Interaction of Inventory Planning with Other Processes

The main goal of the inventory planning process is to provide the safety and sometimes cycle stock parameters to other planning functions, namely:

1. Production scheduling and material requirements planning (MRP)
2. Master planning and rough-cut capacity planning (RCCP)
3. Sales and operations planning (S&OP)

The following describes the general relationship between inventory planning and the planning functions above. It should be noted that the interconnection of these processes can vary by organization based on business model, maturity, and system architecture. The production scheduling and MRP processes have the goal to create a feasible, short-term production schedule for shop floor execution to fulfill the customer orders while balancing costs such as stock-out, overtime and inventory holding costs.

The output of the inventory planning process has to be an input to this process or otherwise the computed safety and cycle stock targets will not be realized. The master planning and RCCP process has the goal to achieve a balance of demand and supply
based on capacity constraints and planning parameters that have been deemed important to model for a mid-term horizon. As such it usually represents an input to the production scheduling process to bring in the information of a tactical buildup of inventory, level loading of production lines, etc. As such the computed safety and cycle stock targets need to be provided as an input as well.

Similarly, the S&OP process seeks to balance demand and supply on a mid to long-term basis. The focus in the S&OP process is on strategic challenges and aligning all departments within an organization towards a common goal. Scenarios based on strategic investments, e.g. new production lines are created and evaluated on
their financial KPI.


 

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