Inventory Management and Materials Requirement Planning of the Royal Air Force of Oman - Term Paper Example

?Inventory management and materials requirement planning Executive summary This report discusses the inventory management system that the Royal Air force of Oman has adopted and how this affects its performance. The report discusses various theoretical issues on inventory management and applies them to the organisation. The report also discusses the problems of excess inventory that the Air force is currently facing and ties this to the type of inventory management system that the military adopts. Further, the report presents a conclusion on the various issues discussed and finally a recommendation on how the Royal Air force of Oman and any other military organisation can improve their inventory management system and ensure no holding of excess inventory. Introduction Inventory management can be defined as the practice of managing the inventory of an organisation so as to ensure that it does not go out of stock and that the needs of the organisation are continually met (Pillsbury, 2005). Inventory management is carried out in order to protect the organisation against stock-outs when there is variability in terms of demand. Inventory management and materials planning in a military setting is very much different from the business setting due to the nature and sensitivity of the inventory itself. The fact that there is always need to provide the right materials to the military personnel at the right time especially during war has resulted in a situation where the inventory management practices adopted are very risk averse leading to the holding of a lot of inventory at a time in their stores. This is due to the fact that there is need to consider the risk of lacking particular materials when they are needed by the personnel on the ground (Hillier and Lieberman, 2001). Royal Air force of Oman Inventory system The Royal Air force of Oman is no exception to the inventory management practices adopted by the military. They have in their stores a lot of inventory to the level of being overstocked. The force is now being faced with huge inventory maintenance costs as well as the escalating costs of maintaining the stores in different locations. As a result of this, the military is now being faced with a situation of shortage of cash due to the frozen money tied up in the inventory. Some of the items in the inventory have been there for many years and the military is now being faced with the risk of obsoleteness as new technology development has resulted in new more advanced military equipments (Max, 2005). Military organisations all over the world have traditionally focused on keeping high levels of inventory in order to be able to deliver the needed services and equipments to their personnel. This has therefore led to a situation where the military organisations have to take a risk averse position and adopt inventory management practices which allow the storage of high levels of inventory for readiness purposes. This is a practice that most military logistics personnel adopt and has resulted in a common believe that holding more inventory is better when it comes to being ready for warfare and being ahead of other military forces. It is however important that these military organisations adopt better inventory management practices so as to reduce the costs of storage and the risk of obsoleteness. This will help them manage their inventory levels in a more cost effective manner thus lowering some of the heavy costs they have been incurring over time (Melcher and Ferrari, 2004). Inventory Management Systems There are several inventory management systems that can be used by an organisation to manage their inventory. These are; reorder point systems, periodic review systems and material requirements planning. The inventory management system adopted by military organisations such as the Royal Air force of Oman is based on the material requirements planning system. This is due to the fact that most of the materials purchased by the military are based on needs and therefore they are planned for in advance as needs arise. This system is appropriate for the military due to the fact that their equipments are purchased when there is demand (Melcher and Ferrari, 2004). This is a diagram that shows the material requirement planning system components There is also need for the Royal Air force of Oman to classify their inventory based on the ABC system. This classification system classifies inventory into three distinct categories, A, B and C. Class A inventory take up about 15 – 20% of all the items and they are regarded as the high value items. These need very tight control and accurate records and therefore the Royal Air force should ensure that they are well monitored and stored. Class B items take up about 30 – 40% of all items and they are referred to as medium value items. These are also kept under tight controls but not as tight as class A items. Finally, class C items are low value items which take up about 40-50% of all the inventory items. The force should ensure that class B and C items should not be over stocked since they can be purchased