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Weekly Summary 7

Felipe da Mata (2017726)

Melissa Rasera (2021853)

Olivio Campaner (2011798)

University Canada West

OPMT 620 – Operations Management

Farnoosh Bagheri

JUN 1st, 2021

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Weekly Summary 7
Table 1
Chapter 12 Summary
Main Topic Explanation
Inventory Inventory management is critical to
Management the performance of most companies,
especially those that store a large
amount of inventory, such as
manufacturers, wholesalers,
distributors and retailers. Inadequate
inventory management slows down
operations and reduces customer
satisfaction, in addition to generating
financial losses.
A company that operates within
average market standards keeps about
half of its current assets in inventory
(the other half is in accounts
receivable and cash). Return on assets
(ROA), which is after-tax earnings
divided by total assets, is a popular
metric for measuring corporate
success.
Requirements for A warehouse / stock must be kept
Effective Inventory clean so that products can be
Management conveniently stored and retrieved.
The appropriate amount of
automation must be implemented
depending on the movement of
products in and out of the
warehouse / stock. Forklifts are
commonly used in warehouses to
transfer boxes/boxes of goods placed
on a pallet. Conveyors are used in
certain cases, while carousel storage
systems are used in others. An
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Application/Advantages
Inventory management is done
for multiple purposes. The
following are some of the most
important: 1) Wait while it is
being loaded; 2) To avoid
stockouts; 3) To benefit from
the economic lot size or to
minimize future price increases;
4) To smooth the demand or
seasonal production; and 5)
Disassociate activities.
Inventory management is
concerned with two main issues.
One is customer service; that is,
having the appropriate items, in
adequate numbers, in the right
place, at the right time. The
other is inventory expenses,
which include product ordering
and storage expenses. By
addressing the reasons for
holding inventory, organizations
can minimize their need for
inventory without sacrificing
customer service.
If inventory is not tracked
continuously, it should be
reviewed and tallied regularly.
Some small stores that don't use
computers take the manual
approach. Perpetual tracking
records stock withdrawals and
additions on an ongoing basis,
allowing the system to provide
information on the current stock
position for any item at any
time. All current inventory
software keeps constant control

automated storage and retrieval
system can also be used to automate
the storage and sorting (ASRS)
processes. The required storage
capacity is determined by the annual
volume and frequency of stock
movements. A warehouse can be
purchased, rented or rented (hired).
Ownership gives you more control,
but to be profitable, demand must be
strong and steady. The presence of a
significant volume of outdated
products is a frequent concern in most
warehouses/warehouses.
Determining the When the stock position of a SKU
Economic Order falls to or below its order point in the
Quantity and Its economical order quantity / order
Variants point (EOQ / ROP) model, a fixed
quantity equal to the EOQ is ordered.
Even though the formulas we'll
acquire may not always produce
optimal results, they do produce near-
optimal results. The economic order
quantity (EOQ) is the order size that
reduces total annual inventories to the
lowest possible level.
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of inventories. The expense of
physically storing objects is
known as the maintenance cost.
Costs include storage and the
opportunity cost of money
trapped in inventory. Insurance,
obsolescence, deterioration,
theft and breakage are examples
of retention expenses. Ordering
cost is the cost of placing an
order, getting it and paying for
it is known as the order cost.
When demand exceeds the
amount of inventory available, a
shortage occurs. This cost can
include the opportunity cost of
not completing a sale, loss of
consumer goodwill, late fees,
and shipping fees.
The basic EOQ model for one
item will reduce total annual
maintenance expenses and
inventory orders. The annual
purchase price is not included as
it is assumed in the basic
situation that the unit purchase
price is not affected by order
size. If we are manufacturing an
item in-house, we can use the
economic production quantity
(EPQ) to estimate the best
production lot size, which is the
production lot size that
minimizes total annual
production setup and inventory
holding costs. A quantity
discount is a price reduction for
large orders supplied to
customers in order to entice
them to buy in bulk. A surgical
supply company, for example,
released the price list provided
in Table 12-2 for extra-wide
gauze strip boxes. When the

