Decision Framework for Inventory Management

The latter situation describes dependent-demand items, those items whose demand is driven by the demand of other items. 

As an example, consider a finished goods item produced by some firm, let us say a cell phone. To the producing firm, the cell phone itself is an independenf-demand item. Its component parts—such as the circuit board, the keypad, the plastic housing, the battery, etc.,— are dependent-demand items. The demand for these items is driven by the production schedule for the cell phones, which is solely under the control of the company that produces the phones. The company s management chooses the production plan in response to projected consumer demand for these phones. Thus, inventory management for dependent-demand items is largely an issue of ensuring that component parts are available in sufficient quantities to execute the production plan. 

Given the supply-chain context of this book, we will consider only the management of independent-demand items—i.e., those items that move between firms in the supply chain. Throughout this book, we focus on issues related to node-to-node relationships in the supply chain, consistent with the framework developed in Chapter 1 that defines a supply chain as a network of nodes. Dependent demand involves within-node effects and is outside the scope of this book, but is discussed extensively in books on production/operations planning and control systems (e.g., Vollmann et al., 2005 or Chapman, 2006, which also contains an excellent discussion on hybrid systems that combine appropriate elements of MRP and kanban control). Note, however, that the classification of an item as an independent-demand item or a dependent-demand item is not an absolute characterization. Rather, it only makes sense in context. For example, to the company that assembles the cell phones, the keypad is clearly a dependent-demand item, provided that its only demand is derived from the production schedule for cell phones (i.e., not from sales of keypads as stand-alone items). To the firm that produces the keypads and sells them to various cell phone manufacturers, however, the keypad is an 

As indicated by Bozarth (2005), another idea embedded in his framework is that the stationary demand approaches map to pull systems, whereas the non-stationary approaches map to push systems. Although definitions tend to vary—see Hopp and Spearman (2004) for an excellent discussion—pull systems are those that execute replenishments only in response to actual demand, while push systems drive replenishments from the schedule of projected future demands, which, consistent with Bozarth s framework, will vary over time. Hopp and Spearman (2004) also point out that kanban, or card —controlled production systems (see, e.g., Vollmann et al., 2005, for descriptions of several examples of this), are only one, specific implementation of what they more generally describe as constant-WIP systems (where WIP stands for work-in-process, or inventory that is not yet fully converted from raw materials into finished goods). Again, since our focus will be on independent-demand inventory management systems, the reader is referred to the Hopp and Spearman article for further details regarding such dependent-demand systems. 

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