Ch 7 Inventory Management Supply Chain

Cyclical Inventory

- by location -by product -by event -by Usage

Tools of Inventory Management

-Hidden costs of inventory -Handling (people and equipment) -storage (warehouse costs) -deterioation -depreciation

Types of Inventory

-Raw Materials -WIP -finished goods -rework and reverse logistics inventory -maintenance, repair, operating

Economic Order Quantity-EOQ

-demand known and constant -lead time know and constant -full order replenishment -price is constant -holding costs are known and constant -order costs are known and constant -stockouts are not allowed -driven by high setup costs -quantity discount model (price break) -Economic manufacturing Quantity -Production order quantity

independent demand

-external -finished goods

Dependent demand

-internal -components

Physical Inventory

-when -how -why

Dependent and Independent demand

Describes the internal demand for parts based on the demand of the final product in which the parts are used. Sub assemblies, components, & raw materials are examples of dependent demand items.

ABC Inventory Control

Determines which inventories should be counted & managed more closely than others. Groups inventory as A, B, & C Items A items are given the highest priority with larger safety stocks. A items, which account for approximately 20% of the total items, are about 80% of the total inventory cost B & C items account for the other 80% of total items & only 20% of costs. The B items require closer management since they are relatively more expensive (per unit), require more effort to purchase/make, & may be more prone to obsolescence C items have the lowest value and hence lowest priority

The total annual inventory cost is the sum of the annual purchase cost, the annual holding cost, the annual capacity cost, and the annual ordering cost.

False

Kitting

Grouping parts which are use together in assembly

Radio Frequency Identification

Successor to the barcode for tracking individual unit of goods. RFID does not require direct line of sight to read a tag and information on the tag is updatable. Automates the supply chain: • Materials Management - goods automatically counted and logged as they enter the supply warehouse • Manufacturing - assembly instructions encoded on RFID tag provide information to computer controlled assembly devices • Distribution Center - shipment leaving DC automatically updates ERP to trigger a replenishment order and notify customer for delivery tracking • Retail Store - no checkout lines as scanners link RFID tagged goods in shopping cart with buyers credit card

Functions and Basic Types of Inventory

The demand for final products & has a demand pattern affected by trends, seasonal patterns, & general market conditions. Functions and Basic Types of Inventory

An RFID reader does not require direct line of sight to read the information stored in a RFID tag,

True

Radio Frequency Identification (RFID) is considered an eventual replacement of bar code because of its ability to store huge amount of information to differentiate specific unit of a good

True

The ABC inventory control system categories inventory items into three groups A., B and C. A items are given highest priority, while C items have the lowest priority. Prioritization may be based on annual usage, shelf life or sales volume

True

The EOQ, also known as the economic order quantity, is the optical order size in terms of cost because it minimizes the annual total inventory cost. The EOQ is the lot size where inventory holding costs equal annual ordering cots.

True

When demand and lead time are constant, reorder point is the demand during lead time.

True

the periodic inventory review system reviews physical inventory at specific periods of time

True

inventory variable costs

accumulate per unit

Inventory fixed costs

independant of output quantity

Inventory indirect costs

overhead

Inventory direct costs

parts

Inventory Costs

• Direct costs- directly traceable to unit produced (e.g., labor) • Indirect costs- cannot be traced directly to the unit produced (e.g., overhead) • Fixed costs- independent of the output quantity (e.g, buildings, equipment, & plant security) • Variable costs- vary with output level (e.g., materials) • Order costs- direct variable costs for making an order. In mfg, setup costs are related to machine setups • Holding or carrying costs- incurred for holding inventory in storage