P. 1
CH161Inv1

CH161Inv1

|Views: 9|Likes:

More info:

Published by: Suresh Kumar manoharan on Dec 03, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PPT, PDF, TXT or read online from Scribd
See more
See less

05/03/2012

pdf

text

original

Inventory Management I

Definitions

Inventory-A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Inventory System- A set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be

Inventory

   

Def. - A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Raw Materials Works-in-Process Finished Goods Maintenance, Repair and Operating (MRO)

Expensive Stuff

 

The average carrying cost of inventory across all mfg.. in the U.S. is 30-35% of its value. What does that mean? Savings from reduced inventory result in increased profit.

Reducing the amount of finished goods by shipping to markets as soon as possible. Reducing the amount of works-in process by using just-in-time production.Zero Inventory?  Reducing amounts of raw materials and purchased parts and subassemblies by having suppliers deliver them directly.   .

Inventory Positions in the Supply Chain Raw Materials Works in Process Finished Goods Finished Goods in Field .

etc. surges in demand.) To maintain independence of supply chain . natural disasters.Reasons for Inventories        Improve customer service Economies of purchasing Economies of production Transportation savings Hedge against future Unplanned shocks (labor strikes.

Inventory and Value  Remember this?     Quality Speed Flexibility Cost .

stockout.Nature of Inventory: Adding Value through Inventory     Quality . low inventory levels may force high quality Speed .location. conversely. HR systems may promote this-3 year postings . manufacturing indirect: holding.direct: purchasing.location of inventory has gigantic effect on speed Flexibility .inventory can be a “buffer” against poor quality. delivery. level of anticipatory inventory both have effects Cost .

Nature of Inventory: Functional Roles of Inventory        Transit Buffer Seasonal Decoupling Speculative Lot Sizing or Cycle Mistakes .

Design of Inventory Mgmt. Systems: Macro Issues  Need for Finished Goods Inventories   Need to satisfy internal or external customers? Can someone else in the value chain carry the inventory?     Ownership of Inventories Specific Contents of Inventories Locations of Inventories Tracking .

039 billion . Average Aggregate Inventory Value: how much of the company’s total assets are invested in inventory? Ford:6.How to Measure Inventory     The Dilemma: closely monitor and control inventories to keep them as low as possible while providing acceptable customer service.825 billion Sears: 4.

8 turns Sears: 5.Inventory Measures  Weeks of Supply   Ford: 3.2 weeks Ford: 14.7 turns GM: 8 turns Toyota: 35 turns  Inventory Turnover (Turns)     .51 weeks Sears: 9.

lost. .Reasons Against Inventory     Non-value added costs Opportunity cost Complacency Inventory deteriorates. becomes obsolete. etc. stolen.

Inventory Costs    Procurement costs Carrying costs Out-of-stock costs .

Procurement Costs      Order processing Shipping Handling Purchasing cost: c(x)= $100 + $5x Mfg.000 + $10x . cost: c(x)=$1.

Carrying Costs     Capital (opportunity) costs Inventory risk costs Space costs Inventory service costs .

Out-of-Stock Costs   Lost sales cost Back-order cost .

Independent Demand    Independent demand items are finished products or parts that are shipped as end items to customers. Forecasting plays a critical role Due to uncertainty.extra units must be carried in inventory .

MRP systems---next week .Dependent Demand   Dependent demand items are raw materials. component parts. or subassemblies that are used to produce a finished product.

Design of Inventory Mgmt. Systems: Micro Issues  Order Quantity Economic Order Quantity  Order Timing  Reorder Point .

2) Promote efficiency in production and purchasing by minimizing the cost of providing an adequate level of customer service. .Objectives of Inventory Control   1) Maximize the level of customer service by avoiding understocking.

or when should the company place an order or manufacture a new lot? How much should the company order or produce? Next: Economic Order Quantity .Balance in Inventory Levels    When should the company replenish its inventory.

Models for Inventory Management: EOQ   EOQ minimizes the sum of holding and setup costs Q = 2DCo/Ch D = annual demand Co = ordering/setup costs Ch = cost of holding one unit of inventory .

