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Strategies in Inventory Management: Independent vs. Dependent Demand Methods

Learn the key differences between independent and dependent demand inventory management practices, including stock level systems, forecasting, customer service, and stock supply scheduling. Discover the contrasting approaches to supply planning and control of supply and demand for optimal outcomes. Improve your inventory management competence with Dr. Tony Wild's best practices.

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Strategies in Inventory Management: Independent vs. Dependent Demand Methods

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  1. Best Practice in Inventory Management Chapter 14Dependent Demand ERP Material Planning Dr Tony Wild

  2. INDEPENDENT • Stock level system • Forecast • Keeps stock • All lines separate • Reactive • Good customer service • High stock DEPENDENT • MRP system • Calculated • Buys when required • Lines co-ordinated • Proactive • Very good customer service • Low stock Figure 12.1 Contrasting Independent & Dependent Demand Best Practice in Inventory Management Dr Tony Wild Best Practice in Inventory Management Dr Tony Wild

  3. Average Stock Supply Scheduling Stock Delivery Quantity Average Stock Weeks or days Av. stock = half delivery quantity + safety stock Best Practice in Inventory Management Dr Tony Wild

  4. Independent demand Delivery Quantity Stock + Safety Stock Dependent demand Stock supplied when required and used up Average independent demand inventory Inventory Average independent demand inventory Figure 14.2 Inventory & MRP Time Best Practice in Inventory Management Dr Tony Wild

  5. Order Order Receive Issue Receive Issue Order Receive Issue Process lead time Process lead time Process lead time Supply lead time Supply lead time Supply lead time Process 3 Process 2 Transfer lead time Transfer lead time Figure 14.3 Process Sequence Time Process 1 Best Practice in Inventory Management Dr Tony Wild

  6. Figure 14.4 Contrasting Dependent & Independent Demand Approaches Best Practice in Inventory Management Dr Tony Wild

  7. Long Term Plan (S&OP) Demand Forecasts Product Inventory Master Schedule Sales Orders Dependent Inventory (WIP, RM) Bill of Materials Material Requirements Plan Lead Times & Routings Batch Rules Figure 14.5. MRPII Structure Production Plans Supply Orders & Schedules Best Practice in Inventory Management Dr Tony Wild

  8. Existing Opening Inventory on hand40 MRP Calculation for each period MINUS PLUS Issues (Demand) -30 Delivery Receipts +10 Figure 14.6 Basic MRP Calculation EQUALS Closing inventory on hand 20 Best Practice in Inventory Management Dr Tony Wild

  9. Product Product Assembly Assembly Components Subassembly Components Figure 14.7 Bills Of Materials Best Practice in Inventory Management Dr Tony Wild

  10. Figure 14.8 Simple Master Schedule Layout Best Practice in Inventory Management Dr Tony Wild

  11. Figure 14.9 Master Schedule Supply Planning Assuming (a) a fixed batch size of 500 (b) Supply lead time - 4 weeks No Safety Stock Best Practice in Inventory Management Dr Tony Wild

  12. PLANNING SUPPLY Customer Schedules Forecasts Demand Purpose: Sets up manufacturing and purchase orders Avoid shortages Creates new planned supply Work already started Projected available THEN ALLOCATION TO CUSTOMERS Used planned supply Sales order promising Customer orders Purpose: Apply customer orders to the existing plan Unallocated supply Available to promise Figure 14.10 Control of supply and demand Best Practice in Inventory Management Dr Tony Wild

  13. Figure 14.11 Available to Promise Best Practice in Inventory Management Dr Tony Wild

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