In the supply chain inventory management is very important. Even though, holding inventory has its benefits, such as protection against supplier and customer demand uncertainties, it also has a number of costs – storage costs, deterioration and obsolescence costs, insurance costs, and opportunity cost due to tied up capital (Emmet, 2005). According to Emmet (2005), inventory management aims to find the balance between cost of holding stock and the level required to satisfy customer demand. Another issue in supply chain management is supply lead time. By minimizing supply lead time costs can be reduce, while customer satisfaction improved.
Just-in-time (JIT) is an inventory management strategy in which raw materials and components are delivered just before they are required in the production process (Investowords, 2013). It was developed by Toyota Corporation to meet rapidly changing customer demands with minimum time delays (Businessdictionay, 2013). Such method requires accurate forecasting of future sales demand. JIT strategy can minimize the cost of inventory and lead time, while fulfilling customer demand.
Material Requirement Planning (MRP) is software based integrated information system used to schedule raw material delivery dates and volume, based on forecasted demand (Investopedia, n.d.). According to (Investopedia, n.d.), MRP system improved the technology of capturing and analyzing the data in the manufacturing process, and allowed for information integration in different processes of production. MRP system can greatly help in reduction of supply lead time.
JIT and MRP can complement each other in inventory management objectives. MRP provides a computerized system that allows implementing the JIT strategy.