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== ':' Application Program H20-0471-1
System/3S0 Inventory Control
Application Description
The IBM inventory control application consists of a
group of integrated programs and techniques designed
for the selection and implementation of order point
inventory control where it applies in manufacturing
organizations.
The programs provide for (1) classification of inven-
tory items for determining the type of control, (2)
calculation of economic order quantities on the basis
of usage information or future requirements, (3) compu-
tation of safety. stock and order point, (4) projection
of demand on the basis of historical data and (5) basic
programs for transaction processing and report
preparation.
This manual includes a general description of these
programs, the machine configuration, general systems
charts, sample reports, and a discussion of inventory
control concepts applicable to the use of the programs.
Second Edition
This edition is a major revision of, and obsoletes, H20-0471-0.
Significant changes or additions to the specifications contained in this pUblication
will be reported in subsequent revisions or Technical Newsletters.
Copies of this and other IBM publications can be obtained through IBM branch
offices. Address comments concerning the contents of this publication to
IBM, Technical Publications Department, 112 East Post Road, White Plains, N. Y. 10601
0International Business Machines Corporation 1967, 1968
CONTENTS
Introduction 1
Purpose and Objectives 2
Extent of Coverage 3
Description of Prograrr-s 5
Inventory Analysis 5
Order Point 9
Safety Stock 11
Other Features 19
Summary 20
Order Quantity 23
Standard EOQ 24
Time Periods of Supply 26
Analysis for Implementation 26
Balancing Technique 28
Unit Cost Technique 29
Summary 30
Projection 32
Initialization Programs 37
Operational Progran; 38
Summary 40
Execution 42
Program Modification 44
Summary 46
other Uses of the Programs 49
User Implementation Requirements 50
Timing Considerations 51
Control, Audit, and Reconstruction Procedures 53
Programming Systems 54
Minimum Machine Configuration 55
Appendix 1: Item Master Record 56
Appendix 2: Formulas 60
Bibliography 63
INTRODUCTION
The IBM inventory control programs have been developed to assist
manufacturing companies in the installation of an effective order point
inventory control system.
For planning purposes, programs are provided to assist management in
their judgments regarding the type of control to be exercised for the
inventory items. In addition, other programs will calculate economic
order quantity, order point, and safety stock for inventory ltems on the
basis of usage data and the type of control that is selected.
The projection phase consists of a group of programs that analyze
historic demand data and generate the information necessary to project
future requirements. These programs also provide for keeping the
information current so each projection or forecast can reflect the
latest information.
The execution phase relates to processing the day-to-day transactions
that must be recorded in the inventory file. Several programs are
provided for updating the inventory file and for preparing reports. The
package also contains suggested techniques, subroutines and the documen-
tation to enable each user to develop a more comprehensive system for
this phase of inventory control.
All programs in the package are designed in such a way that each user
can easily modify them to meet the specific requirements of his
installation.
As an additional aid to the user, a summary chart appears after the
discussion of each phase of the program application.
1
PURPOSE AND OBJECTIVES
The principal objective of these programs is to provide an approach that
will enable system/360 users to implement an order point inventory
control application with relative ease.
Many manufacturers are not taking advantage of data processing techni-
ques as applied to inventory control oecause implementation costs appear
to be excessive, or because the overall design aspect seelllS to be too
difficult. The programs should remove these obstacles for many com-
panies, tnus permitting them to obtain the benefits of more efficient
inventory control.
The benefits that can be gained by using the techniquE:s provided
represent many dollars of saving for a typical manufacturer. Inventory
is a substantial investment, and a reduction in this area without a
decrease in service is one of the most important benefits to be gained.
The determination of economic order quantities consistent with usage and
costs, plus the establishment of order points and safety stock consis-
tent with the level of service required, are factors whicn make these
savings possible. Usually, making these determinations is not economic-
ally feasible with a manual system. However, the determinations are
ideally suited for a computer.
The large number of. inventory items and the transactions that affect
these items make it difficult to manually keep up-to-date status
information necessary for the execution of management's inventory
policy. The expense of record maintenance and transaction recording is
another area of potential saving for the user.
In addition, wany of the routine decisions are made by the system, thus
permitting a more thorough examination of items that require attention.
Bxception conditions are highlighted for judgments outside the system.
2
EXTENT OF' COVERAGE
The inventory control application consists of programs, subroutines, and
supporting documentation to assist each user in developing his inventory
control system.
These programs are divided into three phases:
Planning
Inventory Analysis
Order Point
Order Quantity
Projection
Edit
Model Select
Initial Update
Update and Project
Execution
Transaction Processing
Status Reporting
Figure 1 illustrates the general relationship of the three phases and
the specific programs. Within the planning phase, inventory analysis
provides information to be used by the order point and order quantity
programs. The latter two programs update the item master file.
Normally, the user will take advantage of the analysis for implementa-
tion aspect of these two programs. Basically, this enables the user to
analyze the possible effects of changing order points and order
quantities before implementing the changes.
The projection programs edit and analyze historic sales or usage data to
determine whetner patterns exist and to compute the initial parameters
to be stored on the item master file. The initial update program uses
the output of the other programs and places the information in tne item
master file.
The update and project program keeps the item parameters current and
projects future usage on the basis of the parameters. This program uses
the most recent period's demand, supplied by the execution pllase.
The execution phase keeps the files up to date. It processes the
day-to-day transactions and provides status reports and exception
highlighting.
Each program is discussed in more detail on the following pages.
While the programs will have widespread use in relation to many
inventory categories, their primary function is for control of finished
goods and service parts inventories. As such, they conform to the
general concepts cO:1tained in the 113M manual The Product.ion and
Information Control system (E20-0280) in relation to forecasting end
items. Particular attention should De devoted to the description of tne
time series planning subsyste~ in that manual for those items which have
wide variations in usage from time period to time period. ~his usually
occurs for items where the demand is dependent upon orders issued for
higher-level assen