Methods of Increasing Productivity Utilizing Inventory Control Systems
Master of Science in Operations Management
The scope of this research paper is to discuss inventory control systems as they relate to the overall production for a company. I will first discuss production factors for companies and costs associated with high inventories. Then, switch the focus to describe, discuss, and compare Just-in-time (JIT) Production and Material Requirements Planning (MRP) processes as methods to reduce and therefore minimize inventories for businesses.
Productivity can be defined as a common measure of how well a country, industry, or business unit is using its resources. See the equation below for the mathematical relationships used to define productivity.
Productivity (P) = Outputs or Goods and Services produced
Inputs All Resources Used
Expanding on results in: Productivity = Output t
Labor + Capital + Materials
These equations allow productivity to be defined in terms of relative measure.
This allows a business to compare current productivity levels against previous productivity levels, or against their competition's productivity. The company defines what total or partial factors will be considered as output and input in these equations and then uses these values to calculate an initial productivity value. The value by itself is not important but it allows the company to make changes in the business model or operations and see how it affects the productivity of that company.
Now, let's look at costs associated with inventory. There are four major costs associated with inventory: Holding costs, Setup costs, Ordering costs, Shortage costs. Holding or carrying costs refer to the costs for storage facilities, handling (i.e. moving), insurance, pilferage, breakage, obsolescence, taxes, depreciation and the loss of opportunity costs of capital. These costs can be very significant to the company. Any amount of...