INVENTORY

SUBMITTED
BY:
GRETCHEN V. GOROSTIZA
BM701 A







Fundamental Concept & JIT

A. Advantages and Disadvantages
Traditionally manufacturers have forecasted demand for their products into the future
and then have attempted to smooth out production to meet that forecasted demand. At
the same time, they have also attempted to keep everyone as busy as possible producing
output so as to maximize efficiency and (hopefully) reduce costs. Unfortunately, this
approach has a number of major drawbacks including large inventories, long
production times, high defect rates, production obsolescence, inability to meet delivery
schedules, and (ironically) high costs. Non of this is obvious -if it were, companies would
long ago have abandoned this approach.
JIT is a production and inventory control system in which materials are purchased and
units are produced only as needed to meet actual customer demand. In just in time
manufacturing system inventories are reduced to the minimum and in some cases they
are zero.
JIT works in the three types of inventories:
a) Raw materials: inventories provide insurance in case suppliers are late with
deliveries.
b) Work in process: inventories are maintained in case a work station is unable to
operate due to a breakdown or other reason.
c) Finished goods: inventories are maintained to accommodate unanticipated
fluctuations in demand.
The main BENEFITS of JIT are the following:
Funds that were tied up in inventories can be used elsewhere.
Areas previously used to store inventories can be used for other more productive uses.
Throughput time is reduced, resulting in greater potential output and quicker response
to customers.
Defect rates are reduced, resulting in less waste and greater customer satisfaction.
Most companies find, however, that simply reducing inventories is not enough. To
remain competitive in an ever changing and ever competitive business environment,
must strive for continuous improvement.


B. Comparison of MRP & JIT
MRP and JIT (materials resource planning and just in time processing) are two
methods of controlling production and inventory levels for manufacturers. MRP
focuses on production of finished goods based on forecast requirements, while JIT
focuses on production as a response to actual orders. Both MRP and JIT rely heavily on
computerized information processing.

Materials resource planning is a comprehensive system of raw materials ordering and
production scheduling of equipment and manpower based on forecast orders. It
incorporates changes to orders into its scheduling process to produce a dynamic
production schedule. MRP embraces the concept of dependent demand: for example, if
production of finished product A requires three units of product B, and production of
product B in turn requires four units of product C and six of product D, then a
production level of a specific number of units of product A requires all the
corresponding units of products B, C, and D to reach completion. For a complicated
manufacturing process that includes many components, an advantage of MRP is its
ability to successfully organize the production of each component so parts are ready
when needed and the production process doesn't stall for lack of finished components.