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 Replenishment order quantity is equal to the quantity withdrawn from inventory.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)