2024 Global Procurement Management

Chapter 4
Inventory management and lead time

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 Objectives of this Chapter
Provisioning systems
Order quantities and stock control
Materials requirements planning
Manufacturing resource planning
Enterprise resource planning
Just-in-time
Lean and agile supply
Vendor-managed inventory
Covid-19: just-in-case inventory?
Time and competitive advantage
On-time delivery
Lead-time improvement
Effect of Covid-19 pandemic on supply chains
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 Provisioning Systems

Provisioning systems involve the policies and

procedures that organizations use to determine which
items are kept in stock and the quantities that are
stocked.
These systems play a crucial role in ensuring that the
right materials are available at the right time to
support production and service operations.
Decisions regarding provisioning systems include the
size of requirements, timing of orders, and the
quantities to be ordered based on demand forecasts
and inventory levels

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 Order Quantities and Stock Control
Order quantities and stock control are essential
components of inventory management that focus on
regulating manufacturing programs and material
requirements.
Effective stock control involves maintaining optimal
inventory levels to meet demand while minimizing
holding costs and stockouts.
Decisions related to order quantities and stock
control include determining the size of requirements,
timing of orders, and quantities to be ordered based
on factors such as lead times, demand variability, and
economic order quantity calculations

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 Materials Requirements Planning (MRP)

Materials Requirements Planning (MRP) is a system

that translates the master production schedule into
net requirements for components needed to
implement the schedule.
MRP helps in planning and scheduling production
activities by ensuring that the right materials are
available at the right time.
The system replans net requirements and coverage
in response to changes in the production schedule,
inventory status, or product composition

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 Manufacturing Resource Planning (MRP2)

Manufacturing Resource Planning (MRP2) expands

on the concepts of MRP by incorporating capacity
planning, shop floor control, and other manufacturing-
related functions.
MRP2 integrates production planning, scheduling,
and inventory management to optimize
manufacturing processes and resource utilization.
This system helps organizations in effectively
managing their manufacturing resources and
improving operational efficiency

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 Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) is a comprehensive
software system that integrates core business processes such
as finance, human resources, and supply chain management.
ERP systems provide a unified platform for data sharing,
collaboration, and decision-making across different departments
and functions.
By streamlining business operations and data management,
ERP systems help organizations improve efficiency, productivity,
and decision-making

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 Just-in-Time (JIT)
Just-in-Time (JIT) is a production strategy that aims
to produce only what is needed, when it is needed,
and in the quantity needed to meet customer
demand.
JIT helps organizations reduce waste, minimize
inventory holding costs, and improve operational
efficiency by eliminating excess inventory and
streamlining production processes.
By synchronizing production with demand, JIT
enables organizations to respond quickly to changing
customer needs and market conditions, leading to
improved quality and cost savings

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 Just-in-Time (JIT)

The key
prerequisit
es for JIT

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 Lean and Agile Supply

Lean and Agile are supply chain management

strategies that focus on enhancing efficiency,
flexibility, and responsiveness in operations.
Lean principles aim to eliminate waste, optimize
processes, and continuously improve operations to
deliver value to customers.
Agile supply chain practices emphasize adaptability,
quick response to market changes, and collaboration
with suppliers and partners to meet customer
demands effectively

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 Lean and Agile Supply

‘Leagile’
supply

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 Demand and supply characteristics and lean and agile options
Lean and Agile Supply

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 Vendor-Managed Inventory

Vendor-Managed Inventory (VMI) is a supply chain

management practice in which suppliers manage
inventory levels for their customers.
In VMI, suppliers monitor customer inventory levels,
replenish stock automatically, and optimize inventory
levels to ensure product availability.
VMI helps improve supply chain efficiency, reduce
stockouts, and enhance collaboration between
suppliers and customers, leading to cost savings and
improved service levels

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 Covid-19: Just-in-Case Inventory?

The Covid-19 pandemic has highlighted the

importance of supply chain resilience and the need
for organizations to reevaluate their inventory
management strategies.
Just-in-Case Inventory refers to holding safety stock
or buffer inventory to mitigate disruptions and
uncertainties in the supply chain.
Post-pandemic, organizations are considering
adopting just-in-case inventory strategies to build
resilience, reduce supply chain risks, and ensure
continuity of operations in the face of future
disruptions
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 Time and Competitive Advantage
Time is a key variable in supply chain management
Minimizing time waste can reduce supply chain costs
Responsiveness and time compression are crucial for
competitive advantage
Companies that react promptly to customer needs
attract more orders
Importance of time to market and management
philosophies

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 On-time Delivery
Lead time stages from pre-order planning to payment
processing
Importance of analyzing and determining the need to
order
Different stages in production, warehouse, and transit
lead times
Supply lead time as the total of all lead times
excluding payment lead times

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 Lead-time Improvement
Reliable lead times are more important than the
length of lead time
Methods for lead-time reduction: agile supply chain,
pre-built inventory, or a combination
Sourcing with suppliers having short 'true' lead times
is crucial
Importance of supply chain visibility and controls for
lead-time improvement

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 Effect of Covid-19 Pandemic on Supply Chains

Procurement strategies post-Covid for building resilience in

supply chains
Increased flexibility, agility, and inventory levels in supply chains
Over 40% of European retailers planned onshoring to mitigate
disruptions
Focus on supplier vulnerability, risk exposure, and global
disruptions for supply chain management

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