1 / 37

Operations Management Inventory Management Chapter 12

Operations Management Inventory Management Chapter 12. What is Inventory?. Stock of materials Stored capacity. © 1995 Corel Corp. © 1984-1994 T/Maker Co. © 1984-1994 T/Maker Co. © 1995 Corel Corp. Types of Inventory. Raw material Work-in-progress

jed
Télécharger la présentation

Operations Management Inventory Management Chapter 12

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Operations ManagementInventory ManagementChapter 12 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  2. What is Inventory? • Stock of materials • Stored capacity © 1995 Corel Corp. © 1984-1994 T/Maker Co. © 1984-1994 T/Maker Co. © 1995 Corel Corp. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  3. Types of Inventory • Raw material • Work-in-progress • Maintenance / repair / operating supplies • Finished goods © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  4. The Material Flow Cycle © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  5. The Functions of Inventory • To ”decouple” or separate various parts of the production process • To provide a stock of goods that will provide a selection for customers • To take advantage of quantity discounts • To hedge against inflation and upward price changes © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  6. Disadvantages of Inventory • Higher costs • Interest or opportunity costs • Holding (or carrying) costs – storage, handling, taxes, insurance, shrinkage • Ordering (or setup) costs • Risk of deterioration or obsolescence • Hides production problems • Yield / scrap variations • Unscheduled downtime Total cost = 20% - 40% of inventory value / year © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  7. Pressures on inventory • Pressure for lower inventory • Inventory investment • Inventory holding cost • Pressure for higher inventory • Customer service • Other costs related to inventory © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  8. Process stageRaw MaterialWork in ProcessFinished Goods OtherMaintenance / RepairOperating Supplies Demand TypeIndependentDependent Annual $ VolumeABC Types of InventoryCyclePipelineSafety StockAnticipation Different Views of Inventory © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  9. Q + 0 2 Average cycle inventory = Types of InventoryCyclePipelineSafety StockAnticipation Pipeline inventory = DL = dL How Is Inventory Created? • Cycle Inventory – result of lot size • Pipeline Inventory – in transit • Safety Stock • Anticipation Inventory © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  10. Inventory Worksheets Inventory Calculations We use 70 hypodermic needles a week. We buy them in lots of 280. It takes three weeks for order handling and shipment. Cycle inventory = Q/2 = 280/2 = 140 needles Pipeline inventory = DL = dL = (70 needles/week)(3 weeks) = 210 drills © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  11. Inventory Reduction Tactics Reduce lot size • Cycle inventory • Pipeline inventory • Safety Stock • Anticipation inventory Reduce lead time Reduce uncertainties Various © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  12. Annual $ VolumeABC ABC Analysis • Divides on-hand inventory into three classes on the basis of annual dollar volume – A, B, and C • $ volume = Annual demand x Unit cost • Policies based on ABC analysis • Develop class A suppliers more • Maintain tighter physical control of A items • Forecast A items more carefully © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  13. Class % $ Vol % Items % Annual $ Usage A 80 20 100 B 15 30 80 C 5 50 60 A 40 B C 20 0 0 50 100 % of Inventory Items ABC Analysis © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  14. Inventory Models forIndependent Demand • Fixed order-quantity models • Economic order quantity • Production order quantity • Quantity discount • Probabilistic models • Fixed order-period models Help answer the inventory planning questions! © 1984-1994 T/Maker Co. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  15. EOQ – Economic Order Quantity • Objective: minimize (ordering cost + holding cost) • Assumptions: • Known and constant demand • Known and constant lead time • Instantaneous receipt of material • No quantity discounts • Only ordering / setup cost and holding cost • No stockouts © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  16. Usage Rate Q Average CycleInventory Inventory Level Q2 0 Time Inventory Usage Over Time © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  17. Annual Cost Total Cost Holding Cost Minimum total cost Ordering (Setup) Cost Order quantity (Q) Optimal Order Quantity (Q*) EOQ ModelHow Much to Order? © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  18. Purchase Order Purchase Order Description Qty. Description Qty. Microwave 1 Microwave 1000 Order quantity Why Holding Costs Increase More units must be stored if more are ordered © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  19. 