|
 


 

u

Y p


Y 
 
    
V |
 ›

 
     
    

  
    
    

 


V |
  
O › 


   
    

  
    



 

  
 
 
  
 




    
 

 

 |
 
V Def. - A physical resource that a firm holds in
stock with the intent of selling it or
transforming it into a more valuable state.
V Raw Materials
V Works-in-Process
V Finished Goods
V Maintenance, Repair and Operating (MRO)
 Õ
 

V he average carrying cost of inventory
across all mfg.. in the U.S. is 30-35% of
its value.
V What does that mean?
V Savings from reduced inventory result
in increased profit.
 ¯|
 
V Reducing amounts of „
 „  and

„   „ and 
  by
having suppliers deliver them directly.

V Reducing the amount of
„ „

by using just-in-time production.

V Reducing the amount of (   by

shipping to markets as soon as possible.
 |
     



V

  


 


 



 



 
V  
|
  
V |mprove customer service
V Economies of purchasing
V Economies of production
V ransportation savings
V Hedge against future
V Unplanned shocks (labor strikes, natural
disasters, surges in demand, etc.)
V o maintain independence of supply chain
|
  
 
V Remember this?

V Quality
V Speed
V Flexibility
V Cost
Ì |
 

 

|
 
V "
 - inventory can be a ƐbufferƑ against poor
quality; conversely, low inventory levels may force
high quality
V p  - location of inventory has gigantic effect on
speed
V 6 - location, level of anticipatory inventory
both have effects
V Ý - direct: purchasing, delivery, manufacturing
indirect: holding, stockout.
HR systems may promote this-3 year postings
Ì |
 
   V
|
 
V ransit
V Buffer
V Seasonal
V Decoupling
V Speculative
V Lot Sizing or Cycle
V Mistakes

|
 

 
|
VÌeed for Finished Goods |nventories
V Ìeed to satisfy internal or external customers?
V Can someone else in the value chain carry the
inventory?
V Ownership of |nventories
V Specific Contents of |nventories
V Locations of |nventories
V racking
 Æ  
|
 
V The Dilemma: closely monitor and control
inventories to keep them as low as possible
while providing acceptable customer service.
V › „ ›„  „ 

how much of the companyƎs total assets
are invested in inventory?
V Ford:6.825 billion
V Sears: 4.039 billion
V  

|
 
V Ìon-value added costs
V Opportunity cost
V Complacency
V |nventory deteriorates, becomes
obsolete, lost, stolen, etc.
ë


|
  
V {) Maximize the level of customer
service by avoiding understocking.
V 2) Promote efficiency in production and
purchasing by minimizing the cost of
providing an adequate level of customer
service.
u   |
 


V When should the company replenish its
inventory, or when should the company
place an order or manufacture a new
lot?
V How much should the company order or
produce?
V Ì Economic Order Quantity
Models for |nventory Management:
EOQ
EOQ minimizes the sum of holding and setup
costs
V Q= 2DCo/Ch
V D = annual demand
V Co = ordering/setup costs
V Ch = cost of holding one unit of
inventoryƖ.
Marginal Analysis

Holding
Costs

Ordering
Costs

Units
 Reorder Point
V Quantity to which inventory is allowed to
drop before replenishment order is made

V Ìeed to order EOQ at the Reorder Point:

ROP = D X L
D = Demand rate per period
L = lead time in periods
 („„ 
V changing lead times
V changing demand
V Uncertainty creeps in:
V Plug in safety stock
Safety stock - allows manager to
determine the probability of stock levels
- based on desired customer service
levels
Models for |nventory Management:
Quantity Discount
V Basically EOQ with quantity discounts
V o solve:
{. Write out the total cost equation
2. Solve EOQ at highest price and no discounts
3. |f 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
Classifying |nventory |tems
V ›
ÝÝ (  „„ 
V › very tight control, complete and
accurate records, frequent review
V
 less tightly controlled, good
records, regular review
V Ý simplest controls possible, minimal
records, large inventories, periodic review
and reorder
› „ „
Ý„
V determine requirements by forecasting
demand for the next production run or
purchase
V establish current on-hand quantities
V add appropriate safety stock based on
desired stock availability levels and
uncertainty demand levels
V determine how much new production or
purchase needed (total needed - on-hand)
 V 
 p
V replenishment, production, or purchases of
stock are made only when it has been
signaled that there is a need for product
downstream
V requires shorter order cycle time, often more
frequent, lower volume orders
V determine stock requirements to meet only
most immediate planning period (usually
about 3 weeks)