Supply Chain Chapter 4

an electronic device that can read barcodes and transmit the data to a computer. These might be handheld cordless devices, corded devices that attach directly to a PC's USB port, or computers with integrated laser scanners

A barcode reader

items given the highest priority. "80/20 rule" Generally, account for approximately 20% of the total number of items, but about 80% of the total inventory cost.

A items

Determine annual usage or sales for each item. Determine % of total usage or sales that each item represents. Rank items from highest to lowest %. Classify items into groups: A: Highest Value B: Moderate Value C: Least Valuable What are we describing with these stesp

ABC system

Those items on which all manufacturing operations, including final testing, have been completed. These products are called

Available for sale and/or shipment to customer

a type of inventory system that issues an order Whenever a withdrawal is made from inventory. Replenishment order quantity is equal to the quantity withdrawn from inventory. primarily for expensive items Like JIT

Base Stock Level System

costs for physically having inventory on-site and for maintaining the infrastructure needed to store the inventory and to secure and insure it over time

Carrying

Inventory that a company builds to satisfy its' Immediate demand

Cycle Stock

Safety Stock to cover for variability in both_______ and _______

Demand and Supply

Having too much inventory can result in effects like

Financial resources tied up in inventory. Underlying problems being hidden rather than being exposed and solved, including quality problems not being immediately identified. No incentive for process improvements .

Companies can operate a _____ __ ______ supply chain where the finished goods are not produced until a customer order is received, and the raw materials may not even be ordered from the supplier(s) in advance. Little to no finished goods inventory is maintained.

Make to order

The supplier may require the company to order an item in full production lot sizes.

Production Lot Size

Having too little inventory can result in effects like

Production disruptions. Longer delivery replenishment lead times. Reduced responsiveness. Lost revenue

Given: Demand (d) = 600/month Time (L) = 6 days Find ROP

ROP = dL = (20) x (6) = 120

Advantages for continuous review system

Real time updates Accurate accounting

The lowest inventory level at which a new order must be placed to avoid a stockout is known as the

Reorder Point (ROP)

"buffer stock," is inventory that is above and beyond what is actually needed to meet anticipated demand. A quantity of stock planned to be in inventory to protect against Fluctuation in demand or supply

Safety Stock

dependent on the unit volume produced vary with output level (e.g., materials, labor, utility power, etc.)

Variable

The model may generate an order quantity which would create spoilage or obsolescence.

obsolescence:

What are the 4 reasons why you hold inventory?

1. meet customer demand 2. To buffer against uncertainty in demand/ supply 3. Decouple supply from demand 4. to decouple dependencies in the supply chain

are a graphical image that stores information both horizontally and vertically. can store over 7,000 characters, allowing transmission of almost two paragraphs of information.

2d bar codes

items account for the other 80% of the total number of items, but only 20% of total inventory cost.

B & C items

_ _________require closer management since they are relatively more expensive (per unit), require more effort to purchase / make, & may be more prone to obsolescence. _ ___________ have the lowest value, and hence the lowest priority

B items C items

What are the two strategies around how much raw material a company should hold in inventory

Buy from a supplier and have it delivered to the operation just in time for when it is needed Buy and hold a larger quantity for strategic reasons

More costly to conduct than a Periodic Review System, but it potentially requires less safety stock because inventory is constantly monitored, and replenishment actions are taken more quickly. As soon as inventory falls below a pre-determined level (i.e., a reorder point), a replenishment order is triggered

Continuous Review System

A continuous inventory review system in which the same order quantity is used from order to order. When the inventory position drops to a predetermined reorder point, a predetermined fixed order quantity is placed The time between orders (i.e., order period) varies from order to order.

Fixed Order Quantity System

Inventory is checked in fixed time periods against a target inventory level. If the inventory is less than target, a quantity necessary to bring inventory back up to the target level is ordered. The amount of inventory ordered will potentially vary from period to period based on the remaining inventory at each time interval checked.

Fixed Time Period System

These are materials that you need to run the manufacturing operation and the business, but do not end up as part of the finished product.

Maintenance, Repair and Operating Supplies (MRO)

inventory levels are reviewed at a set frequency, e.g., weekly, monthly At the time of review, if the stock levels are below the pre-determined level (i.e., a reorder point), an order for replenishment is placed, otherwise no action is taken until the next cycle.

Periodic Review System

Q = R - IP what do all these things stand for

Q = order quantity R = target inventory level IP = inventory position

Purchased items or Extracted materials_that are converted via the manufacturing process into components and products.

Raw Materials

What are the 4 main categories of inventory

Raw Materials Work-in-Process (WIP) Finished Goods Maintenance, Repair and Operating (MRO) supplies

advantages of periodic review system

Reduces the time spent analyzing inventory. Less expensive than a Continuous Review System.

Besides storage cost what are some other costs to pay for to hold inventory

Security Insurance Taxes

Activities carried out in advance of the customer's arrival

Service Inventory

What are some examples of MROs

Some MRO items are consumed during the process of converting raw materials into finished goods, e.g., oil for the manufacturing equipment. Other MRO items are used to facilitate the manufacturing operation, e.g., cleaning supplies, spare parts, etc. While still other MRO items may be used to facilitate the company's administrative activities, e.g., office supplies, coffee for the break room, etc. MRO inventory is separate from production inventory, but it is just as important. Frequently these items are expensed at the time they are purchased, and there may be a separate function, group, or individual who plans and orders these MRO items, from those who plan and order production items.