easily (Eaton, 2002). This is presented in the diagram below; Need to Maintain an Optimal Inventory System The maintenance of optimal inventory management practices in an organisation of any kind requires that the management regularly review and update the data on inventory available, select suitable models of inventory management as well as make frequent computations of new optimum values in relation to decisions on reordering. This is due to the fact the conditions under which the organisation operates change with time and there is therefore need to change with them. Inventory management is a complex process and the complexity increases with higher levels of the inventory. This means that for an organisation like the Royal Air force of Oman, this practice may be very complex as a result of the large volume of inventory in their stores. The records of such inventory may be very long and hard to maintain if it is done in the traditional manual method. It is clear that the Air force needs to adopt the use of new technology based programmes and methods to manage their inventory (Eaton, 2002). Levels of Inventory system adopted by the Royal Air force of Oman There are different levels of inventory systems and they are classified according to the number of players in the supply chain. The military units inventory system can be classified as a Multi-echelon inventory system due to the number of players involved in the supply chain. This system involves several suppliers and several stages of distribution before the inventory can get to the final user. Managing such an inventory system is sometimes very difficult due to the fact that one is dealing with a multi-level supply chain where there are different stages of distribution being run by different people. Ensuring that all the players in the supply chain are effective in their delivery is difficult and therefore it may be difficult to have an efficient supply chain. The inventory system is however designed in such a way that every player in the supply chain plays their part at the right time in order to ensure that there is timely delivery of inventory to the military personnel on the ground. Military organisations always have the luxury of having ready equipments and never running out of stock which is a luxury that commercial organisations do not enjoy. It is important to note that the military inventory consists of highly priced materials of low demand and therefore they buy in bulk so that they can enjoy discounts. This leads to a situation where they store the materials in bulk and stay for years without making any other purchases (Sherbrooke, 1992). There have however been various problems with this kind of an inventory system. The military is normally faced with lack of linkages between the various supplier levels and this leads to the accumulation of some items in some units. This means that some items are not transferred to the next level in a timely manner leading to accumulation of inventory in a particular unit. This is the problem that the Royal Air force of Oman is facing and this has resulted in the holding of a lot of inventory in one place thereby increasing the costs of holding inventory to unmanageable levels. A good example is where combat equipment may be inoperable due to lack of some component which may not have been transferred from another unit where it is in excess. However, since the unit that needs these components are not aware that the same are in excess supply in another unit, they fail to use the component until the manager makes a requisition from the wholesale level (Kern, 2004). Wholesale and Retail system The army inventory system is normally divided into the wholesale system and the retail system. The wholesale system is responsible for procuring items at the national level while the retail system is responsible for procuring items for specific unit. As discussed above, there is always a disconnect between the wholesale and the retail level (Croson and Donohue, 2002). The lack of linkage is what has led to the current situation that the Royal Air force of Oman is facing. The inventory at the retail level may be in excess of what is needed but the same has not been reported at the wholesale level. This makes it very difficult to control inventory levels since there is no clear communication between units with excess inventory and those with inadequate inventory (Chen and Samroengraja, 2000). Conclusion It is evident that the Royal Air force of Oman and other military units have adopted non optimal inventory management practices due to the nature of their operations. These units are now being faced with inventory levels that are very high and are becoming expensive to store and maintain. The conditions that military organisations operate under require that they always have ready inventory which can be deployed immediately it is needed by the military troops on the ground. Purchasing military equipments is very complex and expensive and it is therefore not possible to make urgent purchases when their demand sores on the ground. This therefore means that the military units have to make bulk purchases once in a long period of time and this leads to a situation