1 Order (Postage $ 0.33) 1000 Orders (Postage $330) Purchase Order PurchaseOrder Purchase Order Purchase Order Description Qty. Purchase Order Description Qty. Description Qty. Description Qty. Microwave 1 Description Qty. Microwave 1000 Microwave 1 Microwave 1 Microwave 1 Order quantity Why Ordering Costs Decrease Cost is spread over more unitsExample: You need 1000 microwave ovens © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  20. Inventory Level Q* Average CycleInventory Reorder Point (ROP) Time Lead Time EOQ Model – When to Order © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  21. × × 2 D S Optimal Order Quantity = = Q* H D = Expected Number of Orders = N Q* Working Days / Year Expected Time Between Orders = = T N D D = Demand per year S = Setup (order) cost per order H = Holding (carrying) cost d = Demand per day L = Lead time in days = d Working Days / Year = × ROP d L EOQ Model Equations © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  22. Inventory Models forIndependent Demand • Fixed order-quantity models • Economic order quantity • Production order quantity • Quantity discount • Probabilistic models • Fixed order-period models Help answer the inventory planning questions! © 1984-1994 T/Maker Co. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  23. POQ – Production Order Quantity • Answers how much to order and when to order • Allows partial receipt of material • Other EOQ assumptions apply • Suited for production environment • Material produced, used immediately • Provides production lot size • Lower holding cost than EOQ model © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  24. EOQ POQ Model Both production and usage take place Usage only takes place Maximum inventory level Inventory Level Time © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  25. Inventory Models forIndependent Demand • Fixed order-quantity models • Economic order quantity • Production order quantity • Quantity discount • Probabilistic models • Fixed order-period models Help answer the inventory planning questions! © 1984-1994 T/Maker Co. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  26. Quantity Discount Model • Answers how much to order & when to order • Allows quantity discounts • Other EOQ assumptions apply • Trade-off is between lower price & increased holding cost © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  27. Quantity Discount – How Much to Order © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  28. Inventory Models forIndependent Demand • Fixed order-quantity models • Economic order quantity • Production order quantity • Quantity discount • Probabilistic models • Fixed order-period models Help answer the inventory planning questions! © 1984-1994 T/Maker Co. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  29. Service Level P(Stockout) Frequency X Probabilistic Models • Answer how much & when to order • Allow demand to vary • Other EOQ assumptions apply • Consider service level & safety stock • Service level = 1 – Probability of stockout • Higher service level means more safety stock • More safety stock means higher ROP © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  30. Service Level P(Stockout) Frequency Inventory Level X SS ROP Reorder Point (ROP) Safety Stock (SS) Lead Time Time Place order Receive order Probabilistic Models - When to Order? © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  31. Inventory Models forIndependent Demand • Fixed order-quantity models • Economic order quantity • Production order quantity • Quantity discount • Probabilistic models • Fixed order-period models Help answer the inventory planning questions! © 1984-1994 T/Maker Co. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  32. Fixed Period (P) Systems • Answers how much to order • Orders placed at fixed intervals • Inventory brought up to target amount • Amount ordered varies • No continuous inventory count • Possibility of stockout between intervals • Useful when vendors visit routinely • Example: Office Max representative calls every week © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  33. Target maximum Q4 Q1 Q2 Q3 On-Hand Inventory p p p Time Inventory in a Fixed Period System Various amounts (Qi) are ordered at regular time intervals (p) based on the quantity necessary to bring inventory up to target maximum © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  34. Comparison of Q and P Systems • Continuous Review System (Q)A system designed to track the remaining inventory of an item each time a withdrawal is made, to determine whether it is time to replenish • Periodic Review System (P) A system in which an item’s inventory position is reviewed periodically rather than continuously © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  35. Comparison of Q and P Systems • Continuous Review System (Q) • Individual review frequencies • Possible quantity discounts • Lower, less-expensive safety stocks • Periodic Review System (P) • Convenient to administer • Orders may be combined • Inventory position only required at review © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  36. Average inventory value Weekly sales (at cost) $2 million ($10 million)/(52 weeks) Weeks of supply = = = 10.4 weeks $10 million $2 million Inventory Measures Average inventory = $2 million Cost of goods sold = $10 million 52 business weeks per year Annual sales (at cost) Average inventory value Inventory turns = = = 5 turns/year © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

  37. Summary • Functions of inventory – Inventory enables value creation for many processes • Costs of inventory • Different views of inventory • Inventory reduction tactics • ABC and EOQ are traditional tools used to manage inventory – still used in many circumstances • Continuous review system (Q) for high-value parts; Periodic review system (P) for some low value parts • Weeks of Supply and inventory turns are widely-used measures of inventory © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

More Related