Monday, 1 August 2016

What is Joint Replenishment Inventory Systems ?

Joint replenishment inventory systems are used whenever a number of items are involved in replenishment and it is possible to share the fixed cost associated with replenishment. This fixed cost takes the form of a manufacturing setup cost in the case of manufacturing multi-items using the same facility. In the case of pure inventory systems, the fixed cost of replenishment is that part of ordering cost which is independent of the number of items on order.

When a product is packaged into more than one type of container immediately after manufacture, there is a saving in cost if these items are manufactured jointly and then packaged individually. The economic advantage of manufacturing jointly and packaging individually is due to the fact that if items are manufactured and packaged individually, then each item is accountable for the full setup cost for each of its manufacturing and packaging setups. As a result of manufacturing the items jointly, it is possible to reduce the cost of setups required for manufacturing.

The joint replenishment problem is also similar to the inventory control problem faced by a company procuring several items from a single supplier. In this case, ordering items jointly reduces the ordering cost and may enable utilization of the same transportation facility and/or group quantity discounts. In real-life procurement processes, joint replenishment of items is the common practice used as opposed to independent replenishment of single items. On the manufacturing side, joint replenishment of multi items on single machinery is becoming more widespread through the utilization of flexible machine tools which provide product, operation and routing flexibilities.

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