English for Business Studies Track 17 Inventory, Kanban and MRP

Summary

The video discusses how companies aim to minimize inventory to reduce capital tied up in stock, opting instead for strategies like just-in-time and kanban systems. The speaker explains that while certain materials and equipment are essential, the goal is to have suppliers deliver exactly when needed to stay agile. The company has shifted from an MRP system to kanban, enabling efficient supply chain management by directly linking customer demand with supplier delivery, ensuring production runs smoothly without maintaining large inventories.

Takeaways

• 😀 Companies aim to minimize inventory due to the high capital tied up in it.
• 😀 Maintaining low inventory allows businesses to use capital for growth instead of storage.
• 😀 Although inventory is necessary for operations, the strategy is to reduce stock levels as much as possible.
• 😀 The goal is for suppliers to deliver materials only when they are needed in production, enhancing business agility.
• 😀 By minimizing inventory, companies can react more quickly to sales and market demands.
• 😀 Large inventory holds significant cost implications, prompting companies to explore efficient alternatives.
• 😀 Under the leadership of Dana, the company switched from MRP (Material Requirements Planning) to a kanban system.
• 😀 Kanban is a pull system where parts are immediately replaced once used, ensuring continuous flow.
• 😀 The kanban system links the demand for finished products directly to the supply of components from suppliers.
• 😀 Unlike traditional 'just-in-time,' kanban creates a direct connection between customer demand and supplier delivery.
• 😀 This shift allows the company to manage inventory more efficiently and respond to customer needs in real time.

Q & A

Why do companies try to keep their inventory as low as possible?

Companies aim to keep inventory low because it ties up capital that could otherwise be used to grow the business. Large inventories also come with significant cost implications.

What types of inventory are still needed in business despite the focus on low inventory?

Businesses still need inventory for items such as equipment used for customer demonstrations and certain materials used in the manufacturing process.

How do companies manage inventory without stocking large amounts?

Companies manage inventory through a strategy where suppliers deliver items when needed in the production process, ensuring agility and responsiveness to market demands.

What is the implication of holding large amounts of inventory?

Holding large amounts of inventory results in high capital costs and can hinder a business’s ability to respond quickly to changing market conditions.

How does the responsibility for inventory management shift in the supply chain?

The responsibility for inventory management is shifted to the suppliers, who are expected to deliver parts or materials to factories when the demand arises, reducing the burden on the company itself.

What inventory system did Leica previously use, and how does it differ from the system used now?

Leica previously used a Material Requirements Planning (MRP) system, which was a more sophisticated method of forecasting parts needed for production. Now, they use a Kanban system, which is a pull-based system where parts are immediately replaced when used.

What is a Kanban system, and how does it work in the context of inventory management?

A Kanban system is a pull-based inventory management system where used parts are immediately replaced. It creates a direct link between customer demand for finished products and the supply of components from individual suppliers.

Is the Kanban system the same as Just-in-Time (JIT)?

No, the Kanban system is not exactly the same as Just-in-Time (JIT). While both aim to reduce inventory, the Kanban system focuses on replenishing parts immediately when used, rather than on timing the delivery of products precisely to production needs.

What is the key advantage of using a Kanban system over an MRP system?

The key advantage of using a Kanban system is its ability to respond more quickly to customer demand by ensuring parts are always available for production without the need for extensive forecasting.

How does the Kanban system ensure that production stays aligned with customer demand?

The Kanban system ensures production stays aligned with customer demand by automatically replenishing parts when they are used, which links the demand for finished products directly to the supply of components from suppliers.