The transition of manufacturing systems towards high responsiveness and flexibility in order to address customer needs in dynamic markets allows a rephrasing of the inventory management problem towards models treating inventory budgets as independent variables. This research builds a foundation towards such inventory management approaches in manufacturing, which is characterized by multiple production stages. The proposed methodology allows planning inventory by considering the product structure, supply chain structure, and available inventory budget without requiring forecasts. Any available forecast can instead be used to evaluate the probability of being met by a given inventory budget....[ Read more ]

The transition of manufacturing systems towards high responsiveness and flexibility in order to address customer needs in dynamic markets allows a rephrasing of the inventory management problem towards models treating inventory budgets as independent variables. This research builds a foundation towards such inventory management approaches in manufacturing, which is characterized by multiple production stages. The proposed methodology allows planning inventory by considering the product structure, supply chain structure, and available inventory budget without requiring forecasts. Any available forecast can instead be used to evaluate the probability of being met by a given inventory budget.

For discrete-item high-mix low-volume production companies, a methodology is proposed to determine which items to stock, and how much to stock of each under a limited inventory budget, based on a theory to value inventory items at each stocking point by their ability to hedge against uncertainty, decouple operations, and buffer lead time.

The value of each inventory item is analytically determined according to the purposes of holding inventory considering the characteristics of bills of materials, the ability to recover from shortage, and the stocking position in the supply chain. Each inventory item’s distinct risk profile is evaluated relative to each other item to ensure continuity of production flow, so that uncertain input parameters like demand and throughput no longer unduly influence the derivation of target inventory levels. The valuation of all items can be interpreted as a map of the company’s inventory stocking risk, enabling the efficient allocation of a given inventory budget to maximize the system’s customer responsiveness.

The behavior of this methodology is simulated by sensitivity analyses of the available inventory budget and selected stocking item parameters.

Two pilot studies in the industries of acoustic electronics and industrial hydraulic equipment support the viability of the approach in practice.