Inventory Management - Αρχική

1 Chapter 9 Inventory ManagementInventory Management9-1 Lecture Outline Basics of Inventory Management Inventory Systems Fixed-Order Quantity System9-2 Fixed-Order Quantity System Fixed-Time Period Systems Independent vs. DependentDemand Managing Supply Chain InventoryWhat is Inventory ? Inventory is quantities of goods in stock Manufacturing Inventory raw materials component parts9-3 component parts work-in-process (WIP) finished goods Service Inventory involves all activities carried out inadvance of the customer s arrivalInventory PolicyInventory policy addresses two questionsconcerning replenishment of Inventory : When to order? How much to Order?9-4 Reasons for Carrying Inventory Protect Against Lead Time Demand Maintain Independence of Operations Balance Supply and Demand Buffer Uncertainty Economic Purchase Orders9-5 Types of Inventory Cycle Stock Inventory for immediate use typically produced in batches (production cycle)

2 Safety Stock extra Inventory carried for uncertainties insupply and demand also called buffer stock Anticipation Inventory Inventory carried in anticipation of events smooth out the flow of products in supply chain also called seasonal or hedge inventory9-6 Types of Inventory Continued Pipeline Inventory Inventory in transit exists because points of supply anddemand are not the same also called transportation Inventory also called transportation Inventory Maintenance, Repair and OperatingItems (MRO) inventories not directly related to productcreation9-7 Inventory Costs Holding Cost costs that vary with the amount of Inventory held typically described as a % of Inventory value also called carrying cost Ordering Cost costs involved in placing an order sometimes called setup cost inversely related to holding cost Shortage Cost occur when we run out of stock9-8 Inventory SystemsInventory systems answer the questions:when to orderandhow much to orderThere are two categories.

3 Fixed-Order Quantity System Fixed-Order Quantity System an order of fixed quantity, Q, is placed wheninventory drops to a reorder point, ROP Fixed-Time Period System Inventory is checked in fixed time periods, T,and the quantity ordered varies9-9 Fixed-Order Quantity System assumes a constant demand rate of d the Inventory position, IP, is reduced by a rateof d order placed when the reorder point, ROP isreached when Inventory is received, the IP is increasedby the order quantity, Q9-10 Fixed-Order Quantity SystemContinued there is a lead time, L, during which we haveto wait for the order Inventory is checked on a continual basis Q is computed as the economic orderquantity, EOQ9-11 Fixed-Order Quantity System9-12 Fixed-Time Period System Inventory levels checked in fixed time periods, T a target Inventory level, R, is restored when orderreceived sometimes called Periodic Review System sometimes called Periodic Review System quantity ordered varies:Q = R IPwhere: Q = order quantityR = target Inventory levelIP = Inventory position9-13 Fixed-Time Period System9-14 Compare Inventory Systems9-15 Fixed-Order Quantity SystemThere are two main variables to calculate inthe Fixed-Order Quantity System: Order Quantity (Q) EOQ is the most Economic Order EOQ is the most Economic OrderQuantity Reorder Point (ROP)Assume.

4 Demand (d), lead time (L), holding cost(H), stock-out cost (S), and unit price(C) are constant9-16 Economic Order Quantity (EOQ)The EOQ minimizes the total annual Inventory costTotal Cost = Purchase + Ordering + HoldingcostcostcostTC = DC + (D/Q)S + (Q/2)Hwhere: TC = Total costD = Annual demandC = Unit cost Q = Order quantityS = Ordering costH = Holding cost9-17costcostcostEOQ ContinuedTC = DC + (D/Q)S + (Q/2)H Notice: DC = Annual purchase costD/Q = # orders placed per year Annual ordering cost = # orders/yr x cost/orderQ/2 = average Inventory level Annual holding cost = avg. Inventory x cost/unit9-18 EOQ Continued9-19 Solving for EOQThe EOQ can be found by taking the derivativeof TC with respect to Q and set = 0 Total Cost Equation:TC = DC + (D/Q)S + (Q/2)H 1stDerivative: Solve for Q optimal:9-2002 HQDS0dQTC2 HSD2 EOQ EOQ ExampleGiven:Demand = 1000 items per monthHolding Cost = 15% of product costOrdering Cost = $300 per orderProduct Cost = $60 per unit EOQ Orders per year Annual Holding )60)( ()300)(000,12(2 HSD2 ,12QD 4028$92895H2Q Reorder Point (ROP)The ROP provides enough Inventory toensure that demand is covered during thelead time (L)ROP = Demand during Lead Time = dLROP = Demand during Lead Time = dLGiven.