Seatide  EOQ = 2DCo/Ch D = annual demand = 6.00 x 24% = .000 Co = ordering/setup costs = $60 Ch = cost of holding one unit of inventory 720.000 2 x 6.000 $3.72 .72 1.000 x 60 .

Marginal Analysis Holding Costs $ Ordering Costs Units .

Reorder Point  Quantity to which inventory is allowed to drop before replenishment order is made Need to order EOQ at the Reorder Point:  ROP = D X LT D = Demand rate per period LT = lead time in periods .

Sawtooth Model level of inventory inventory units average Q t time .

.When inventory is depleted to ROP.Q .System Inventory Control  based on reorder point . order replenishment of quantity EOQ.

can operate responsebased system by determining   best quantity to replenish periodic demand (EOQ) frequency of replenishment (ROP)  Reorder Point .Order Quantities  when demand is smooth and continuous.

Planning for Uncertainty    changing lead times changing demand Uncertainty creeps in:  Plug in safety stock Safety stock .based on desired customer service levels .allows manager to determine the probability of stock levels .

Inventory Model Under Uncertainty reorder Qm point safety stock time .

Solve EOQ at highest price and no discounts 3. If Qmin falls in a range with a lower price. recalculate EOQ assuming holding cost for that range. Evaluate the total cost equation at Q2 at the next highest price break point. 4. Write out the total cost equation 2.Quantity Discount   Models for Inventory Management: Basically EOQ with quantity discounts To solve: 1. Call this Q2. OR Use a spreadsheet .

P-System Periodic Review Method     an alternative to ROP/Q-system control is periodic review method Q-system ./transport runs P-system .each stock item reordered at different times .complex.not optimum.inventory levels for multiple stock items reviewed at same time . no economies of scope or common prod. but more practical .can be reordered together higher carrying costs .

set optimal T and M to balance stock availability and cost In ABC analysis. which items would use P-system??? .Using P-System     audit inventory level at interval (T) quantity to place on order is difference between max. quantity (M) and amount on hand at time of review management task .

Types of Inventory Systems  By Degree of Control required  often use grouping method. such as ABC .

complete and accurate records. periodic review and reorder . large inventories. minimal records. frequent review B Items: less tightly controlled. good records. regular review C Items: simplest controls possible.Classifying Inventory Items     ABC Classification (Pareto Principle) A Items: very tight control.

Does ABC Classification Make Sense for an Assembler?  i. – Gateway Computers .e.

Planning Supply Chain Activities Anticipatory .replenish inventory with order sizes based on specific needs of each warehouse .allocate supply to each warehouse based on the forecast Response-based .

on-hand) .Anticipatory Inventory Control     determine requirements by forecasting demand for the next production run or purchase establish current on-hand quantities add appropriate safety stock based on desired stock availability levels and uncertainty demand levels determine how much new production or purchase needed (total needed .

lower volume orders determine stock requirements to meet only most immediate planning period (usually about 3 weeks) . often more frequent. production.Response-Based System    replenishment. or purchases of stock are made only when it has been signaled that there is a need for product downstream requires shorter order cycle time.

•Item fill rate (IFR): the probability of filling an order for 1 item from current stock Service Level Achieved 1- expected number of units out of stock/year total annual demand •Weighted Average Fill Rate (WAFR): multiply IFR for each stock item on an order weighted by the ordering frequency for the item .

.

2 .5.

..  &:.69 4..4: 096::: "919$. 065640"919$.5.5.:5655. "919'45 %6919#65.

:5/4545.615519:.649 :90 .3360:.18.3360:.69 65.963   .:655.6025  #9646.6 79615.4."/0.649 :90/.06:..65.5.050579610.51 790.

0647.693: 5:631.0647.9. 065640"919$..69 695:631.5.0. .0.59735:.5 73.: 55.5 36.5691969 79610 !.56919694..0647.3.50555.5. 640:631.

