. Different demand | | | | inexpensive. It is therefore necessary to control all |
| patterns call for different approaches to inventory | | | | parts irrespective of cost significance. |
| management. A replenishment approach is | | | | The objective of managing independent demand |
| appropriate to decide on stocks and timing for | | | | inventories with reorder point rules is to provide a |
| products having an independent demand. As the | | | | high customer service level at lower inventory |
| stock is used, it is replenished in order to have | | | | operation cost so that the objective is focusing |
| materials on hand for customers. Thus as inventory | | | | outward the customer. The objective of managing |
| begins to run out, an order is lodged for more | | | | dependant demand inventories with MRP is to |
| materials so that the inventory is replenished. | | | | support the master production schedule which is |
| | | | | manufacturing oriented focusing inward the |
| 1. The nature of demand therefore leads to two | | | | organization. |
| different philosophies of inventory management. | | | | |
| | | | | Reference |
| | | | | |
| The requirements philosophy is | | | | Chase, Richard B. (2001), Operations Management for |
| typically used on material requirement planning (MRP) | | | | Competitive Advantage (9th edition), Mc-Graw-Hill |
| system for products having dependant demand. MRP | | | | |
| is therefore influenced internally on the master plan | | | | Jay Heizer and Barry Render (1996), Production and |
| within the manufacturing organization where as the | | | | Operations Management, Strategic and Tactical |
| replenishment philosophy is used in order point | | | | Decisions, 4th Edition, Prentice Hall |
| systems. A replenishment philosophy indicates that | | | | |
| materials should be replenished when it runs low. An | | | | Kranjerski and Ritzman (1990), Operations |
| MRP system runs on the master plan where more | | | | Management, Strategy and Analysis, 2nd Edition |
| material will be ordered only when a need exists | | | | |
| according to the master plan. | | | | Schroeder, Roger G. (2004). Contemporary Concepts |
| | | | | and Cases, Operations Management (2nd Edition). |
| If there are no manufacturing | | | | |