5 Lead time = 1 weekd = 250 items/weekROP = dL = (1) x (250) = 250 items order is placed when Inventory level = 250 items9-22 Independent vs. Dependent DemandInventory policy is based on the type of demand Independent Demand demand for a finished product Dependent Demand demand for components parts or subassemblies order quantities computed with MaterialRequirements Planning (MRP) relationship between independent and dependentdemand is shown in a bill of materials (BOM)9-23 Bill of Materials9-24 Managing Supply Chain InventoryIn addition to the quantitative models, thereare a number of practical implications toconsider: ABC Inventory Classification Practical Considerations of EOQ Measuring Inventory Performance Vendor Managed Inventory9-25 ABC Inventory ClassificationABC system classifies Inventory based on itsdegree of importanceSteps:1.

6 Determine annual usage or sales for each item2. Determine % of total usage or sales for each item3. Rank items from highest to lowest %4. Classify items into groups:A: highest value, B: moderate value, C: least valuable9-26 ABC Inventory Classification9-27 Practical Considerations of EOQ Lumpy Demand can use Periodic Order Quantity (POQ) whendemand is not uniform EOQ Adjustments EOQ Adjustments total cost changes little on either side of the EOQ managers can adjust to accommodate needs Capacity Constraints storage capacity and costs should be consideredwhen ordering large quantities9-28 Measuring Inventory PerformanceCommon metrics for Inventory : Units # units available Dollars Dollars dollars tied up in Inventory Weeks of Supply (avg.)

7 On-hand Inventory ) / (avg. weekly usage) Inventory Turns (cost of good sold) / (avg. Inventory value)9-29 Average Inventory ExampleGiven a fixed-order quantity model with:Annual Demand (D) = 1,000 unitsOrder Quantity (Q) = 250 unitsSafety Stock (SS) = 50 units Average Inventory = Q/2 + SS= 250/2 + 50 = 175 units Inventory Turn = D/(Q/2 + SS)= 1,000/175 = turns per year9-30 Vendor Managed Inventory (VMI)VMI arrangements have the vendorresponsible for managing the inventorylocated at a customer s facilityThe vendor:The vendor: stocks Inventory places replenishment orders arranges the display typically owns Inventory until purchased is required to work closely with customer9-31 Review1. Reasons to carry Inventory include protectingagainst lead time demand, maintainingindependence, buffering against types include: cycle stock, types include: cycle stock, safetystock, anticipation, pipeline, and 3 Inventory costs: holding, ordering,& a.

8 Inventory systems answer:when to orderandhow much to Continued4. b. Two most common systems are:fixed-orderquantityandfixed-time Fixed-order quantity systems have a reorderpoint (ROP). The basic system utilizes theeconomic order quantity (EOQ), and wheneconomic order quantity (EOQ), and whenproduction feeds demand, it utilizes theeconomic production quantity (EPQ).6. In fixed-time period systems the time betweenorders, T, is constant, and the order quantityvaries. Orders bring the IP to a target level, Continued7. Independent demand is for a finished productand dependent demand is for ABC classification defines the degree ofimportance for most common ways to most common ways to measureinventory are in units, dollars, weeks ofsupply, and Inventory managed Inventory (VMI) is where thevendor is responsible for the inventorylocated at a customer s