supply chain chapter 7

RFID applications

Materials Management Manufacturing Distribution Center Retail Stores

Review Global Sourcing -

Must recognize a 20% to 30% savings to offset, lead-time, risks, customs, etc

Inventory Management Atomization -

Oracle versus Legacy MRP

POQ

Production Order quantity

RFID standards and issues

RFID ISSUES Costs Standardization Performance Restrictions Applications

RFID

Radio frequency identification (RFID) has been used as an eventual successor to the barcode for tracking an individual unit of goods. RFID does not require direct line of sight to read a tag, and information on the tag is updatable. 2 types: EPC and ISO

raw material

Raw materials are unprocessed purchased inputs or materials for manufacturing the finished goods. Raw materials become part of finished goods after the manufacturing process is completed. There are many reasons for keeping raw material inventories, including volume purchases to create transportation economies or take advantage of quantity discounts; stockpiling in anticipation of future price increases or to avoid a potential short supply; or keeping safety stock to guard against supplier delivery or quality problems.

Transponders

RiDF tags

Reorder logic

STATISTICAL REORDER POINT DEMAND LEAD TIME CONTINUOUS REVIEW PERIODIC REVIEW

calc EOQ

TAIC = APC þ AHC + AOC = ð R × C Þ + ð Q=2Þ × ðk × CÞ + ð R=QÞ × S where TAIC = total annual inventory cost APC = annual purchase cost AHC = annual holding cost AOC = annual order cost R = annual requirement or demand C = purchase cost per unit S = cost of placing one order k = holding rate; where annual holding cost per unit = k × C Q = order quantity

continuous review

The continuous review system implies that physical inventory is known at all times, so it is more expensive to administer. However, the only uncertainty is the magnitude of demand during the delivery lead time; thus, the only safety stock required is for potential stockouts during this time period.

periodic review

The periodic review system reviews physical inventory at specific intervals of time. Although this system is cheaper to administer, a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon.

Supply Chain Communication -

"+" Vertical (SC Tiers) Horizontal (cross departments - inter company and with Suppliers)

WIP

(work in progress)• Work-in-process (WIP) describes materials that are partially processed but not yet ready for sales. One reason to keep WIP inventories is to decouple processing stages or to break the dependencies between work centers.

ABC inventory control

80 / 20 Rule Pareto Analysis 80% of Usage comes from top 20% of Inventory (A) 20% of Usage comes from remaining 80% (B & C) The A items are given the highest priority, while C items have the lowest priority and are typically the most numerous (the B items fall somewhere in between). Greater attention, safety stocks and resources are devoted to the high-priority or A items. A: approximately 20 percent of the items make up about 80 percent of the total annual dollar usage B:make up roughly 40 percent of the items and account for about 15 percent of the total annual dollar usage, C: items are the remaining 40 percent of the items, making up about 5 percent

inventory models

A variety of inventory models for independent demand items are reviewed in this section by classifying the models into two broad categories. First, the deterministic inventory models are discussed that assume demand, delivery lead time and other parameters are deterministic. These models use fixed parameters to derive the optimum order quantity to minimize total inventory costs. Thus, these models are also known as the fixed order quantity models.

ABC matrix

ABC inventory matrix as shown in Figure 7.1. The A items based on current inventory value should match the A items based on annual inventory dollar usage, falling within the unshaded diagonal region of the figure. Similarly, the B and C items should match when comparing the two ABC analyses.

Product Customization -

Assembly to build a Standard Product up to the end - Customization happens in final stages

tools of inventory management hidden cost of inventory

Capital Investment Out of Pocket - not earning interest Loans - fees and interest Handling - People and Equipment Storage - Warehousing Costs Deterioration - Breaking Down and Getting Old Shrink - Theft Depreciation - Devaluation through financial aging

RFID classifications 4 classes epc

EPc Classifications Class 0 - Read Only Class 1 - Write Once, Read Many (WORM) Class 2 - Read / Write Class 3 - Read / Write with Battery Class 4 - Read / Write active Transmitter Classes 0, 1, 2: are passive tags that do not store power on the tags and classes 3, 4: are active tags that contain a power source to boost their range. Class 5: tags can communicate with other class 5 tags and other devices. The current EPC standard is the 96-bit UHF Class 1, General 2 write once read many (WORM) tag. This generation of tags is expected to pave the way to the Class 2 high memory full read/write tags.

EMQ

Economic Manufacturing Quantity The quantity discount model or price-break model is one variation of the classic EOQ model. It relaxes the constant price assumption by allowing purchase quantity discounts. In this case, the unit price of an item is allowed to vary with the order size. Total Annual Inventory Cost = Annual purchase cost + Annual holding cost + Annual order cost; The Economic Manufacturing Quantity (EMQ) or Production Order Quantity (POQ) model is another variation of the classic EOQ model. It relaxes the instantaneous replenishment assumption by allowing usage or partial delivery during production. The EMQ model is especially appropriate for a manufacturing environment where items are being manufactured and consumed simultaneously; hence the name economic manufacturing quantity. Inventory builds up gradually during the production period rather than at once as in the EOQ model.

