November 01, 2008

Operations Management Lesson 7 Exercise

Take a look at a material processing operation. What types of stock control methodologies (re-order point, MRP, ERP etc.) are used? Comment on the possible reasons for the choice of method. If you can, conduct a sample Pareto (80/20) analysis of stock levels and stock usage (by value). How effective is the stock management?

I will explain this blog based on my own experience with a factory bakery traditional and the knowledge of the process in the current manufactories. The activity of the bakery plant is based in a continuous process that only stops weekends and twice a year to maintenance activities. This is the typical layout of a current bread plant:


The main blocks of the process are Material intake, Production and Shipping. In all this process there are two main warehouse that are for the inputs and for the outputs. In this Blog we are going to see the inventory management choose in the material intake and shipping phase.
In order to hold the production line and satisfy the levels of demand the factory holds two inventories with very different characteristic. The first of them is the input inventory which one works under the Material Requirement Planning (MRP) pattern, and the second one is  the output inventory that works with the Reorder Point (ROP) pattern.
Each ingredient in the baking process have their own requirements when it comes to receiving and storage. For flour, for instance, the demands are to empty tanker trucks with as little dust as possible, record amounts exactly, and make intermediate storage in the silos transparent. All other ingredients must be recorded quickly and accurately, stored and managed appropriately, especially regarding expiration dates. For these reasons the use of MRP are justify, in this way they can hold fresh the ingredients.
The Output inventory follow the ROP pattern and when the stock level of the some kind of products reach the re-order point, the order to production stage is launched. The intention of adopt this method is to hold a constant the demand of production, that is only possible with the current style in the bakery process because the final output is frozen bread and is possible to hold a safety stock in the freezers.
If  we see the linking of the items of the input and output inventories with the stock control ABC or pareto analysis, we has the following relation:

A.- High Value Items: this can of item corresponding with the items of input inventory, although really only will be need for some of them.
B.- Medium Value Items: currently there are no items in this category, but will be good to have a better distribution of the items independently of the I/O inventories.
C.- Low Value Items: in this class are the output items, although some of then could be classified as medium value.


Finally my suggestion is that the stock management efficiency can improve if there are a different styles of inventory management per each type of ingredients (in the input inventory) and per each type of final product (in the output inventory).


Walley, P. (2008)  Operations Management Study Notes, Warwick Business School
Slack, N. et al. (2006) Operations and process management, FT Prentice Hall, London

Backery Sector
BIMBO S.A. web Site (

- One comment Not publicly viewable

  1. Desmond Yarham

    Hi Luis, you selected an interesting process (industrial bakery) and included a helpful illustration. I couldn’t help seeing the silo’s at the start of the process (located outside) and wondered if they would have some kind of telemetry systems triggering reorder. They could of course be A type inventory ordered through the MRP/ERP system.
    You provided good inventory theory through Pareto and ABC and applied it to the particular application. Did you mean ROP rather than RPO – you used ROP in the Pareto illustration but RPO in the description?

    30 Oct 2008, 11:47

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  • Hi Luis, interesting to hear what happened in a real life situation – in your conclusion it would be… by Harminder Singh on this entry
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