Page 389 - Orlicky's Material Requirements Planning

368 PART 4 Looking Backward and Forward

puter power. Inventory analysis and categorization by function, designed to account for
a given total inventory in terms of the respective functions of its constituent inventory
groupings, that is,
■ Order sizing
■ Fluctuation
■ Stabilization
■ Anticipation
■ Transportation
is subject to revision not of concept but of the method of determining the value of the
respective inventory categories. Of the functions listed, it is the first two that appear in a
new light. Now the first question to be asked is “where” to put inventory rather than to
answer the question of “how much.”
Order sizing creates what is called cycle stock or lot-size inventory. But this category
cannot be reckoned to approximate one-half the quantities being ordered, which has been
the traditional approach. With the discarding of the EOQ in favor of discrete lot-sizing
techniques (discussed in Chapter 8), the lack of validity of such an approximation
becomes clearly apparent.
Actual order quantities for a given inventory item will be seen to equal the precal-
culated requirements for one or more planning periods without remainder, causing the
quantity to vary freely from one order to the next. The number of periods covered by an
order quantity will be dictated in part by the relative continuity of demand for the item
in question. In cases of pronounced discontinuity, the order quantity will tend to equal
requirements for one period. The same usually will be true for all assembled items (sub-
assemblies) because of the typically minor assembly setup considerations.
The second category, called safety stock, serves primarily to compensate for or to
absorb fluctuation in demand. In stock replenishment systems, the safety-stock quantity
is (a known) part of the order-point quantity calculated for each inventory item, and the
sum of the item safety stocks times the product cost represents a fair estimate of this cat-
egory of inventory.
In effective MRP systems, safety stock on the item level tends to disappear. It is nor-
mally no longer calculated for each inventory item separately, but where used at all, it is
incorporated at the end-item (master production schedule) level only. This has been
developed further with the concept of actively synchronized replenishment, which
locates inventory such that it buffers and compresses the overall manufacturing process.

Conventional Notion of Aggregate Inventory Management
Aggregate inventory management is a concept and a set of techniques used for manipu-
lating and controlling inventory in toto. As the term implies, the overall inventory invest-
ment level can become subject to direct management control through certain policy vari-
ables to the extent that the policies in question apply to the inventory across the board or