Professional Documents
Culture Documents
Inventory - Chap 07
Inventory - Chap 07
Reorder
point
Time
Receive Place Receive Place Receive
order order order order order
Lead time
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 12 – 5
Effective Inventory Management
A system to keep track of inventory
A reliable forecast of demand
Knowledge of lead times
Reasonable estimates of
Holding costs
Ordering costs
Shortage costs
A classification system
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 12 – 6
Inventory Counting Systems
Periodic System
Physical count of items made at periodic intervals
Perpetual Inventory System
A system that keeps track of removals from inventory
continuously, thus monitoring current levels of each
item
214800 232087768
A-Very Important
B-Moderate Important
C- Least Important
70 —
60 —
50 —
40 —
30 —
20 —
10 —
0—
10 20 30 40 50 60 70 80 90 100
Percentage of SKUs
Figure 12.1 – Typical Chart Using ABC Analysis
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 12 – 11
Economic Order Quantity
Five assumptions
1. Demand rate is constant and known with certainty
2. No constraints are placed on the size of each lot
3. The only two relevant costs are the inventory holding
cost and the fixed cost per lot for ordering or setup
4. Decisions for one item can be made independently of
decisions for other items
5. The lead time is constant and known with certainty
Average
Q cycle
2 inventory
1 cycle
Time
Figure 12.2 – Cycle-Inventory Levels
Total cost
Holding cost
Ordering cost
Q D
C= (H) + (S)
2 Q
where
C = total annual cycle-inventory cost
Q = lot size
H = holding cost per unit per year
D = annual demand
S = ordering or setup costs per lot
2DS
EOQ =
H
EOQ
TBOEOQ = (12 months/year)
D
2DS 2(5,000)($15)
EOQ = =
H $4
= 37,500 = 193.65 or 194 drills
b. The total annual cost is
Q D 194 5,000
C= (H) + (S) = ($4) + ($15) = $774.60
2 Q 2 194
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 12 – 18
Inventory Control Systems
IP = OH + SR – BO
where
d = average demand per week (or day or months)
L = constant lead time in weeks (or days or months)
σdLT = σd2L = σd L
Two-Bin system
Visual system
An empty first bin signals the need to place an order
Calculating total systems costs
Q D
C= (H) + (S) + (H) (Safety stock)
2 Q
2DS 2(26,000)($35)
EOQ = =
H $9.40
= 193,167 = 440.02 or 440 mixers
Reorder point (R) = Average demand during lead time + Safety stock
= 300 mixers + 73 mixers = 373 mixers
EOQ 440
P= (260 days/year) = (260) = 4.4 or 4 days
D 26,000