Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Chapter 10 By Chandrashekeran
Inventory Management
Inventory management is the planning and controlling of inventories in order to meet the competitive priorities of the organization.
Effective inventory management is essential for realizing the full potential of any value chain.
Inventory management requires information about expected demands (SKU), amounts on hand (Qty) and amounts on order (EOQ) and price for every item stocked at all locations.
The appropriate timing and size of the reorder quantities must also be determined.
2007 Pearson Education
Customer
Inventory Basics
Inventory is created when the receipt of materials, parts, or finished goods exceeds their disbursement. (HIGH) Inventory is depleted or replenished when their disbursement exceeds their receipt.(LOW) An inventory managers job is to balance the advantages and disadvantages of both low and high inventories.
Both have associated cost characteristics.
2007 Pearson Education
Importance of inventory
Customer service and product availability Example- Manufacturer of food flavors Production, purchase and transportation economy Price discount, transportation economy Hedge against price changes. Price of seeds Hedge against uncertainties in demand and lead time Hedge against strikes, fires, calamities and mismatch between demand and supply
2007 Pearson Education
Types of Inventory
Raw Material- Purchased but not processed Ensures Material availability for production Reduces supplier variability in quality, quantity and time Work in Process- Reduces cycle time (time to make a product) Finished Goods- Reduces mismatch between demand and supply Maintenance/ Overhauling/ Repair- Items consumed in a production but not a part of end product. Lubricants 2007 Pearson Education
Classification of Inventory
Cycle Inventory: Average inventory of lot or batch size.
Average cycle inventory = 2 Where Q= Lot or batch size, d= Demand per time Lot Sizing: Lot size refers to quantity that a supply chain either produces or orders at a given time. Cycle inventory takes advantages of economies of scale but each stages maintains cycle inventory which increases cost.
2007 Pearson Education
Classification of Inventory
Safety Stock Inventory: Surplus inventory that a company holds to protect against uncertainties in demand, lead time and supply changes. Reduces lost sales Seasonal inventory- Meets the volatility of demand and supply. Pipeline Inventory: Inventory moving from point to point in the materials flow system. Includes orders that have been placed but not served. Pipeline inventory = DL = dL , L= Lead time
2007 Pearson Education
Ordering Cost: The cost of preparing a purchase order for a supplier or a production order for the shop. Setup Cost: The cost involved in changing over a machine to produce a different item. Labor and Equipment: Creating more inventory can increase workforce productivity and facility utilization. Transportation Costs: Costs can be reduced. Quantity Discount: A drop in the price per unit when an order is sufficiently large.
Inventory Models
EOQ Model Production Order Quantity Model Quantity Discount Model
Cycle inventory
Annual set up/ ordering cost=D.S/Q Annual Holding cost=Q.H/2 At EOQ, Annual set up cost= Annual holding cost Reorder level=d.L Time between order=(Order size/ annual demand) x time fraction/year
Total cost =
Q D (H) + (S) 2 Q
Holding cost =
Q (H) 2
Ordering cost =
D (S) Q
C=
Total cost
2000
Holding cost
1000
Lowest cost
0 | 50 | 100 | 150 | 200
Ordering cost
| 250
| 300
| 350
| 400
Current Q
EOQ POLICY
Bird Feeders:
EOQ = 2DS H D = annual demand S = ordering or setup costs per lot H = holding costs per unit EOQ = 2(936)45 = 74.94 or 75 units 15 75 936 (15) + (45) 2 75
C=
C = $1,124.10
2007 Pearson Education
ABC Cycle Ltd. A manufacturer of sports bikes, has an annual demand of 240,000 units in a year. On an average, delivery of an order takes seven working days. What is the reorder level?
Application 12.1
Application 12.1
Application 12.2
Application 12.2
continued
Solved Problem 3
EOQ, is 75 units when annual demand, D, is 936 units/year, setup cost, S, is $45, and holding cost, H, is $15/unit/year. If we mistakenly estimate inventory holding cost to be $30/unit/year, what is the new order quantity, Q, if D = 936 units/year, S = $45, and H = $30/unit/year? What is the change in order quantity, expressed as a percentage of the EOQ (75 units)?
The new order quantity is
Show these two situation in cost diagram. If delivery of an order takes place in each month, calculate reorder level. What is the Time Between Orders (TBO) expressed in months.
2007 Pearson Education
Dominick Supermarket
Dominick Supermarket sells nut flakes. Demand for nut flakes is 1000 boxes per week. Dominicks has a holding cost of 25% and incurs $200 for each replenishment order. Calculate the cycle inventory cost. If the ordering cost decreases to $150 then calculate the % change of cycle inventory cost.