Inventory Management
📦 The data foundation of MRP II
Scope	Raw materials, WIP, finished goods
Key data	On-hand, allocated, on-order, lead times
Accuracy target	≥95% (Class A MRP II)
Primary consumer	MRP netting calculations
Part of	MRP II

Inventory Management

Inventory Management within MRP II is the subsystem responsible for maintaining accurate records of all stock — raw materials, work-in-process (WIP), and finished goods. It is the data foundation of the entire system: MRP's netting calculations depend entirely on knowing what is actually on hand, what is allocated, and what is on order.

Contents

Why accuracy matters
The inventory record
Types of inventory
Key transactions
Cycle counting
ABC classification
Relationship to other modules
See also

Why accuracy matters

If MRP believes there are 200 units on hand but the actual count is 50, it will not generate a planned order for 150 units — resulting in a shortage that halts the shop floor. Conversely, if records show 50 but there are actually 200, MRP will order unnecessarily, inflating purchasing costs and carrying cost. Oliver Wight's Class A standard demands ≥95% inventory record accuracy (measured by cycle counting).

The inventory record

Each item's inventory record (also called the item master or inventory status record) contains:

Field	Description	Used by
On-hand quantity	Current physical stock	MRP netting
Allocated quantity	Reserved for released orders	MRP (available = on-hand − allocated)
Scheduled receipts	Open POs and work orders with expected dates	MRP netting
Lead time	Time from order release to receipt	MRP offsetting
Safety stock	Buffer against uncertainty	MRP (treated as additional demand)
Lot-sizing rule	L4L, FOQ, EOQ, POQ	MRP lot-sizing
Make/buy code	Manufactured or purchased	MRP routing to SFC or Purchasing

Types of inventory

graph LR
    RM["Raw Materials
(purchased items)"] --> WIP["Work-in-Process
(on the shop floor)"]
    WIP --> FG["Finished Goods
(ready to ship)"]

    PUR["Purchasing"] -.->|"receipts"| RM
    SFC["SFC"] -.->|"issues"| RM
    SFC -.->|"completions"| FG

    style RM fill:#d5e8f5,stroke:#333
    style WIP fill:#fff3cd,stroke:#333
    style FG fill:#d5f5d5,stroke:#333

Key transactions

Receipt — Goods received from Purchasing (buy items) or SFC (make items). Increases on-hand.
Issue — Materials issued to a work order on the shop floor. Decreases on-hand, increases WIP.
Transfer — Movement between locations (e.g., warehouse to shop floor).
Adjustment — Corrections from cycle counting or physical inventory.
Scrap — Material consumed but not resulting in usable output. Reported by SFC.

Cycle counting

Rather than shutting down the plant for an annual physical inventory, MRP II best practice uses cycle counting: counting a subset of items every day so that all items are counted at least once per year (A items more frequently). This provides continuous accuracy feedback without disrupting operations.

A items (high value, ~20% of items, ~80% of value) — Count monthly or quarterly
B items (medium value) — Count semi-annually
C items (low value, ~50% of items, ~5% of value) — Count annually

ABC classification

pie title Inventory Value Distribution
    "A Items (20% of SKUs)" : 80
    "B Items (30% of SKUs)" : 15
    "C Items (50% of SKUs)" : 5

ABC analysis, based on the Pareto principle, segments inventory items by annual dollar usage. This drives differentiated policies for cycle counting frequency, safety stock levels, lot-sizing rules, and purchasing attention.

Relationship to other modules

graph TB
    INV["Inventory
Management"]
    PUR["Purchasing"] -->|"receipts"| INV
    SFC["SFC"] -->|"completions & issues"| INV
    INV -->|"on-hand & status"| MRP["MRP"]
    INV -->|"material availability"| SFC
    MRP -->|"planned orders"| PUR
    MRP -->|"planned orders"| SFC

    style INV fill:#cedff2,stroke:#333