MKGT333 ch8

Cycle inventories

Arise because of management's decision to purchase, produce, or sell in lots rather than individual units or continuously; accumulate at various points in operating systems

CHAPTER QUESTIONS

CHAPTER QUESTIONS

Kanban:

Japanese where "kan" means "card" and "ban" means :visual;" a simple but effective control system used to plan the timing and quantity of purchased materials and internally manufactured materials that helps make JIT production work; double-card systems use conveyance (C-kanban) and production (P-kanban) cards; single-card systems use only the C-kanban.

KEYWORDS

KEYWORDS

Decoupling inventories

Make it possible to carry on activities on each side of a major process linkage point independently of each other.

Safety inventories:

See buffer inventories.

Uncertainty stock:

See buffer inventories.

Pipeline inventories:

See transit inventories.

Dependent demand

The item is part of a larger component or product, and its use is dependent on the production schedule for the larger component.

Least-total-cost:

The least-total-cost method is a dynamic lot-sizing method that compares the cost implications of various lot-sizing alternatives and selects the lot size that provides the least total cost.

Least-unit-cost:

The least-unit-cost method is a dynamic lot-sizing method which factors inventory holding and setup (or order) costs into the unit cost.

Lot-for-lot:

The most common lot sizing technique based on producing net requirements for each period; it does not take into account setup costs, carrying costs, or capacity limitations.

Master production schedule:

The requirements forecast by time period which details how many end items are to be produced during a specified time period.

Transit or pipeline inventories:

Used to stock the supply and distribution pipelines linking an organization to its suppliers and customers as well as internal transportation points.

Bill of materials (BOM)

Uses information from the engineering and/or process records to detail the subcomponents necessary to manufacture one finished item.

Lean thinking:

a management philosophy focused on eliminating seven forms of waste: (1) overproduction, (2) waiting, time in queue, (3) transportation, (4) non-value-adding processes, (5) inventory, (6) motion, and (7) costs of quality: scrap, rework and inspection.

Vendor-managed inventory (VMI) or supplier managed inventory (SMI):

a merging of the ordering and inventory functions in which a supplier manages and conducts all or some of the inventory management activities.

The demand for a particular service may be:

a. continuous, discrete, or periodic

Decoupling inventories are carried:

a. to permit activities on either side of a major process.

Lean supply:

an approach where relationships with suppliers are managed based on a long-term perspective to eliminate waste and add value.

"A" items in ABC analysis are:

b. particularly critical in financial terms

When a retailer uses daily sales of each product to identify patterns and to forecast inventory requirements, this is an example of:

c. a time series forecasting technique.

On an annual requirement of 100 items spread evenly throughout the year, any purchaser has an opportunity of buying all 100 units at a price of $100 each, or buying 10 units at a time at a price of $150. If the inventory carrying cost is 25 percent per year and assuming no ordering costs

c. buying 100 at a time will save the company $3,937.50 per year.

Continuous Planning, Forecasting and Replenishment (CPFR) generates the most accurate forecast possible and develops effective replenishment plans by:

d. enabling multiple trading partners to collaborate.

Capacity requirements planning (CRP):

d. performs for manufacturing resources what MRP does for materials.

The following cost is not a carrying, holding, or possession cost:

d. the purchase price of the item.

A material requirements planning (MRP) system:

e. requires explosion of the bill of material as the basis of planning.

Qualitative forecasting:

gathering opinions from a number of people such as sales staff and district sales managers and using these opinions with a degree of judgment to give a forecast.

Collaborative Planning, Forecasting and Replenishment (CPFR)

one example of a business practice in which multiple trading partners agree to exchange knowledge and share risks to generate the most accurate forecast possible and develop effective replenishment plans. CPFR links sales and marketing processes to supply chain planning and execution processes.

Systems contracts:

rely on periodic billing procedures; allow nonpurchasing personnel to issue order releases; employ special catalogs; require suppliers to maintain minimum inventory levels, but normally do not specify the volume of contract items a buyer must buy; and improve inventory turnover rates.

Causal forecasting models

One class of quantitative forecasting techniques that tries to identify leading indicators, from which linear or multiple regression models are developed.

Fixed-period models:

Orders are placed only at review time

Fixed-quantity models

Orders are placed when the reorder point is reached.

QUIZ

QUIZ

Enterprise resource planning (ERP) systems:

Software that allows all areas of the company—manufacturing, finance, sales, marketing, human resources, and supply—to combine and analyze information.

Stockout costs:

The costs of not having the required parts or materials on hand when and where they are needed.

Service coverage:

The portion of user requests served, for example, if there are 400 requests for a particular item in a year and 372 were immediately satisfied, the service coverage would be 372/400 = 93 percent.

Independent demand:

The usage of the inventory item is not driven by the production schedule and is determined directly by customer orders, the arrival of which is independent of production scheduling decisions

Quantitative forecasting:

Uses past data to predict the future.

Delphi technique:

a formal approach to qualitative forecasting.

A reduction in set-up costs and time impacts:

b. cycle inventories.

Just-in-time:

components, raw materials, and services arrive at work centers exactly as they are needed.

Ordering or purchase costs:

include the managerial, clerical, material, telephone, mailing, fax, e-mail, accounting, transportation, inspection, and receiving costs associated with a purchase or production order.

Manufacturing Resource Planning (MRP II):

links the firm's planning processes with the financial system to combine the capability of "what if" production scenario testing with financial and cash flow projections to help achieve the sales and profitability objectives of the firm.

Just-on-time:

materials arrive when they were scheduled to arrive

Pareto curve:

often called the 80-20 rule or ABC analysis; where A is about 70-80 percent of dollars and 10 percent of items in inventory, B is 10-15 percent of dollars and 10-20 percent of items, and C is 10-20 percent of dollars and 70-80 percent of items in inventory.

Material requirements planning (MRP) system:

used to plan the timing and quantity of purchased materials and internally manufactured materials to meet the needs of the master production schedule.

Economic order quantity (EOQ):

A lot-sizing technique that balances inventory holding and setup (or order) costs by using the EOQ formula to set lot sizes, which requires estimates for annual demand, inventory holding costs, and setup (or order) costs.

Anticipation or certainty inventories

Accumulated for a well-defined future need, for example seasonal inventories.

Setup costs:

All the costs of setting up a production run.

Carrying, holding, or possession costs

Any cost associated with having, as opposed to not having, inventory, including handling charges; the cost of storage facilities or warehouse rentals; the cost of equipment to handle inventory; storage, labor, and operating costs; insurance premiums; breakage; pilferage; obsolescence; taxes; and investment or opportunity costs.

Time series forecasting:

Assumes that sales (or other items to be forecast) follow a repetitive pattern over time; the analyst identifies the pattern and develops a forecast.

Capacity requirements planning (CRP)

Capacity is how much work can be done in a set amount of time; CRP translates the MRP plan into the required human and machine resources by workstation and time bucket and compares the required resources against available resources.

Inventory record:

Contains information such as open orders, lead times, and lot-size policy so that the quantity and timing of orders can be calculated.

Derived demand:

Dependent demand items are said to be derived because their use is dependent on a larger component

Buffer or uncertainty inventories or safety stocks

Exist as a result of variability in demand or supply.