Key Terms in Production and Inventory Management

Inventory Management

Safety Stock: The amount of inventory carried in addition to the expected demand.

Stock Keeping Unit (SKU): A common term used to identify an inventory item.

Material Requirements Planning (MRP)

Available to Promise: A feature of MRP systems that identifies the difference between the number of units currently included in the master schedule and actual (firm) customer orders.

Bill of Materials (BOM): A computer file that contains the complete product description, listing the materials, parts, and components, and the sequence in which the product is created.

Closed-loop MRP: The use of actual data from the production system to continually update the MRP system. This feedback is provided so that planning can be kept valid at all times.

Master Production Schedule (MPS): A time-phased plan specifying how many and when the firm plans to build each end item.

Material Requirements Planning (MRP): The logic for determining the number of parts, components, and materials needed to produce a product. MRP also provides the schedule specifying when each of these materials, parts, and components should be ordered or produced.

Flow Manufacturing: Hybrid production planning systems that combine the information integration and planning capabilities of MRP with the response of a JIT kanban system.

Manufacturing Resource Planning (MRP II): An expanded version of MRP that integrates finance, accounting, accounts payable, and other business processes into the production scheduling and inventory control functions that are part of a basic MRP system.

Net Change System: An MRP system that calculates the impact of a change in the MRP data (the inventory status, BOM, or master schedule) immediately. This is a common feature in current systems.

Scheduling and Production Control

Dispatching: The activity of initiating scheduled work.

Backward Scheduling: Starts from some date in the future (typically the due date) and schedules the required operations in reverse sequence. Tells the latest time when an order can be started so that it is completed by a specific date.

Finite Loading: Each resource is scheduled in detail using the setup and run time required for each order. The system determines exactly what will be done by each resource at every moment during the working day.

Forward Scheduling: Schedules from now into the future to tell the earliest that an order can be completed.

Infinite Loading: Work is assigned to a work center based on what is needed over time. Capacity is not considered.

Input/Output (I/O) Control: Work being released into a work center should never exceed the planned work output. When the input exceeds the output, backlogs build up at the work center that increase the lead time.

Johnson's Rule: A sequencing rule used for scheduling any number of jobs on two machines. The rule is designed to minimize the time required to complete all the jobs.

Labor-limited Process: People are the key resource that is scheduled.

Machine-limited Process: Equipment is the critical resource that is scheduled.

Priority Rules: The logic used to determine the sequence of jobs in a queue.

Sequencing: The process of determining which job to start first on a machine or work center.

Shop-floor (Production Activity) Control: A system for utilizing data from the shop floor to maintain and communicate status information on shop orders and work centers.

Work Center: An area in a business in which productive resources are organized and work is completed.

Assignment Method: A special case of the transportation method of linear programming that is used to allocate a specific number of jobs to the same number of machines.