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Module 5

Cycle Inventory

The portion of total inventory that varies directly with lot size is called cycle
inventory. Determining how frequently to order, and in what quantity, is called lot
sizing. Two principles apply.
1. The lot size, Q, varies directly with the elapsed time (or cycle) between orders. If a
lot is ordered every 5 weeks, the average lot size must equal 5 weeks’ demand.
2. The longer the time between orders for a given item, the greater the cycle inventory
must be.
At the beginning of the interval, the cycle inventory is at its maximum, or Q. At the
end of the interval, just before a new lot arrives, cycle inventory drops to its minimum,
or 0. The average cycle inventory is the average of these two extremes:

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Safety Stock Inventory To avoid customer service problems and the hidden costs of unavailable
components, companies hold safety stock. Safety stock inventory is surplus inventory that
protects against uncertainties in demand, lead time, and supply changes.

Anticipation Inventory used to absorb uneven rates of demand or supply, which businesses often
face, is referred to as anticipation inventory. Predictable, seasonal demand patterns lend
themselves to the use of anticipation inventory. Uneven demand motivate a manufacturer to
stockpile anticipation inventory during periods of low demand so that output levels do not have to
be increased much when demand peaks. Anticipation inventory also can help when suppliers are
threatened with a strike or have severe capacity limitations.

Pipeline Inventory: Inventory that is created when an order for an item is issued but not yet
received is called pipeline inventory. This form of inventory exists because the firm must commit
to enough inventory (on-hand plus in-transit) to cover the lead time for the order.

1.Safety Stock Inventory: Safety stock inventory acts as a buffer against unexpected
fluctuations in demand, lead times, or supply chain disruptions. For instance, consider a retail
store that sells umbrellas. During the rainy season, demand for umbrellas is high and can be
quite unpredictable due to sudden weather changes. To ensure they never run out of stock
during these periods, the store maintains a safety stock of umbrellas. This extra inventory
protects against the risk of stockouts and helps maintain customer satisfaction even during
unexpected surges in demand.
2.Anticipation Inventory: Anticipation inventory is used to absorb variations in demand or
supply that are relatively predictable, such as seasonal fluctuations. For example, a toy
manufacturer knows that demand for toys typically spikes during the holiday season. To meet
this anticipated surge in demand without overburdening production facilities or facing
stockouts, the manufacturer builds up anticipation inventory throughout the year. By
gradually accumulating inventory during periods of low demand, they can smoothly fulfill
orders during peak seasons without excessive strain on resources.
3.Pipeline Inventory: Pipeline inventory refers to inventory that is in transit between the
supplier and the buyer. It exists because there is a delay between placing an order and
receiving the goods. Let's say a car manufacturer orders a shipment of specialized parts from
a supplier located overseas. While the order is placed, the parts are still in transit by sea
freight. During this transit time, the parts are considered pipeline inventory. The manufacturer
needs to maintain visibility and control over this inventory to ensure that there are no
disruptions in production due to delays or uncertainties in the supply chain.

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Economic Order Quantity

Calculating the EOQ
Annual holding/carrying cost = (Average cycle inventory)(Unit holding cost)
The annual ordering cost is
Annual ordering cost = (Number of orders/Year)*(ordering or setup cost)

Number of orders are calculated as

= (Demand) D/ (order size) Q

Calculate average cycle inventory, annual ordering cost and holding cost for the
following data

a) Q= 300; D= 1200; carrying/holding cost= Rs.30; Ordering Cost= Rs.12

b) Q= 500; D= 2500; carrying/holding cost= Rs.50; Ordering Cost= Rs.15

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Calculate Q and D, ordering cost and holding

cost from the following data:

Average cycle inventory= 200

Number of orders = 4

Co= Rs. 4.75

Cc= Rs. 8.50

EOQ Formula
2 D S
EOQ =
H
Time Between Orders (TBO) The average elapsed time
between receiving (or placing) replenishment orders of Q
units for a particular lot size.

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EOQ Model Equations

2 D S
Optimal Order Quantity = Q * =
H
D
Expected Number Orders = N =
Q*
Working Days / Year
Expected Time Between Orders = T =
N
D
d= D = Demand per year
Working Days / Year
S = Setup (order) cost per order
ROP = d  L H = Holding (carrying) cost
d = Demand per day
L = Lead time in days

EOQ
Example

Company A needs 1500 coffee makers per year. The

cost of each coffee maker is Rs. 650. Ordering cost is
Rs.150 per order. Carrying cost is 30% of per unit cost.
Lead time is 6 days. Company open 360 days/yr.