where they have to hold a lot of inventory in their stores across different locations (Axsater, 1993). The huge inventory levels have resulted in several problems for the Royal Air force of Oman and the organisation is now trying to deal with these issues. It is being faced with high inventory levels which results in a risky position due to the likelihood of obsoleteness and the damage of equipments. It is however important to note that the reason why the unit has a lot of inventory in their stores is due to the fact that they hold a position ready to supply their troops with any equipment that they may need while carrying out their operations on the ground. It is important to have ready equipment due to the unpredictability of occurrences such as warfare, terrorist activities and natural disasters (Graves, 1996). Recommendations Due to the various disadvantages that arise due to holding huge inventory levels by the Royal Air force of Oman, it is paramount that they adopt new and modern inventory management practices which are driven by technology and the needs on the ground. This is expected to ease their position in terms of costs of storage and availability of funds to purchase any new equipment that they may need over the course of time. The force should adopt a system where they only order for what they need so as to minimise the costs of holding inventory in their stores. This can be achieved through the re-evaluation of the re-order points and other decisions involving the ordering of new inventory. This will streamline the management of their inventory and lead to a situation where they only have inventory that they need for that particular time (Lee, So and Tang, 2000). It is recommended that the Royal Air force of Oman should adopt the techniques provided by an Intelligent Decision Support System (IDSS) to help manage their inventory system. Such a system will be very useful to the Air force in that it will provide advice to the procurement managers in during decision making which will help achieve an effective inventory management system (Gavirneni, Kapuscinski and Tayur, 1999). Such a computerised system will help the procurement managers to ensure that they make optimum decisions in relation to re-ordering of new inventory and the disposal of old ones. This will lead to reduced costs of holding stock in that the number of storage locations will be reduced. Costs of maintenance will also reduce since old stock will be disposed off and new ones bought (Gerrard and Fisher, 2000). It is however important to note that in the situation of the military, it is not possible to always replace old items with new ones and some of the items are expected to last for a long period of time. It is therefore important for the procurement managers to evaluate the different types of inventory they have and categorise them into those that can be held for the long term and those that can be replaced within short periods of time. This will also ensure that the Air force does not hold obsolete items putting them at a disadvantaged position in comparison with other military units (Clark and Hammond, 1997). References Axsater, S. 1993. Exact and Approximate Evaluation of Batch-Ordering Policies for Two-Level Inventory Systems, Operations Research, vol. 41, no. 1, Pp.777–785. Chen, F and Samroengraja, R. 2000. A Staggered Ordering Policy for One Warehouse Multi-Retailer Systems. Operations Research, vol. 48, no. 2, Pp. 281–293. Clark, T. and Hammond, J. 1997, Reengineering channel reordering processes to improve total supply chain performance, Production Operations Management, vol. 6, no. 2, Pp. 248–265. Croson, R and Donohue, K. 2002, Experimental Economics and Supply Chain Management, Interfaces, vol. 32, no. 5, Pp. 74–82. Eaton, D.R. 2002, Improving the Management of Reliability: Availability isn’t everything, it’s the only thing, Our Aerospace Newsletter, vol. 9, no.2, pp. 1–3. Gavirneni, S, Kapuscinski, R. and Tayur, S, 1999. Value of information in capacitated supply chains, Management Science, vol. 45, no. 1. Pp. 16–24. Gerrard, P. C and Fisher, M. 2000, Supply Chain Inventory Management and the Value of Shared Information, Management Science, vol. 46, no. 8, Pp. 1032–1048. Graves, S. 1996. A Multi-echelon inventory model with fixed replenishment intervals. Management Science, vol. 42, no. 1, Pp. 1–18. Hillier, F. and Lieberman, G. 2001, Introduction to Operations Research, 7th ed., McGraw Hill, San Francisco. Kern, P.J. 2004, Getting Soldiers What They Need When and Where They Need It, ARMY, vol. 10, no. 1,Pp. 72-73 Lee, H., So, K and Tang, C. 2000, The value of information sharing in a two-level supply chain, Management Science, vol. 46, no. 5, Pp. 626–643. Max, B. 2005, The Struggle to Transform the Military, Foreign Affairs, vol. 84, no. 4, Pp. 106-107. Melcher, D.F and Ferrari, J.G. 2004, A View from the FA49 Foxhole: Operational Research and Systems Analysis, Military Review, vol. 9, no. 1, pp. 2–6. Pillsbury, J.H. 2005, Support of the Soldier: Life Cycle Management at Redstone Arsenal, ARMY, vol. 1, no. 1, pp. 32–36. Sherbrooke, C.C. 1992, Optimal Inventory Modelling of Systems: Multi-Echelon Techniques, Wiley, Hoboken, N.J. Read More