Excessive inventory ties up working capital and occupies limited storage space. MRP can be used to reduce inventory in the following ways:
- Do not reduce inventory by making and buying items to order when it is not necessary. For items with predictable demand, it is more efficient to maintain some stock using a Stocking order policy to reduce times to shipment and boost cash flow and sales.
- For items that you stock (those with a Stocking order policy), use the item Supply Days interval to eliminate the risk of over-stocking. The Supply Days interval limits stock to an amount that covers planned usage for a specified number of days.
- Even if planned usage for an item proves to be wrong and does not materialize, the amount of stock will never exceed the amount triggered by the Supply Days interval. MRP is demand-driven and will not generate a new job or PO unless it is triggered by actual demand.
The item Supply Days interval is your primary tool for “right sizing” your inventory. It ensures that sufficient stock is provided for shortening times to shipment, but also limits over-stocking. Apply an appropriate Supply Days interval to all your Stocking order policy items and you can dramatically reduce inventory without risk of shortages.