The five replenishment methods and their ideal component profiles:
1) Material Requirement Planning (MRP): Set of techniques that use bill of material information, inventory data, and the master production schedule (MPS) to calculate the requirements for materials.
a) Primary element: certainty of demand – In MRP replenishment method the MPS is used to drive MRP. The methodology works best when there is some level of certainty of demand.
b) Secondary element: lead time – Lead time does not play such an important role since inventory is typically used shortly after it is received regardless of the length of lead time.
c) Secondary element: component cost – The component cost does not impact the effectiveness of MRP.
d) Secondary element: usage – MRP is equally applicable for high-volume or low-volume components.
e) Secondary element: linearity of demand – MRP is not affected by linearity of demand.
2) Broadcast: In this methodology demand requirements are communicated via electronic signals sent directly to the manufacturing area of supplier production planning and scheduling systems. The parts are then made available just prior to the time they are needed.
a) Primary element: certainty of demand – When a requirement is signaled, there must be complete assurance that the item really is needed.
b) Primary element: lead time – The methodology requires a low lead time since no inventory is carried.
c) Primary element: component cost – The methodology is more applicable for expensive items.
d) Primary element: usage – The methodology is most applicable for high usage items.
e) Primary element: linearity of demand – Items must have a smooth demand pattern for effective use of the broadcast methodology.
3) Kanban: A pull system involving signals to effectively manage flow of parts between work centers.
a) Primary element: certainty of demand – A reasonably high level of certainty of demand is required for the effectiveness of the methodology.
b) Primary element: lead time – The methodology is more applicable for low lead time items.
c) Primary element: component cost – High component cost enhances the effectiveness of kanban.
d) Primary element: usage – Kanban requires reasonably high usage rate.
e) Primary element: linearity of demand – Kanban works best when demand is reasonably smooth.
4) Vendor Managed Inventory (VMI): In this methodology the supplier determines the quantities to be maintained at its customer sites and frequently monitors inventory levels.
a) Secondary element: certainty of demand – This is the only methodology that can deal with low level of demand certainty.
b) Primary element: lead time – The methodology works best when lead times are low.
c) Primary element: component cost – Component costs should be low when using VMI, since then the supplier can keep ample quantities of safety stock to handle demand uncertainties and replenish as and when needed.
d) Primary element: usage – The methodology is most applicable for high usage items.
e) Secondary element: linearity of demand – Demand for VMI items is typically smooth due to high degree of commonality.
Source: Louis, R. S. 2009. Precision inventory – Effective replenishment through component profiling. APICS Magazine, September/October 2009.