CPIM DSP - Session Two Study Notes - Session Two Inventory Planning Order Review Methods Commonly used methods > Order point(fixed order quantity Order

CPIM DSP - Session Two Study Notes - Session Two Inventory...

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Session Two – Inventory Planning - Order Review Methods # C ommonly used methods > Order point (fixed order quantity) Order point system – The inventory method that places an order for a lot whenever the quantity on hand is reduced to a predetermined level knows as the order point. OP = DDLT + SS >> Uses of Order Point: 1) Primarily for independent demand items (finished goods, MRO) 2) For dependent demand items such as raw materials when demand is stable and continuous 3) Not for high-value class A items because of inventory costs 4) For limiting lot sizes due to truckload and storage capacity at the receiving warehouse > Periodic review (known as a fixed-internal order system | independent demand management model) Q = T – I Where T = target inventory = demand for (review period + lead time) I = inventory at hand >> Applications of Period Review System 1) Receiving deliveries of many different items from one source at one time is economical 2) Tracking and posting transaction of many small issues from inventory is expensive 3) It is safe to assume that the sufficient inventory has been ordered to last until the next review interval 4) Items have a limited shelf life, such as farm produce, chemicals, and food products 5) Ordering costs are low; ordering once a week or month is not a cost issue * Difference between the order point and periodic review methods Characteristic Periodic Review System Order Point System Interval between orders Fixed and constant Varies depending on actual usage Order quantity Varies by period Usually fixed >Consignment and VMI (used to replenish both independent and dependent demand) See additional materials ? Describe the best order review methods for dependent demand 1
* Types of demand Independent Demand Inventories Dependent Demand Inventories Retail Assemblies Wholesales finished goods Subassemblies Manufacturing finished goods Fabricated components Service/replacement parts Purchased components MRO supplies Raw materials > Material requirements planning The job of MRP is to plan the release of orders to purchase, make, and assemble components of dependent demand items.

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