Chapter 12 Inventory Planning and Control

inventory is stored accumulation of material resources in a transformation system inventory exists because there is a difference in timing or rate of supply and demand:
process-related inventory (direct materials for production) support inventory (to ensure continuous function of operation)

there are 5 main types of process-related inventory:

buffer inventory:
also called safety inventory to compensate for uncertainties inherent in supply and demand
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12 Inventory Planning and Control

cycle inventory:
occurs because the process cannot supply all possible variations, simultaneously eg. process can only produce one variant at a time, hence must store other variants to cope with demand

de-coupling inventory
in process layout operations, output inventory of each process

anticipation inventory:
to compensate for differences in timing of supply and demand

pipeline inventory:
exists as material cannot be transported instantaneously between the point of supply and point of demand
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12 Inventory Planning and Control

there are 3 types of inventory position:

raw material (input) inventory:
cater for variability of supply reduce overall lead times

WIP (work in progress):

stabilise different output rates of processes increasing utilisation of plants

finished-goods inventory:
provides fast, off-the-shelf delivery steady delivery to customers during demand fluctuations
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12 Inventory Planning and Control

there are 3 inventory decisions to be made by operations:

volume decision (how much to order):
must consider the cost of inventory:
cost of placing order stock-out costs working capital costs obsolescence costs storage costs inefficiency costs

EBQ (economic batch quantity) model suggests production of parts and their shipment to an inventory point, while demand is continuing to take place
demand supply Inventory level

Time

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12 Inventory Planning and Control

timing decision (when to place an order):

the re-order point (ROP) is the point at which stock will fall to zero, minus the order lead time predictability of lead times is of concern, hence some margin of safety in timing is given for ROP, resulting in buffer stock orders can also be placed after continuous or periodic reviews of stock levels 2 bin system:
has 2 full bins when one is empty, that is the ROP

3 bin system:
same as 2 bin system, but has one extra bin 3rd bin contains safety stock for demand fluctuations

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inventory analysis and control systems (how to control):

information processing system required inventory priorities discriminates between stock of more value due to usage rates pareto curve:
100

Class A

Cumulative % of total value

50

Class C Class B

20

50

100

% of total number of items

class A items are high value items class B items are medium value items class C items are low value items Page 6 of 6

Chapter 13 Supply Chain Planning and Control

supply chain management (SCM) is the management of interconnecting organisations which relate to each other through upstream or downstream linkages activities of SCM include:
purchasing and supply management:
purchasing function forms contracts with suppliers to buy materials and services formal requests by purchasing function quotations by supplier negotiations with suppliers

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selection of preferred supplier purchase order single-sourcing and multi-sourcing have advantages and disadvantages:
quality economies of scale commitment strong relationships price negotiations

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13 Supply Chain Planning and Control

physical distribution management:

multi-echelon inventory systems
includes storage at various points in chain manufacturer to regional warehouses warehouses to many retail stores simplifies routes and communication
Factory Factory Factory

12 routes
Customer Customer Customer Customer

Factory

Factory

Factory

10 routes
Warehouse Warehouse

Customer

Customer

Customer

Customer

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13 Supply Chain Planning and Control

types of relationships in supply chains include:

B2B, B2C, C2B, C2C vertical integration:
determines how much of the supply chain an organisation should own
make or buy decisions

traditional market supply relationships:

purchase goods from outside advantage - organisation concentrates on its core activities disadvantage - over reliance on outsourcing can hollow out the company

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virtual operations:
extreme form of outsourcing (ie. software or internet companies) advantages - flexibility and speed, lower risks on investment disadvantage - hollowing out effect

partnership supply relationships:

a compromise between vertical integration and pure market relationship sharing success joint learning long-term expectations joint coordination of activities information transparency joint problem solving trust

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supply chain policy is the way in which operations in a supply chain try to influence their behaviour to suit the needs of the end customer:
keeps inventories low quickens flow of information provides schedules with plenty of time to react

operational efficiency is achieved with each operation in the chain reducing its own costs, complexities, and increasing throughput, which improves the whole chain

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information sharing improves supply chain, reduces fluctuations which ripple through from demand to supply

channel alignment is the adjustment of scheduling, material movement, pricing strategies, so as to bring all operations in the chain in line with each other

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