Inventory management in an independent demand context

In inventory management, there are two types of item:

• those subject to a dependent request ;

• those that are the subject of an independent application.

A request is said to be "dependent" if it can be deduced from the request for another item.

A request is said to be "independent" in the opposite case, i.e. when it is issued by a customer: this typically concerns finished products and spare parts.

The simplest example of dependent demand is that of the components of a finished product. Knowing the BOMs and manufacturing characteristics of the finished product, it is possible to deduce the exact quantities of each component to be manufactured or supplied (see article "Push flows: MRP and DRP").

From the forecast demand for the finished product, we can therefore deduce the demand for each of the components. In theory, we can deduce from the set of independent demands the requirements, in number and over time, of items with dependent demand.

MRP handles dependent requests; items with independent requests are handled in a different way, which is the subject of this article.

The production decision-maker is constantly faced with the following dilemma: on the one hand, having a customer service rate close to 100% (which means stocking all kinds of finished products at all times and in all places) and, on the other, complying with the obligations of financial analysis, which leads him to push all players towards minimizing inventory levels.

In fact, if demand were absolutely regular and, for the same volume, if sales forecasts were always "accurate" and reflected actual customer demand by anticipation, we'd be able to meet all needs very precisely. Stocks would lose their raison d'être.

The reality is quite different: demand is versatile. The problem then is to adapt production capacity to meet the sum total of needs. As a result, production volumes will fluctuate in an attempt to keep pace with sales, leading inevitably to the building up of inventories along the supply chain to act as a buffer between these two functions.

On the other hand, the day-to-day running of a workstation is filled with numerous malfunctions (slowdowns, machine breakdowns, rework, scrap, etc.). Inventories then become the tool that enables the manager to avoid stopping production on other workstations, thus helping him to meet his productivity targets.

The disadvantage, however, is that end-of-day indicators systematically hide the hazards that have occurred. They are therefore a major brake on the continuous...