What is the optimal order quantity & ROP?

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Q. Electronic Village stocks and sells a particular brand of

personal computer. It costs the store $450 each time it places
an order with the manufacturer for the personal computers.
The annual cost of carrying the PCs in inventory is $170. The
store manager estimates that annual demand for the PCs will
be 1200 units.

Determine the optimal order quantity and the total minimum

inventory cost.

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Nelson’s Hardware Store stocks a 19.2 volt cordless drill that is a popular seller.
Annual demand is 5,000 units, the ordering cost is $15, and the inventory holding cost
is $4/unit/year.

a. What is the economic order quantity?

b. What is the total annual cost for this inventory item?

SOLUTION
a. The order quantity is

2DS 2(5,000)($15)
EOQ = =
H $4
= 37,500 = 193.65 or 194 drills
b. The total annual cost is
Q D 194 5,000
C = 2 (H) + (S) = ($4) + ($15) = $774.60
Q 2 194

Quantity Discounted EOQ Formula

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A manufacturing firm has been offered a particular component part it uses

according to the following discount pricing schedule provided by the
supplier.

Quantity Price
1–199 65
200–599 59
600 + 56

The manufacturing company uses 700 of the components annually, the

annual carrying cost is $14 per unit, and the ordering cost is $275.
Determine the amount the firm should order.

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Continuous Review System (Q system)

A continuous review (Q) system, sometimes called a reorder point (ROP) system or fixed
order-quantity system, tracks the remaining inventory of a SKU each time a withdrawal is
made to determine whether it is time to reorder. In practice, these reviews are done
frequently (e.g., daily) and often continuously (after each withdrawal).
At each review, a decision is made about a SKU’s inventory position. If it is judged to be
too low, the system triggers a new order. The inventory position (IP) measures the SKU’s
ability to satisfy future demand. It includes scheduled receipts (SR), which are orders that
have been placed but have not yet been received, plus on-hand inventory (OH) minus
backorders (BO). Sometimes. scheduled receipts are called open orders. More specifically,

Demand for chicken soup at a supermarket is always 25 cases a day and the lead time is
always 4 days. The shelves were just restocked with chicken soup, leaving an on-hand
inventory of only 10 cases. No backorders currently exist, but there is one open order in the
pipeline for 200 cases. What is the inventory position? Should
a new order be placed?

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Continuous Review (Q) System:

1.In a continuous review system, also known as a reorder point (ROP) system or
fixed order-quantity system, inventory levels are continuously monitored, and
orders are placed when the inventory level reaches a predetermined reorder
point. Here's how it works:

Example: Consider a grocery store that sells canned goods. The store manager
decides to implement a continuous review system for a popular brand of canned
soup. The manager sets a reorder point of 50 units, meaning that whenever the
inventory of this soup falls below 50 units, a new order is triggered. Each time a
customer purchases a can of soup, the inventory level is updated, and if it falls
below the reorder point, a new order is automatically placed with the supplier.
This ensures that the store always maintains a sufficient stock of canned soup to
meet customer demand without excess inventory.

Periodic Inventory System:

1.In a periodic inventory system, inventory levels are reviewed at specific
intervals, rather than continuously. Orders are typically placed at the end of
each review period to replenish inventory up to a certain level. Let's explore
this further:
Example: Imagine a small electronics store that sells various accessories,
including phone chargers. The store manager decides to use a periodic
inventory system for phone chargers. Every week, the manager conducts a
physical inventory count to determine the quantity of phone chargers on
hand. At the end of each week, regardless of the current inventory level, the
manager places an order with the supplier to replenish the stock up to a
predetermined level, such as 100 units. This means that even if there are still
phone chargers in stock at the end of the week, a new order is placed to
maintain the desired inventory level for the next period.

