M17-S6 - Materials & Inventories

We talked about the old manufacturing paradigms where productions was completely based on inventory levels. For each part there was a defined Reorder Point (ROP) that defined the level at which parts would need to be reordered:

The bosses in the warehouses ran the show. The worked for a long time because of the following premises:

• There was less variation in choice for products
• Therefore demand was constant and predictable
• Inventory was considered an 'asset' as it was believed all produced materials would be sold eventually

After the market changed from a sellers to a buyers market, inventory based manufacturing did not work out anymore, a next step was Material Requirements Planning (MRP). After that the successor was Manufacturing Resource Planning (MRP2)