Buffering against lumpy demand in MRP environments: a theoretical approach and a case study

Maria Caridi1 and Roberto Cigolini

Dipartimento di Economia e Produzione, Politecnico di Milano

Piazza Leonardo da Vinci 32, 20122, Milano, Italy

1Corresponding author: Phone: +39.02.2399.2787, fax: +39.02.2399.2700;

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Abstract

This paper is aimed at filling the gap between theory and practice in the area of safety stocks under MRP environments. It is focused on providing a new methodology for dimensioning an overall buffer against uncertainty in market demand, which often plagues SMEs – that act as sub-contractors or suppliers within large projects or they have a reduced bargaining power – and adversely affects their performances.

The proposed methodology suggests to split the amount of safety stocks, as dimensioned according to the traditional methodology, in “new” safety stocks to face the “usual” demand variance and in “strategic” stocks, to face peaks in market demand.

To this purpose, a set of recommended guidelines is reported to effectively dimension and position safety and/or strategic stocks within products bills of materials and manufacturing pipelines.

Finally, a case study is reported, where the benefits for the company coming from the adoption of the new proposed methodology lie in achieving the 95% target service level even under peak demand conditions, being the value of safety stocks as a whole grown only by about 20%.

Keywords:

MRP, inventory management, variance control