Material planning is referred to as a systematic mechanism through which the requirements of raw materials, ancillary parts and components, spares and the like, can be determined in advance, as informed by the production system. It is an integral part of the overall planning activity.
Based on the response of the materials manager to the inventory situation, there are two forms of inventory systems:
- Reactive Systems
- Planning Systems
Of the above two systems, the reactive inventory systems have been replaced by MRP systems in most of the organizations. Organizations using such systems work on their present situations, whereas, organizations using planning systems work on their future considerations of material requirements – the quantity and the time period.
However, reactive inventory systems are known to be simpler to use and manage in different aspects, but do hold critical limitations, such as high inventory costs and unreliable delivery performance. On the other hand, the planning inventory systems are more complex to manage, yet coupled with several benefits. For instance, this system assists in reducing stock inventories and the related costs, since it considers only those items or parts and components that are required.
Dependency upon demand is another crucial factor that is considered to choose between reactive and planning inventory systems. When there is no dependency on the demand, the demand for one item is not linked with the demand for others. You do not need to stock for safety purposes for dependent demand items, since you may generally know the requirement.