Determining the The stock status (position in stock =
Reorder Point In stock + In order - Backorders) of
an order that must be placed is known
as the reorder point (ROP). The
possibility that the request does not
exceed stock during a lead period;
that is, the probability that there will
be no shortage during a cycle. The
annual service level, also known as
the fill rate, is the percentage of
annual demand met with available
supplies.
Fixed- When orders are placed at regular
Interval/Order-up- intervals, this approach is widely used
to Level Model and and the stock position is raised to the
Coordinated order level. This strategy is popular
Periodic Review with wholesalers/distributors and
Model retailers, who order all goods from
the same supplier at the same time.
Buying things from the same source
in bulk can result in cost savings in
ordering, shipping, receiving and
paying. Also, certain scenarios may
not be suitable for continuous
monitoring of stock position.
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cost of maintenance per unit is
high and the customer is willing
to wait, a corporation may
choose to have a planned
shortage, that is, to purposely
allow for the shortage. We
anticipate that all short order
demands will be backorders.
The value of z (z is related to
the service level) can be
calculated directly from the
Normal (default) probability
table, given a specified lead-
time service level. When
demand data is not readily
available during an initial
period, the mean and standard
deviation are not readily
available. However, statistics on
daily, weekly, or monthly
demand, as well as delivery
times, are usually accessible.
When demand data is not
readily available during an
initial period, the mean and
standard deviation are not
readily available. However,
statistics on daily, weekly, or
monthly demand, as well as
delivery times, are usually
accessible.
The order interval can be
calculated by reducing the total
annual order and maintenance
expense for all SKUs received
from a particular supplier. The
problem is that the cost of the
order is divided into two parts:
the cost of issuing a purchase
order and the cost of ordering
each line item (SKU) in it. The
order level for an item must be
sufficient to ensure that the item
is available until the next

The Single Period The single-period model is used to
Model order perishables and other
commodities with a short shelf life.
Equipment life is the life of a spare
part, assuming the part cannot be
used for other equipment. Single-
period model analysis typically
focuses on two costs: scarcity and
excess. The cost of a fault can include
a fee for the loss of consumer
goodwill as well as the opportunity
cost of a lost transaction.
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shipment arrives. There is a
need for safety stocks in the
context of demand and lead
time unpredictability.
The order level for an item must
be sufficient to ensure that the
item is available until the next
shipment arrives. There is a
need for safety stocks in the
context of demand and lead
time unpredictability. When an
order is placed at a review time
only if the order quantity is
greater than a minimum of
Qmin, this is a frequent version
of the fixed interval / order level
paradigm above.
When demand is uniform, the
notion of determining an
appropriate inventory level (ie,
order quantity) is arguably
simpler to imagine. Choosing
the sock level is analogous to
balancing a seesaw, except that
instead of one person at each
end of the seesaw, we have the
excess cost per unit (Ce) at one
end and the insufficient cost per
unit (Cs) at the other. The
uniform distribution is
represented by the seesaw. If
real demand exceeds the break-
even point, there will be
scarcity; therefore, Cs is on the
right side of the seesaw.
Likewise, if demand is less than
So, there is an excess and Ce is
at the left end of the seesaw.
When Ce = Cs, the ideal stock
level is midway between the
ends of the seesaw. If one cost
is higher than the other, the
lower cost will be closer to the
higher cost.

Multi-Echelon Typically, a product's inventory is
Inventory held at more than one location in the
Management external distribution supply chain,
such as the manufacturer's
distribution center (DC), the retailer's
warehouse, and the retailer's store. A
part's inventory can also be stored at
many points along the inbound
supply chain, such as the supplier and
the manufacturer's factory.
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When inventory levels are
discrete rather than continuous,
the ratio Cs / (Cs + Ce) does not
always correspond to the
cumulative probability of the
inventory level. determine the
quantity of stock so that the
cumulative probability is equal
to or slightly higher than the
proportion
The warehouse tier (level)
includes the warehouse as well
as all the stores it serves (the
dashed box in the figure).
Retailers communicate point-of-
sale (POS) data to the
warehouse in multi-level
control. Retailers are free to
develop their own inventory
control methodology.
Distribution requirements
planning (DRP) is a way to
determine replenishment plans
in phases between the
manufacturer's facilities and
distribution centers (DCs).
Inventory optimization
calculates the appropriate
placement and stock volume in
the supply chain. It is better
characterized as follows:
Determine the committed LT
and the amount of stock to be
held at each location based on
the customer's promised LT,
demand probability distribution
at each stock location, inventory
storage cost at each site ,
processing time at each site and
transit times.
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References

Stevenson, W., Hojati, M., Cao, J. (2018). Operations Management (6th Canadian ed.).

McGraw-Hill Education.