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Perpetual inventory system

In a perpetual inventory system, inventory levels are continuously updated in real-time as
goods are bought, sold, or used in production. This means that every transaction involving
inventory, such as purchases, sales, returns, and adjustments, is immediately recorded in the
inventory management system. Here's how it works and an example:
How It Works:
1.Real-time Tracking: Each time inventory is received, sold, or adjusted, the system
updates the inventory records instantly. This provides accurate and up-to-date information
about the quantity and value of inventory on hand at any given moment.
2.Transaction Recording: Every transaction involving inventory is recorded, including
purchases from suppliers, sales to customers, returns, and any adjustments such as
damaged or stolen goods.
3.Inventory Valuation: The perpetual inventory system allows for the continuous valuation
of inventory based on the current cost of goods. This enables businesses to calculate the
cost of goods sold (COGS) and monitor inventory value in real-time.
4.Inventory Replenishment: With real-time visibility into inventory levels, businesses can
quickly identify when stock needs to be replenished and place orders accordingly to avoid
stockouts.

Example:
Let's say you own a retail store selling electronics. You implement a perpetual
inventory system to manage your inventory of smartphones. Here's how it works:
1.Inventory Receipt: When you receive a shipment of smartphones from your
supplier, the inventory system immediately records the receipt of the goods,
updating the quantity and value of smartphones in stock.
2.Sales Transactions: As customers purchase smartphones from your store, each sale
transaction is recorded in the inventory system. The system automatically deducts
the sold quantity from the inventory count and updates the inventory value.
3.Returns and Adjustments: If a customer returns a defective smartphone or if
there's any damage to the inventory, these transactions are also recorded in real-
time. The system adjusts the inventory accordingly, either by adding back the
returned items or by adjusting the inventory value for damaged goods.
4.Inventory Monitoring: You can monitor your smartphone inventory levels in real-
time through the inventory management system. If the inventory of a particular
model falls below a certain threshold, you receive alerts prompting you to reorder
to maintain optimal stock levels.

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Difference between continuous and perpetual

inventory system
1.Tracking Method:
1. Continuous Inventory System: In a continuous inventory system, inventory levels are
monitored and updated continuously or frequently, often after each transaction or
withdrawal. The focus is on maintaining a real-time understanding of inventory levels to
trigger reorder points and prevent stockouts.
2. Perpetual Inventory System: Perpetual inventory systems also maintain real-time tracking
of inventory levels, but they go beyond just monitoring stock. They record each inventory
transaction (such as purchases, sales, returns, and adjustments) immediately, providing not
only current stock levels but also detailed transaction histories.
2.Frequency of Reviews:
1. Continuous Inventory System: Reviews of inventory levels occur continuously or
frequently, often after each withdrawal or transaction. The system constantly evaluates
inventory positions to determine when to reorder or adjust stock levels.
2. Perpetual Inventory System: While perpetual inventory systems also offer continuous
monitoring of inventory levels, they focus more on recording transactions as they occur
rather than specifically triggering reorder points. Reviews may still be frequent, but the
emphasis is on transaction recording.

3. Order Triggering:
1. Continuous Inventory System: In a continuous system, orders are typically triggered
when inventory levels reach a predetermined reorder point. This ensures that stock is
replenished before it runs out, based on real-time monitoring.
2. Perpetual Inventory System: Perpetual systems record all inventory transactions,
including purchases and sales. Orders may be triggered based on predetermined reorder
points, but they can also be influenced by detailed insights from transaction histories, such
as trends in sales patterns or supplier lead times.
4.Focus:
1. Continuous Inventory System: The primary focus of a continuous system is on
maintaining optimal inventory levels to prevent stockouts and ensure smooth operations.
It's more about inventory level management.
2. Perpetual Inventory System: Perpetual systems focus not only on inventory levels but
also on transaction accuracy and detailed record-keeping. They provide a comprehensive
view of inventory movements and facilitate better inventory control and financial
reporting.

In summary, while both continuous and perpetual inventory systems offer real-time tracking
of inventory levels, continuous systems primarily focus on inventory level management and
triggering reorder points, whereas perpetual systems provide more detailed transactional
recording and analysis capabilities.

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Non-instantaneous Replenishment
If an item is being produced internally rather than purchased, finished units may be used or
sold as soon as they are completed, without waiting until a full lot is completed. For
example, a restaurant that bakes its own dinner rolls begins to use some of the rolls from the
first pan even before the baker finishes a five-pan batch. The inventory of rolls never
reaches the full five-pan level, the way it would if the rolls all arrived at once on a truck
sent by a supplier.
If the production rate is lower than the demand rate, sales opportunities are being missed on
an ongoing basis.

For example, if the production rate is 100 units per day and the demand is 5 units per
day, the buildup is 95 (or 100 – 5) units each day. This buildup continues until the lot
size, Q, has been produced, after which the inventory depletes at a rate of 5 units per
day.

