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MIHI calculation

Wendy Bandych Arndt

Storage design is key to allow a fast components count. By implementing the first VRO, Wendy Bandych Arndt has established the link between a good storage design and an efficient counting.

MIHI calculation is the key step for the design of a component warehouse. You need to to find the right balance between a space optimisation and the overflow management: you do not want to have empty space used only once a year but you do not also want to have your procurement scheduler explaining on a daily basis that this part is in the overflow area because its allocated space is not consistent with the demand. A difficult compromise except if you choose to revamp regulary your warehouse, which can be the best solution if your storage equipments are flexible and easy to set-up.


Definitions

Maximum In House Inventory (MIHI) is calculated based on:

  • Gross Demand from the Master Production Schedule (MPS);
  • Deliveries Schedule;
  • Delivery Safety Time (DST);
  • Procurement and Production constraints (MOQ, batch size);
  • Production schedule (shifts time) and eventually consumption rate.

Maximum In House Inventory is the maximum between:

  • maximum gross demand between 2 deliveries increased by the Delivery Safety Time (DST);
  • minimum quantity to order (MOQ): at least the quantity of the standard packaging;
  • minimum quantity to be consummed during a production batch.

In the MIHI we use the Delivery Safety Time and not the whole value of the Transportation Safety Time. Indeed, if our Transportation Safety Time is only based on a Safety Transit Time, the truck will be always on time: no need to be protected for a truck delay.


Example

This is the daily demand and the delivery schedule of a part number. Deliveries occur at the beginning of the period.

  Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa Su Mo
Demand 50 80 20 90 20 50 0 90 120 100 50 80 100 0 80
Delivery Yes     Yes       Yes     Yes       Yes

  • Delivery Safety Time = 1 day
  • Minimum Order Quantity = 40
  • Packaging quantity = 20
  • Batch size = 300

To calculate the MIHI necessary for the next 2 weeks we have to find the maximum demand between 2 deliveries + the DST within this period (demand during the DST is in italic):

Max( (50+80+20+90 = 240);(90+20+50+0+90 = 250);(90+120+100+50 = 360);(50+80+100+0+80 = 310)) = 360

Now we have to take the maximum between this value and the maximum of the MOQ, the packaging quantity and the batch size:

MIHI = Max(360;40;20;300) = 360

Note:

If we have to calculate the MIHI for the first week, the batch size value is the max value and becomes the MIHI.

Using MIHI for layout design

If we want to use MIHI to design the layout of a physical storage, it is necessary to analyze the demand for a long time (6 months) to avoid rework several times the storage area. To achieve this, it is necessary to take a high value of the demand during this period. It may be not the maximum demand for each reference (which, by adding the maximum for all items will require a lot of space), but greater than or equal to the demand during at least 80-90 % of the period.
Of course, if the demand is not significant versus MOQ or batch size, calculation of MIHI is more simple.

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