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Types of Inventory Management
There are three major philosophies of inventory management:
MRP and MRP II
MRP and MRP II are computer-based resource management systems designed for items that have dependent demand. MRP and MRP II look at order quantities period by period and, as such, allow discrete ordering (ordering only what is currently needed). In this way, inventory levels can be kept at a very low level; a necessity for a complex item with dependent demand.
Just-in-time (JIT) is a philosophy that advocates the lowest possible levels of inventory. JIT espouses that firms need only keep inventory in the right quantity at the right time with the right quality. The ideal lot size for JIT is one, even though one hears the term "zero inventory" used.
Theory of Constraints (TOC)
Theory of constraints (TOC) is a philosophy which emphasizes that all management actions should center around the firm's constraints. While it agrees with JIT that inventory should be at the lowest level possible in most instances, it advocates that there be some buffer inventory around any capacity constraint (e.g., the slowest machine) and before finished goods.