INVENTORY MANAGEMENT

Effects how EFFICIENTLY Assets are deployed in producing Goods and Services.

BOBCAT -

Five Steps to Improved Inventory Management

Kitting -

Grouping parts which are used together in assembly (remember phantom BOM)

tools of inventory management

Hidden Costs of Inventory Capital Investment Out of Pocket - not earning interest Loans - fees and interest Handling - People and Equipment Storage - Warehousing Costs Deterioration - Breaking Down and Getting Old Shrink - Theft Depreciation - Devaluation through financial aging

more inventory costs

Landed - Purchasing through to Port of Entry Total Purchase Insurance In Bound Freight Customs Handling Freight Forwarding Duty REMEMBER FREIGHT COSTS In Land Demurrage Warehousing Depreciation Handling Shrink Fabrication Cost of Money Overhead

Reorder Point

The reorder point (ROP) is the lowest inventory level at which a new order must be placed to avoid a stockout. In a deterministic setting where both the demand and delivery lead time are known and constant, Example 7.3 showed that the reorder point was equal to the demand during the order's delivery lead time. In reality, the demand and delivery lead time tends to vary.

GOVERNMENT CONTRACTS weaknesses

Time and ability to become a Vendor Short term projects restrict procurement success Funding has an end date - easier to roll into an existing project

Balance of risk

between sock out and excess

Tags

box, pallets

cyclical inventory

by location by product by event by usage

reverse logistics inventory

day. Included are discussions of the modes of transportation, transportation regulation and deregulation, warehousing and distribution, a number of logistics decisions firms must make, the impact of logistics on supply chain management, the global issues affecting logistics, the impact of e-commerce on logistics activities and management of product returns,

Dependant Demand versus Independent Demand

dependent is internal and is made of components the (part) battery for the ATV BOM used in the final product independent is external and is the finished good the battery for the service part, bought separate

inventory costs

direct- parts vs Indirect- overhead fixed- independandt of output quantity vs. Variable - per unit order costs (supplies) setup costs (manufacturing) holding or carrying costs

EPC

electric product code is more widely used and technology, a reader is used to read the information stored in RFID tags. However, the reader does not have to be placed directly in line of sight of the tag to read the radio signal—a significant advantage of RFID over barcode. 6 classes

Finished goods

• Finished goods are completed products ready for shipment. Finished goods inventories are often kept to buffer against unexpected demand changes and in anticipation of production process downtime; to ensure production economies when the setup cost is very high; or to stabilize production rates, especially for seasonal products. •

ABC Controls

is a useful technique for determining which inventories should be counted more frequently and managed more closely and which others should not. ABC analysis is often combined with the 80/20 rule or Pareto analysis. The 80/20 rule suggests that 80 percent of the objective can be achieved by doing 20 percent of the tasks, but the remaining 20 percent of the objective will take up 80 percent of the tasks. The Pareto analysis recommends that tasks falling into the first category be assigned the highest priority and managed closely.

A price break point

is the minimum quantity required to get a price discount. There is an EOQ associated with each price level, however the EOQ may not be feasible at that particular price level because the order quantity may not lie in the given quantity range for that unit price. Due to the stepwise shape of the total inventory cost curve, the optimal order quantity lies at either a feasible EOQ or at a price break point.

EOQ

it means Economic Order Quantity is a classic independent demand inventory system that provides many useful ordering decisions. The basic order decision is to determine the optimal order size that minimizes total annual inventory costs—that is, the sum of the annual order cost and the annual inventory holding cost. The EOQ model thus seeks to find an optimal order size that minimizes the sum of the two annual costs. Demand known and constant Lead Time known and constant Full order replenishment Price is Constant Holding Cost are Known and Constant Order Costs are Known and Constant Stockouts are not allowed Driven by high SET-UP costs Quanitity Discount model (price break )

MRO

maintenance repair operating Maintenance, repair and operating (MRO) supplies are materials and supplies used when producing the products but are not parts of the products. Solvents, cutting tools and lubricants for machines are examples of MRO supplies. The two main reasons for storing MRO supplies are to gain purchase economies and to avoid material shortages that may shut down production.

explaining the matrix graph

plots in the upper-left shaded triangle of the ABC inventory matrix indicate that some A items based on annual inventory dollar usage are showing up as B or C items based on the current inventory value classification and that some B items have similarly been classified as C items. This suggests that the company has current inventories for its A and B items that are too low, and is risking stockouts of their higher dollar usage items. Conversely, plots in the lower-right shaded triangle show that some C items based on annual inventory dollar usage are showing up as A and B items based on current inventory value, and some B items are similarly showing up as A items; thus indicating that the company has current inventories for its B and C items that are too high, and is incurring excess inventory carrying costs. This may also point to the presence of excessive obsolete stock if the inventory turnover ratios are very low. Obsolete stocks should be disposed of so that valuable inventory investment and warehouse space can beused for productive inventory.

inventory turns

see slide

statistical reorder point

the statistical reorder point is discussed, where demand and/or lead time are not constant but can be estimated by means of a normal distribution. Finally, the continuous review and periodic review systems are briefly discussed.

readers

the thing that picks up the signal

Physical inventory

when how why