Page 66 - Orlicky's Material Requirements Planning

CHAPTER 4 Inventory in a Manufacturing Environment 47

those needs; that is, it need not exist prior to such time. The existence of any of the in-
stock categories of manufacturing inventory signifies, strictly speaking, premature avail-
ability. Ideally, all manufacturing inventory would be in process, with every item imme-
diately consumed (by entering into the next manufacturing conversion stage) on com-
pletion or receipt. The best-managed manufacturing inventories approach this ideal.
For distribution inventory, the questions of when and in what quantity to order are
being answered. The first question is answered with certainty provided by required date
and lead time and the second one through lot-sizing techniques that use only known
future demand (i.e., planned requirements) and take into account both its magnitude and
its timing.
In practice, the question of the “correct” order quantity receives only secondary
attention—and deservedly so. It is interesting to note that this question does not arise at
all when the demand for an inventory item is either highly continuous (as is typical for
large-volume production operations) or highly discontinuous. The Wheelwright and
Hayes product/process matrix in Chapter 1 (Figure 1-2) describes the continuum for dif-
ferent types of operations and the resulting inventory impact. In all cases, it can be said
that it is more important to have the quantity needed at the time it is needed than to order
the “correct” quantity. In the real world of manufacturing, evidence attesting to the truth
of this statement abounds. Splitting lots in midproduction, double setups, teardowns
caused by “hot order” expediting, and partial vendor shipments are normal occurrences.
They show that it is not practical always to adhere to the calculated most economical
order quantity.
The preceding description and distinction explains the structural and conceptual
division between what became manufacturing requirements planning (MRP) and what
became distribution requirements planning (DRP) systems, a legacy that persists at the
time of writing of this third edition. It is predicated on the assumption that distribution
and manufacturing inventories are fundamentally different and require fundamentally
different planning tactics. Since 1975 (when the first edition of this book was published),
the ramifications of treating these two inventories as completely separate and distinct has
changed dramatically. Obvious differences remain. For example, distribution items (such
as purchased items) have no bill of material (BOM). In the demand-driven world of the
twenty-first century, however, more integration is required between these two inventory
designations and, consequently, closer alignment between the two. Furthermore, as out-
lined in Part 4 of this book, the two types of inventories should be planned and managed
in the exact same manner when it comes to strategically managed/stocked parts (most
distributed parts fall under this classification).
In general, inventories have five separate and distinct functions regardless of
whether they are assigned to manufacturing or distribution. The functions are to:

1. Decouple operations and/or stages in the system. Different points in the system
process materials at different rates and experience different rates of demand
within a given time period and thus should not be linked rigidly. See Part 4 for
more information on determining where to place these strategic buffers.