The time required to finish receiving an order is the order quantity divided by the rate
at which the order is received, or Q/p. For example, if the order size is 100 units and
the production rate, p, is 20 units per day, the order will be received over five days.

The amount of inventory that will be depleted or used up during this time period is
determined by multiplying by the demand rate: (Q/p)d. For example, if it takes five
days to receive the order and during this time inventory is depleted at the rate of two
units per day, then 10 units are used.

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Formula

Discount Carpets manufactures Cascade carpet, which it sells in its adjoining

showroom store near the interstate. Estimated annual demand is 20,000 yards of carpet
with an annual carrying cost of $2.75 per yard. The manufacturing facility operates the
same 360 days the store is open and produces 400 yards of carpet per day. The cost of
setting up the manufacturing process for a production run is $720. Determine the
optimal order size, total inventory cost, length of time to receive an order, and
maximum inventory level.

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Kanban
Kanban term came into existence using the flavors of “visual card,” “signboard,” or
“billboard”, “signaling system” to indicate a workflow that limits Work In Progress
(WIP). It was first developed and applied by Toyota as a scheduling system for just-in-
time manufacturing.
The core concept of Kanban includes:
1.Visualize Workflow:
1. Kanban emphasizes visualizing the workflow by dividing the entire work process
into distinct segments or states. These segments are typically represented as
columns on a physical or digital board.
2. Each work item or task is represented by a card, often called a Kanban card, which
contains relevant information about the task. These cards are placed in the
corresponding column to indicate where the item is in the workflow.
3. Visualizing the workflow provides transparency and clarity, enabling team members
to understand the status of work items at a glance.

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2. Limit WIP (Work in Progress):

1. Kanban imposes explicit limits on the number of work items allowed to be in progress at each
segment of the workflow. These limits are set based on the capacity and capability of the team
and the resources available.
2. By limiting WIP, Kanban helps prevent overloading of resources, reduce multitasking, and
identify bottlenecks in the workflow.
3. WIP limits encourage focus, promote flow, and improve overall efficiency by ensuring that team
members complete tasks before taking on new ones.
3. Measure Lead Time:
1. Lead time, also known as cycle time, refers to the average time it takes to complete one work
item from start to finish.
2. Kanban encourages measuring and monitoring lead time to understand how long it takes for work
items to move through the workflow.
3. By analyzing lead time data, teams can identify areas for improvement, streamline processes, and
make workflow adjustments to reduce lead time and make it more predictable.
4. Optimizing lead time helps increase throughput, reduce delays, and enhance overall process
efficiency.
• In summary, Kanban is a visual signaling system that enables teams to manage and optimize their
workflows by visualizing work, limiting WIP, and measuring lead time. These core principles help
teams achieve greater efficiency, improve collaboration, and deliver value to customers more
effectively.

Purchase Cycle

Identifying Needs:
• Conduct thorough analysis to understand the organization's requirements, considering factors such as current inventory
levels, future demand forecasts, project or operational needs, and any specific requirements or constraints.
Requesting Quotations or Proposals:
• Develop clear and detailed requests for quotations (RFQ) or proposals (RFP) outlining the specifications, quantities, quality
standards, delivery schedules, and any other relevant information.
• Distribute the RFQ/RFP to potential suppliers, ensuring a transparent and fair procurement process.
• Provide suppliers with ample time to review the requirements and prepare comprehensive quotations or proposals.

Supplier Evaluation and Selection:

• Establish evaluation criteria based on factors such as price, quality, reliability, delivery times, supplier capabilities, financial
stability, and compliance with legal and regulatory requirements.
• Evaluate supplier responses objectively and systematically, considering both quantitative metrics and qualitative factors.
• Select suppliers based on the evaluation results, balancing cost considerations with the need for quality and reliability.

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Negotiation:
• Engage in collaborative negotiations with selected suppliers to finalize the terms and conditions of the purchase agreement.
• Seek opportunities for mutually beneficial outcomes, focusing on achieving the best value for the organization while maintaining a
positive relationship with the supplier.
• Document all negotiated terms in a formal contract or purchase agreement to ensure clarity and enforceability.

