Thirty years ago, legions of managers and scientists started a pilgrimage to Japanese manufacturing plants in order
to study the tremendous success of Japanese firms at that time. Impressed by drastically reduced inventory levels,
the Western pilgrims coined a new management paradigm which was called zero inventory (Hall 1983). The core
principle of zero inventory is that inventory reflects waste and should be eliminated, causing productivity to rise
(Schonberger 1982, Nakane and Hall 1983, De Haan and Yamamoto 1999). However, inventory also has functions
in regard to operations in manufacturing firms, e.g. to avoid costly setups or multiple orders and shipments, or
simply to cope with uncertainty and secure acceptable service levels when balancing supply and demand.
Accordingly, numerous normative models were developed in operations research to determine optimal lot sizes and
inventory levels (e.g. Silver 1981, Silver et al. 1998). Nevertheless, the zero inventory paradigm does not accept this
view of necessary costs of carrying inventory, assuming inventory is necessary due to unsolved problems. Lieberman
and Demeester (1999, p. 466) point out that ‘inventories prevent the discovery of problems on the shop floor and
thus [are] detrimental to productivity.’ In the context of determining optimal lot sizes, such unsolved problems could
be time-consuming setup processes which it would be better to eliminate or reduce to a minimum. In consequence,
the classical lot sizing problem would go up in smoke.
Thirty years ago, legions of managers and scientists started a pilgrimage to Japanese manufacturing plants in orderto study the tremendous success of Japanese firms at that time. Impressed by drastically reduced inventory levels,the Western pilgrims coined a new management paradigm which was called zero inventory (Hall 1983). The coreprinciple of zero inventory is that inventory reflects waste and should be eliminated, causing productivity to rise(Schonberger 1982, Nakane and Hall 1983, De Haan and Yamamoto 1999). However, inventory also has functionsin regard to operations in manufacturing firms, e.g. to avoid costly setups or multiple orders and shipments, orsimply to cope with uncertainty and secure acceptable service levels when balancing supply and demand.Accordingly, numerous normative models were developed in operations research to determine optimal lot sizes andinventory levels (e.g. Silver 1981, Silver et al. 1998). Nevertheless, the zero inventory paradigm does not accept thisview of necessary costs of carrying inventory, assuming inventory is necessary due to unsolved problems. Liebermanand Demeester (1999, p. 466) point out that ‘inventories prevent the discovery of problems on the shop floor andthus [are] detrimental to productivity.’ In the context of determining optimal lot sizes, such unsolved problems couldbe time-consuming setup processes which it would be better to eliminate or reduce to a minimum. In consequence,the classical lot sizing problem would go up in smoke.
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