Management Final Chapter 11
Which class requires close control by operations manager
A
C items
Account for a small dollar value but a large percentage of total items
Somewhere in the middle of A and C
B
Which items need not be as closely controlled and can be managed using automated computer systems
C
What is one of the first steps in analyzing an inventory problem?
Describe the essential characteristics of the environment and inventory system
In airlines and hotels what are inventories
Inventories are not physical goods that customers take with them, but provide a capacity available for serving customers
What are essential characteristics of the environment and inventory system?
Number or items, nature of demand, number and size of time periods, lead time, stockouts
Inventory costs can be classified into what four major categories?
Ordering or setup costs, inventory holding costs, shortage costs, and unit cost of the SKUs
What is the order quantity that minimizes total cost?
Q*= square root of (2DC0/Ch)
What happens when the inventory position falls at or below a certain level?
Reorder point
Total annual cost for the EOQ model
TC = 1/2QCh + (D/Q)C0
What is the process of triggering an order based on?
The inventory position
How can the news vendor problem be solved?
Using a technique called marginal economic analysis which compares the cost or loss of ordering one additional item with the costs
Stock keeping unit
a single item or asset stored at a particular location
A items
account for large dollar value but a relatively small percentage of total items
Safety stock
additional planned on-hand inventory that acts as a buffer to reduce the risk of a stockout
Environmentally preferable purchasing EPP or green purchasing
affirmative selection and acquisition of products and services that most effectively minimize negative environmental impacts over their life cycle of manufacturing, transportation, use, and recycling or disposal
What is an example of a service organization?
airline and hotel
Safety stock inventory
an additional amount that is kept over and above the average amount required to meet demand
inventory
any asset held for future use or sale
shortage or stockout costs
are costs associated with inventory being unavailable when needed to meet demand
Inventory holding/ inventory carrying costs
are the expenses associated with carrying inventory
Stockouts
back orders result in additional costs for transportation, expediting, or perhaps buying from another supplier at a higher price. A lost sale has an associated opportunity cost, which may include loss of goodwill and potential future revenue
What is an ABC inventory analysis
consists of categorizing inventory items or SKUs into three groups according to their total annual dollar usage
finished goods inventory
consists of completed products ready for distribution or sale to customers
Work in process WIP inventory
consists of partially finished products in various stages of completion that are awaiting further processing
Explain how a fixed order quantity inventory system operates and how to use the EOQ and safety stock
continuously monitor the inventory level and place orders when the level reaches some "critical values"
Explain how a fixed order quantity inventory system operates and how to use the EOQ and safety stock models
continuously monitor the inventory level and place orders when the level reaches some critical value
Inventory Position (IP)
defined as the on hand quantity (OH) plus any ordered placed at which have not arrived (called scheduled receipts, SR,) minus any back orders (BO)
nature of demand
demand can be classified as independent or dependent, deterministic or stochastic, and dynamic or static
Independent Demand
demand for a SKU that is unrelated to the demand for other SKUs and needs to be forecasted
dynamic demand
demand that varies over time
reorder point
depends on the lead time and demand rate
Stockout
inability to satisfy demand for an item
Ordering Costs/ set up costs
incurred as a result of the work involved in placing orders with suppliers or configuring tools, equipment, and machines within a factory to produce an item.
what does the single period inventory model apply to?
inventory situations in which one order is placed for a good in anticipation of a future selling season where demand is uncertain
Inventory Management
involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and sub assemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs
B items
items that are between A and C
Lead time
lead time is affected by transportation carriers, buyer order frequency and size and supplier production schedules and may be deterministic or stochastic in which case it may be described by some probability
Economic Order Quantity (EOQ)
model is a classic economic model developed in the early 1900s that minimizes the total cost, which is the sum of the inventory-holding cost and the ordering cost
Backorder
occurs when a customer is willing to wait for the item
What may inventories be?
physical goods used in operations, and include raw materials, parts, sub assemblies, supplies, tools, equipment or maintenance, and repair items.
Inputs to manufacturing and service delivery processes
raw materials, component parts, sub assemblies, and supplies
Fixed period system (FPS)
sometimes called a periodic review system- is one in which the inventory position is checked only at fixed intervals of time, T, rather than on a continuous basis
Stable demand is usually called
static demand
Cs=
the cost per item of overestimating demand (salvage cost) this cost represents the loss of ordering one additional item and finding that it can not be sold
Cu
the cost per item of underestimating demand (shortage cost); this cost represents the opportunity loss of not ordering one additional item and finding that it could have been sold
Service level
the desired probability of not having a stock-out during a lead-time period
What is the process of triggering an order based on?
the inventory position when the inventory position falls at or below a certain value, r, called the reorder point a new order is placed
Fixed Quantity system (FQS)
the order quantity or lot size is fixed; that is, the same amount, Q, is ordered every time
Unit cost
the price paid for purchased goods or the internal cost of producing them
What happens after a single period ends
the product has wither sold out or there is a surplus of unsold items to sell for salvage value
lead time
the time between placement of an order and its receipt
Number and size of time periods
the type of approach used to analyze single period inventory problems is different from the approach needed for the multiple period inventory situation
Reorder Point
the value of the inventory position that triggers a new order
SKU's are said to have dependent demand if
their demand is directly related to the demand of other SKUs and can be calculated without needing to be forecasted
number of items
to manage and control these inventories each item is often assigned a unique identifier called a stock keeping unit SKU
Lost Sale
when a customer is unwilling to wait and purchases the item elsewhere
Inventory managers deal with two fundamental decisions
when to order items from a supplier or when to initiate production runs if the firm makes its own items How much to order or produce each time a supplier or production order is placed. Inventory management is all about making trade off among the costs associated with these decisions
cycle inventory
(also called order or lot size inventory ) is inventory that results from purchasing or producing in larger lots than are needed for immediate consumption or sale