Purchase Order Creation:

• Prepare clear and accurate purchase orders detailing the agreed-upon terms and conditions, including item descriptions, quantities,
prices, delivery dates, shipping instructions, payment terms, and any special requirements.
• Ensure purchase orders are authorized by appropriate personnel and issued to suppliers in a timely manner to avoid delays in
fulfillment.

Order Fulfillment and Delivery:

• Monitor supplier performance closely to ensure adherence to the agreed-upon delivery schedules and quality standards.
• Communicate regularly with suppliers to address any issues or concerns that may arise during the fulfillment process.
• Implement procedures for tracking and tracing shipments to ensure visibility and transparency in the supply chain.

Receipt and Inspection:

• Receive and inspect incoming goods or services promptly upon delivery to verify compliance with the purchase order specifications
and quality standards.
• Document any discrepancies, damages, or defects identified during the inspection process and communicate them to the supplier
for resolution.

• Review supplier invoices carefully to reconcile them with the corresponding

Invoice Processing purchase orders and receipts, ensuring accuracy and completeness.

and Payment: • Process invoices for payment in accordance with established payment terms and
procedures, adhering to internal controls and financial regulations.

Supplier • Conduct regular evaluations of supplier performance based on predefined metrics

and criteria, such as product quality, delivery timeliness, responsiveness,
Performance communication, and adherence to contractual terms.
• Provide constructive feedback to suppliers to address areas for improvement and
Evaluation: recognize outstanding performance.

• Maintain accurate and organized records of all procurement activities, including

Recordkeeping and RFQs/RFPs, supplier evaluations, purchase orders, invoices, receipts, contracts, and
correspondence.
Documentation: • Ensure compliance with recordkeeping requirements and retention policies,
facilitating transparency, accountability, and auditability of procurement processes.

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MRP I and MRP II

Material Planning is necessary

• To avoid over ordering on under-ordering
of materials.
NECESSITY OF • To reduce unwanted expenses due to last
MATERIALS minute ordering.
PLANNING
• To reduce capital locked up in excess.

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INDEPENDENT AND DEPENDENT DEMAND

• Independent Demand:

Demand for final products.

• Dependent Demand:

Demand fort items that are sub assemblies or

component parts to be used in production of finished
goods.

WHAT IS MATERIAL REQUIREMENTS PLANNING (MRP)?

• It is a production planning process that starts from the
demand for finished products and plans the production
step by step of subassemblies and parts.

• Materials Requirements Planning (MRP) is a set of

techniques that takes the Master Production Schedule and
other information from inventory records and product
structure records as inputs to determine the requirements
and schedule of timing for each item.

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WHERE IS MRP APPLICABLE?

• This inventory management system is appropriate for items that
have a dependent demand .

• MRP is applicable for industries that offer a variety of finished

products where the customer is allowed to choose among many
different options.

• MRP is most appropriate when the manufacturing environment

is complex and uncertain.

Purpose of MRP

Control inventory levels

Assign operating priorities

Plan capacity to load the

production system

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MRP INPUTS
• Master Production Schedule (MPS)

• Bills of materials (BOM)

• Inventory status file

• Lead time

MRP OUTPUTS
• Primary reports

1. Work orders

2. Purchase orders

3. Action notices or rescheduling notices

• Secondary reports

1. Exception reports

2. Planning reports

3. Performance Control reports

• Inventory transaction

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MRP INPUT - BILLS OF MATERIALS (BOM)

• A listing of all of the raw materials, parts, subassemblies, and

assemblies needed to produce one unit of a product .

• BOM Shows way a finished product or parent item is put together

from individual components.

• Parent item shown at highest level or level zero , Parts that go into

parent item are called level 1 components and so on.

• Production planners explode BOM to determine the number, due

dates, and order dates of subcomponents.

MRP INPUT - MASTER PRODUCTION

SCHEDULE (MPS)
• Based on actual customer orders and predicted demand.

• Indicates when each ordered item will be produced in coming

weeks, and in how much quantity.

• It is a plan specifying timing and quantity of production for

each end item.

• MPS inputs come from sales and marketing .

• MPS covers about 1-3 months into the future.

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MRP INPUT - INVENTORY STATUS FILE

• Detailed information regarding the quantity of each item,
available in hand, on order to be released, for use in various
time periods.

• MRP system using inventory master file is used to determine the

quantity of material available for use in a given period.

• If sufficient items not available , the system includes the item on

the planned order release report .

