becdoms ppt on inventory management
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Becdoms ppt on inventory managementTRANSCRIPT
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Inventory Management
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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
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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)
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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.
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Zero Inventory? Reducing amounts of raw materials and purchased
parts and subassemblies by having suppliers deliver them directly.
Reducing the amount of works-in process by using just-in-time production.
Reducing the amount of finished goods by shipping to markets as soon as possible.
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Inventory Positions in the Supply Chain
RawMaterials
WorksinProcess
FinishedGoods
Finished Goodsin Field
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Reasons for Inventories Improve customer service Economies of purchasing Economies of production Transportation savings Hedge against future Unplanned shocks (labor strikes, natural disasters,
surges in demand, etc.) To maintain independence of supply chain
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Inventory and Value Remember this?
Quality Speed Flexibility Cost
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Nature of Inventory: Adding Value through Inventory
Quality - inventory can be a “buffer” against poor quality; conversely, low inventory levels may force high quality
Speed - location of inventory has gigantic effect on speed Flexibility - location, level of anticipatory inventory both
have effects Cost - direct: purchasing, delivery, manufacturing
indirect: holding, stockout.
HR systems may promote this-3 year postings
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Nature of Inventory:Functional Roles of Inventory
Transit Buffer Seasonal Decoupling Speculative Lot Sizing or Cycle Mistakes
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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
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How to Measure Inventory The Dilemma: closely monitor and control
inventories to keep them as low as possible while providing acceptable customer service.
Average Aggregate Inventory Value: how much of the company’s total assets are invested in inventory?
Ford:6.825 billion Sears: 4.039 billion
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Inventory Measures Weeks of Supply
Ford: 3.51 weeks Sears: 9.2 weeks
Inventory Turnover (Turns) Ford: 14.8 turns Sears: 5.7 turns GM: 8 turns Toyota: 35 turns
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Reasons Against Inventory Non-value added costs Opportunity cost Complacency Inventory deteriorates, becomes obsolete, lost,
stolen, etc.
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Inventory Costs Procurement costs Carrying costs Out-of-stock costs
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Procurement Costs Order processing Shipping Handling Purchasing cost: c(x)= $100 + $5x Mfg. cost: c(x)=$1,000 + $10x
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Carrying Costs Capital (opportunity) costs Inventory risk costs Space costs Inventory service costs
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Out-of-Stock Costs Lost sales cost Back-order cost
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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
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Dependent Demand Dependent demand items are raw materials,
component parts, or subassemblies that are used to produce a finished product.
MRP systems---next week
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Design of Inventory Mgmt. Systems: Micro Issues
Order Quantity
Economic Order Quantity
Order Timing Reorder Point
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Objectives of Inventory Control 1) Maximize the level of customer service by
avoiding understocking. 2) Promote efficiency in production and
purchasing by minimizing the cost of providing an adequate level of customer service.
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Balance in Inventory Levels When should the company replenish its
inventory, 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
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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
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Seatide EOQ = 2DCo/Ch
D = annual demand = 6,000
Co = ordering/setup costs = $60
Ch = cost of holding one unit of inventory
$3.00 x 24% = .72
2 x 6,000 x 60
.72720,000
.72 1,000
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HoldingCosts
OrderingCosts
Marginal Analysis
Units
$
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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
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level of inventory average
inventory
units
Q
t time
Sawtooth Model
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based on reorder point - When inventory is depleted to ROP, order replenishment of quantity EOQ.
Q - System Inventory Control
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when demand is smooth and continuous, can operate response-based system by determining best quantity to replenish periodic demand (EOQ) frequency of replenishment (ROP)
Reorder Point
Order Quantities
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changing lead times changing demand Uncertainty creeps in:
Plug in safety stock
Safety stock - allows manager to determine the probability of stock levels - based on desired customer service levels
Planning for Uncertainty
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Inventory Model Under Uncertainty
reorder Qm
point
safety stock time
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Models for Inventory Management:
Quantity Discount Basically EOQ with quantity discounts To solve:
1. Write out the total cost equation2. 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. Call this Q2.
4. Evaluate the total cost equation at Q2 at the next highest price break point.
OR Use a spreadsheet
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an alternative to ROP/Q-system control is periodic review method
Q-system - each stock item reordered at different times - complex, no economies of scope or common prod./transport runs
P-system - inventory levels for multiple stock items reviewed at same time - can be reordered together
higher carrying costs - not optimum, but more practical
P-SystemPeriodic Review Method
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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 - set optimal T and M to balance stock availability and cost
In ABC analysis, which items would use P-system???
Using P-System
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Types of Inventory Systems
By Degree of Control required often use grouping method, such as ABC
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Classifying Inventory Items ABC Classification (Pareto Principle) A Items: very tight control, complete and accurate
records, frequent review B Items: less tightly controlled, good records,
regular review C Items: simplest controls possible, minimal
records, large inventories, periodic review and reorder
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Does ABC Classification Make Sense for an Assembler?
i.e. – Gateway Computers
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Planning Supply Chain Activities
Anticipatory - allocate supply to each warehouse based on the forecast
Response-based - replenish inventory with order sizes based on specific needs of each warehouse
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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 - on-hand)
Anticipatory Inventory Control
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replenishment, production, 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, often more frequent, lower volume orders
determine stock requirements to meet only most immediate planning period (usually about 3 weeks)
Response-Based System
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Service Level Achieved
1- expected number of units out of stock/year total annual demand
•Item fill rate (IFR): the probability of fillingan order for 1 item from current stock
•Weighted Average Fill Rate (WAFR): multiply IFR for each stock item on an order weighted by the ordering frequency for the item