Manufacturing Process Industry




Inventory Carrying Costs

The value of inventory can be argued but I will assume it to be the investment value plus the costs to maintain that investment. Thought of that way, the value is 25% to 35% of manufactured costs per year. The cash flow implications of this magnitude affect profitability dramatically.

The tradeoff between setup costs (including lost capacity) and inventory carrying costs is determined by the timing of manufac­turing relative to demand and the number of campaigns. Finding the best cost position between these two is the optimizing process. That's a homer.

Many things can be optimized in the scheduling exercise—capac­ity, customer service, costs and profitability. These optimization objectives are often in conflict with each other. I would preferen­tially pick either costs or profits to optimize.

Capacity only needs to be optimized when there is not enough. Even then improving capacity should only be done relative to profitability. In other words, the extra inventory carrying costs could override the savings from setup costs and extra generated revenues from more product.

Customer service insures the long term. The net demand on manufacturing combines the sales forecast with the change in inventory caused by a stocking strategy, which should have been done with a fixed customer service level objective in mind. Therefore, customer service was already taken into account in the "Satisfying Demand" step.

Schedule Characteristics


Satisfying demand, feasibilizing and optimizing the schedule together are the characteristics of a quality schedule. These characteristics symbolize the traction between the tires and the road. The best MRP system and JIT program cannot operate without a quality schedule. This is the qualification on MRP's doing the best with what you have.


Committing delivery to the customer from inventory is fairly straightforward. Either it's there or it's not. However, committing delivery based on the schedule assumes that the schedule will not change. The schedule therefore requires stability. Only a high-quality schedule can maintain stability.

A Longer Plan

There are three dimensions to the job that schedulers must be sensitive to since their time to do the job is limited. The first is the quality of the schedule as detailed above. The second is the number of products they are responsible for. The last is, how far out in time they try to schedule.

There is a requirement for how far out the schedule should be developed. It has to do with the lead times. Commitments are made at various stages in the supply chain. In the ideal world, the schedule would be developed and frozen for the entire lead time. That is usually not practical. Optimally, then, the schedule should go out as far as the majority of costs that have been incurred.


Kanban should be incorporated into the planning process of the supply chain as much as possible due to its simplicity, thereby subsequent accuracy. Longer range MRP planning, driven by forecasts, is necessary for putting in place incremental resources in a timely manner. Finite scheduling can be complex but is essential when we try to operate on minimum resources and maximize market responsiveness. Therefore, each method has its place in the process industry. The challenge is to apply the right method in the proper circumstances to make the information flow of supply chain planning as efficient and accurate as possible.


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