Inventory can become a liability if it becomes Unusable due to these 4 things

expiration, obsolescence, damage, or spoilage

Maintaining adequate finished product inventory allows a company to fill customer orders _________

immediately

a series of alternating bars and spaces printed or stamped on parts, containers, labels, or other media, representing encoded information that can be read by electronic readers. they are one-dimensional, can only be read horizontally, and can only hold a maximum of 85 characters

linear (1D) Bar Codes

Best practice generally suggests ____________ the amount of WIP inventory in the manufacturing area since too much WIP may clutter up the physical space and impede the process flow.

minimizing

Holding some inventory may be necessary to maintain ______ and Ensure that products are available when customers demand them.

operations

The EOQ model seeks to determine an _____ order quantity

optimal

What are some things included in inventory

raw materials and work-in-process items used to support production, all of the finished products needed to provide customer service, and all of the other materials and supplies needed to run a business, i.e., maintenance, repair, and operating supplies.

Failing to manage inventory adequately can lead to significant issues and inefficiencies throughout the supply chain, including dissatisfied customers, lost _____ and revenue, and _________ ______.

sales higher costs

Items used in support of General operations and maintenance such as maintenance ________, ________ ________, and __________ used in the manufacturing process and supporting operations aka materials that you need to run the manufacturing operation and business but do not end up as part of the finished product

supplies spare parts consumables

a type of inventory system in which inventory is Only ordered for a one time stocking. like Christmas tree lots

"Single-Period" Inventory Model

system classifies inventory based the Degree of importance_:

ABC System

The value of the inventory at either its cost or its market value.

Absolute Inventory Value

Inventory system that uses either one or two bins to hold a quantity of the item being inventoried. It is mainly used for small or low value items.

Bin System

WIP is viewed as the ________ ____ of inventory

Black Hole

incurred for holding inventory

Carrying Costs

Inventory Turnover Ratio

Costs of goods sold / Average inventory

aka Sunk Costs) - independent of the unit volume produced (e.g., buildings, equipment, rent, allocated overhead costs, etc.)

Fixed

Disadvantages for continuous review system

Generally requires an automated system cost more

cannot be traced directly to the unit produced (e.g., overhead; MRO items, buildings, equipment, etc.)

Indirect

EOQ calculation will be impacted by volume economies of scale such a

Individual Item Purchase Price Discounts Multiple-Item Purchase Price Discounts Transportation Freight-Rate Discounts

______ is the Quantities of goods and materials that are held in stock

Inventory

Linear Barcode 2D Barcode Radio Frequency Identification (RFID) are all examples of what

Inventory Control Tools

The number of times that an inventory cycles, or "turns over," during the year. the more turns the better

Inventory Turnover

Inventory is an Asset and Potentially a ____

Liability

The goal of inventory management is to help a company be more profitable by ______ the cost of goods sold/or by Increasing ______.

Lowering sales

Companies can operate a ____ ___ ________ supply chain where product is produced prior to receipt of a customer order. A forecast and demand plan are created and the finished goods are produced and held in inventory until a customer order is received. Significant amounts of finished goods inventory can sometimes be maintained.

Make to stock

Disadvantages of periodic review system

May not provide accurate inventory counts for businesses with high sales. Can be difficult to determine the best review/reordering intervals. It also can make inventory accounting less accurate.

labor costs associated with placing an order for inventory and the cost of receiving the order.

Order

incurred each time an order is placed

Order Costs

Inventory in the transportation network and the distribution system. Inventory that is already out in the market being held by wholesalers, distributors, retailers, and even consumers. The ownership of this inventory has been transferred to the trading partners

Pipeline inventory

What is the external inventory called?

Pipeline inventory... like inventory in transit or inventory held by someone

Successor to the barcode for tracking individual unit of goods. does not require direct line of sight to read a tag, and the information on the tag is updatable

RFID radiot frequency identification

The model may generate an order quantity which the company does not have sufficient storage capacity to handle at one time.

Storage Capacity

What are the three levels of internal inventory

Strategic Stock Safety Stock Cycle Stock

A quantitative decision model based on the trade-off between annual inventory carrying costs and annual order costs. fixed-order quantity model

The Economic Order Quantity (EOQ) Model

Purchase Cost + Order Cost + Carrying Cost

Total Cost for EOQ model

The item being ordered and transported may require specialized or dedicated transportation, impacting the quantity per order.

Transportation

True or false: Service industry do not maintain inventory of services since services are basically used instantly

True

Establishing target inventory levels for all products and materials Address these three fundamental questions

When to review? When to order? How much to order?

A good or goods in Various stages of completion throughout the plant, spanning from raw material that has been released for initial processing up to fully processed material awaiting final inspection and acceptance as finished goods

Work-In-Process

Inventory is usually one of the company's largest _____, so careful management of that asset is an essential business requirement

assets

are costs that are incurred for holding inventory in storage.

carrying costs

IF you have safety stock you have to add it to ROP to find the real ROP

demand= 5 units/ day Lead time= 10 days Safety stock= 25 units 5 x 10 + 25 = 75

directly traceable to unit produced (e.g., materials, labor, etc.)

direct

A key decision in any product-based supply chain is how much _________ to keep on hand

inventory

Inventory items that have met the obsolescence criteria established by the company. could be expired, damaged, or no longer needed

obsolete inventory

are costs that are incurred each time an order is placed.

order costs

inventory generally used for a very specific purpose or future event, and for a defined period of time. Also called anticipation stock, build stock, or seasonal stock

strategic stock

Too much inventory ___ __ ________ which could otherwise be used for purposes such as research and development, marketing and sales, stockholder dividends, salary increases, etc.

ties up capital

True or False: Individual items within the 4 main categories of inventory can be current or obsolete

true

The supplier may require the company to order an item in full pack, case, or pallet configurations

unitization:

EOQ formula

√(2 x Order Cost x Annual Demand Volume Annual Carrying Cost % x Unit Cost)