What are the Various Ordering methods?

Different companies have different ordering methods, depending upon their product mix, warehouse and store locations, production or sales cycles, supplier terms, volumes and value of inventory items. There are four possible ordering approaches.

Just-In-Time: This is one of the most popular methods for controlling inventory in the manufacturing environment. Just in Time (JIT), aims to reduce costs by cutting stock to a minimum. It seeks to deliver inventory to the production floor just in time for use. Items are delivered when they are needed and used immediately, not very soon, not late. JIT method delivers only the exact quantities required to complete the current production, no more, no less. There is a risk of running out of stock, so we need to be confident that our suppliers can deliver on demand. Generally, in most manufacturing environments utilizing JIT delivery, the supplier has a warehouse very close to the manufacturing facility.

Material Requirement Plan: Material requirement planning (MRP) is an inventory management system designed to assist production managers in scheduling and placing orders for items. Generally, they are software-based solutions as a part of a system that helps in production planning, scheduling, inventory control and manufacturing. MRP calculates the inventory requirements based on the current inventory levels, production plan, open orders etc. and prepares a list of items needed. It ensures that the materials are available for production when they are needed. It helps in maintaining the lowest possible inventory levels in the store. If properly implemented, it can reduce cash flow and increase profitability. MRP can help you to be pro-active rather than re-active in the management of your inventory levels and the material flow.

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Ordering Fixed Quantity: A standard quantity is ordered when the reorder level has been reached regardless of when this occurs. This depends on the consumption of and the demand for the items. This approach is useful for expensive items and critical items.

Ordering at Fixed Times: In some cases, a purchase order is issued at fixed intervals, even if the reorder level is not reached. This is done for items which are not very critical and not very expensive also, so little extra inventory may not cause much problems. The buyer and the vendor establish a routine of such regular ordering. Also, sometimes orders are combined to reduce the transportation expenses.

Know more about different kinds of ordering approaches only at the LSBF.

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