Operations Management: An Integrated Approach, 5th Edition

INVENTORY MANAGEMENT WITHIN OM: HOW IT ALL FITS TOGETHER

Inventory management provides the materials and supplies needed to support actual manufacturing or service operations. A product cannot be built unless the required material is available. Inventory replenishment policies guide the master production scheduler when determining which jobs and what quantity should be scheduled (Supplement D). The master production schedule inserted into the material requirements planning (MRP) system generates the replenishment orders. This output is used to guide purchasing in terms of the frequency and size of orders. Too much inventory is costly to the organization, yet too little can create major inefficiencies.

Inventory record accuracy is especially critical for MRP users. MRP relies on inventory records to process material requirements, so inaccurate records make the MRP output worthless. This, in turn, can cause manufacturing to shut down and/or miss a deadline.

Inventory management policies also affect the layout of the facility. A policy of small lot sizes and frequent shipments reduces the space needed to store materials (Chapter 7). Point-of-delivery placement of inventory affects the size of work centers. Inventory management also affects throughput time. As a facility increases its work-in-process, throughput times increase. Longer throughput times reduce an organization's ability to respond quickly to changing customer demands (Chapter 4).

Good inventory management assures continuous ...