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Managing Inventory: Balancing Internal and External Demand in Material Requirement Planning

Chapter 13 explores the vital interplay between external and internal demand in inventory management, emphasizing strategies such as Material Requirement Planning (MRP) and Just-in-Time (JIT) production. The chapter highlights the financial implications of inventory, focusing on costs associated with ordering, holding, and shortages. Key concepts like Economic Order Quantity (EOQ) and service levels are discussed, along with advanced probabilistic models for uncertain demand. Practical tools like spreadsheets (EOQ.XLS and ORDERSIM.XLS) are also introduced for effective decision-making.

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Managing Inventory: Balancing Internal and External Demand in Material Requirement Planning

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Presentation Transcript

  1. Inventory Manager • Chapter 13 in W&A • External vs Internal Demand • Material Req. Planning (MRP) • Stockless Production (JIT) • Inventory = Money without interest! • Forecasting => D and StDev Sd • Orders, Production Batches

  2. Inventory Costs • Ordering/ Setup Cost K • Minor/Major Setup Cost • Pruchase/Production Cost c • Holding Cost s and i*c • Shortage Cost p • Service Level

  3. EOQ, Harris 1915 • Single product • Continuous review • D known and constant • L known and constant • TC(Q) = K*D/Q + (s+i*c)*Q/2 • EOQ = Qopt = sqrt(2*K*D/(s+i*c)) • See EOQ.XLS in W&A

  4. EOQ Extensions • Quantity Discounts • Production instead of purchase • Shortages allowed • Reducing Setup Cost • Many products, same supplier • Synchronized Ordering

  5. Probabilistic Models • Demand uncertain, N(D,Sd) • (R,Q) - control, R = Reorder Point • R = Mean + Safety Stock • Two approaches: • 1. Shortage Penalty p Estimated: p*E(B)*D/Q, E(B) = (n(k) – k*P(Z>k))*Sld • 2. Service Level s Determined: s = 1 – E(B)/Q

  6. Extensions • See CAMERA1.XLS and CAMERA2.XLS • Random Lead Time, N(L,Sl): Sld = sqrt(L*Sd2 + D2*Sl2) • Many Products, same supplier • Multi Stage System (Össur) • Inventory Simulation • See ORDERSIM.XLS in W&A

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