• Also known as Inventory Master File

MRP OUTPUTS – PRIMARY REPORTS

• Primary reports

1. Work orders / Planned orders - schedule indicating the

amount and timing of future orders.

2. Order Release - Authorization for the execution of planned

orders.

3. Action Notices or Rescheduling Notices - which orders are

to be released, revised and canceled during the current time
period.

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MRP OUTPUTS- SECONDARY REPORTS

• Secondary Reports

1. Performance control Reports – evaluate system operations . They

aid in measuring deviations from plans, and also provide information
to assess cost performance.

2. Planning Reports – are useful to forecast future inventory

requirements.

3. Exception Reports – these help to find the major discrepancies

such as late and overdue orders, excessive scrap rates, reporting
errors, etc.

MRP PROCESS
• Exploding and Offsetting

• Gross and Net Requirements

• Releasing Orders

• Low level Coding and Netting

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MRP PROCESS 1 - EXPLODING AND OFFSETTING

• Lead time – it is the time needed to perform the process . It

includes order preparation, queuing, processing moving receiving

and inspecting time as well as any expected delays.

• Exploding the requirements – it is the process of multiplying the

requirements by usage quantity of each item and recording the

appropriate requirements throughout the product tree.

• Offsetting – it is a process of placing the exploded requirements

in their proper periods based on lead time.

MRP PROCESS 2 - GROSS AND NET REQUIREMENTS

• Gross Requirement - Total expected demand of the product.

• Net Requirements - Actual amount needed in each time period.

Net Requirements = Gross Requirement – available inventory

• Planned on hand - Expected inventory on hand at the beginning of

each time period.

• Planned-order receipts - Quantity expected to received at the

beginning of the period

• Planned-order releases - Planned amount to order in each time

period

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MRP PROCESS 3 - RELEASING ORDERS

• Releasing an order – means authorization is given to buy the
necessary material or to manufacturing of required component.

• Scheduled Receipts – are orders placed on manufacturing or

on a vendor and represent a commitment to make or buy.

• Now, considering Scheduled Receipts,

Net Requirement = Gross Requirement – Scheduled Receipts –

available inventory

MRP PROCESS 4 - LOW LEVEL CODING AND NETTING

• Netting – is a process in which any stock on hand is subtracted from
the gross requirement determined through explosion, giving the
quantity of each item needed to manufacture the required finished
products.
• Low Level Code – is the lowest level on which a part resides in all
bills of material.
Low level codes are determined by starting at lowest level of bill of
material and working up, recording the level against the part. If part
exists on higher level, its existence on the lower level is already
recorded.

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• Time buckets - The column in an inventory record that

represents a unit of time. It may be in days or weeks.

• Action bucket - The current time period.

• Action notices - Output from the MRP system identifying the

need for an action, to avoid future problem.

• Planning Horizon – is the total number of periods in a record.

BENEFITS OF MRP
• Keep inventory levels to a cost-effective minimum.

• Keeps track of inventory that is used.

• Tracks the amount of material that is required .

• Set safety stock levels for emergencies.

• Determine the best lot sizes to fulfill orders.

• Set up production times among the separate manufacturing

stages.

• Plan for future needs of raw

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DRAWBACKS OF MRP
• Inaccurate information can result in mis-planning , overstock,
under-stock, or lack of appropriate resources.

• The inaccurate master schedule will provide wrong lengths of

time for production . Hence affecting planning.

• MRP systems can be costly and time-consuming to set up.

EVOLUTION OF MRP INTO

MRP II

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MRP II DEFINED…
Manufacturing resource planning (MRPII) is defined as a method
for the effective planning of all resources of a manufacturing
company. Ideally, it addresses operational planning in units and
financial planning .

This is not exclusively a software function, but a combination of

people skills, dedication to data base accuracy, and computer
resources. It is a total company management concept for using
human resources which is used more productively.

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MODULES IN MRP 2
• Business Planning • Distribution Requirement

• Purchasing Scheduling

• Forecasting • Service Requirement Planning

• Inventory Control • Capacity Requirement Planning

• Order Entry And • Accounting

Management

• Shop Floor Control

• Faster Production Scheduling

BENEFITS OF MRP 2
• More efficient use of resources

Reduced inventories

Less idle time

Fewer bottlenecks

• Better priority planning

Quicker production starts

Schedule flexibility

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• Improved customer service

Meet delivery dates

Improved quality

Lower price possibility

• Improved employee moral

• Better management information

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