655.5.51 6 69195:.:  06:.69 .69 .706:.51:.: $6 .613:6955.45.314. "$ "$454:.7 06:.66315655.55.:466315.

:   06:.69             .655.706:..51  6 69195:.314.55.1 "$6 .66315655.&.

3:: 6315 6:..: .95.: 5.: "9195 6:.35.

457961: ..%6919#65. %"#' 4.6055..1 !1.%6919#65.1.519.69:.797961 '3.66919"$.3361.. $...6 1967/699735:45.6919:4.5.

&.69 5.: $ . 55.69. 613 33655.66...4 .9.

$.

:16596919765.69 65.455. &:..963 /.

68.6%"# 6919 9735:45. 5 55..1.69:173."$ .5.

5679...5.51 065.56: 0.: 514.9:765:.."919$.51::466.

 %"# %6919#65.8.69735:7961014.4/1.51 "$ 985069735:45...5.9455 /:.:1::. /. .

:. 0.4: 0.#3..602 &.51 509.5..553.55569509.097:5 #35:.602.5.:.5514...1.

6:. .60233: ./3.9.5.945.796/.336:4.6 1.

649:90 33: . /.:1651:910:.

 96919$4 765.69 613519 509..4 ..5.55. :.:.602 .

.$ ..8..:$  ..6.:79.306:.8.613:6955..51561:065.790..1:.6. :..1:065...6..69.69 . .5 .::45631506:.790/9.33"$.. "%:.: '6:63  9.:.65  &63"$.."$.3... 9.:0.5.369790  90.:  $45 . .5.303.:065..45.. $.33:5.2765..5.33.8.5..9..5.306:.65.

#.

61 ..3.4 #9610% ..95.6%"#$.&:.5.

61 $.4065.::.963: 7961094.

::.4.

 195.0:.4969191..602. ..4:.

95: #. 06473 5606564:6 :067690644657961 .5:769.9.

::.4.

6933:6943.:.4.602 . 55.73:.4:91.4..

6.99506:.:.9 90. 0.5/ 969191.

67.0.3 .44 /.0. 46979. 56.

:5#.

5.465.45..0656919:1950 /.4 .673..3 ' 8.51.55.6933.51.&:..9. 65.. .5.:2..469 4.5.1...54.. 8.5.

. :.3.51  .5106:.602.67./3.3'.4.. 5.50:.5.6/.3.4:631: #.3:: 0.

4 .::.

9639891 6.: .5:96754.61 :0.69&:.4: 9665.'7:655.

9 .009.69: 796109 .3065.065.4: 3::.3 90691: 3.90691: 985.6#95073 ..3.51 .99 .4: 3.4: :473:.96331 661 90691: 93.69.9.963:76::/3 454...4: 9.::0.955..::555.5196919 .963 06473.065.65 #..

.5::4/39    .65 .2 &5:69.6:3.647.::0...9: .

69.555&773..50.: 5.07..#3.

:165.690.:.6.96:/.3360.. %:765:.:773.0 . .

:1./.

0. 9735:55.:165:700 51:6.69 .6919::/.96: .

94598945./3:0995..79610.5 14.:.07.69 65.963 1.65.5.: :.659569 790..6955.5.5169.:/690.

602/..5.518.3.3511..11.5.14..33:.945640579610.779679..: .:.51 509./3.:165 1:91:.:511 .:..5133: 1.6..6569 790.602..

65.

.51 .

%:765:.

79610.441.::6 :.653 46:.4 989::69.9:.73.2: .16535.:1&:..33 .60298945./6.5469 985.96919003.4 6...4 9735:45.516979610.94...9.:/5 :5..945:. 3696346919: 1.:.31.602.65 69790.5557961 :.64. 165:.

 .347/071479021742.:77039894.90 # 90574-.&90301 W90217.-94113 .

.51 W090/..14790902 .347/07090/ -9047/0731706:03.90 # 2:95 #1470.314.90243.0#.9 .6:.154/965.3.:6.602.6. 70.894.55.07.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->