The motive for inventory performance metrics like inventory turnover and inventory days of supply is to know how much inventory is on hand and to help us decide if that amount is right for our business. That information is useful for finance so that it can reflect its current assets picture. To operations, it indicates the ability to cover production requirements and/or customer orders. But which is the better measure?
Several years ago, an electronics original equipment manufacturer company hired me to salvage its investment in an MRP system. The company had recently been awarded a large contract on the condition it follow an aggressive timetable for the product launch.
After the annual shutdown, a group of concerned employees was waiting for me in my office. The buyer informed me that MRP failed to generate the requirements for the new product and suggested MRP “may work for some products but just doesn’t work for ours.” One of the planners also explained that MRP had generated requirements for old part numbers but the newly created part numbers were missing from the MRP run.
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