OM Ch 11, 13

EOQ Model Key Assumptions

- Only a single item (SKU) is considered. - No stockouts - Demand for item is constant and continuous over time - Lead time is constant - Only order/setup costs and inventory holding costs are relevant - Entire order quantity (Q) arrives at one time

Typical Objectives of Resource Management

1. Maximize profits and customer satisfaction, or 2. Minimize costs, or 3. Maximize benefits to stakeholders for nonprofit organizations such as government

4 Categories of Inventory Costs

1. Ordering/Setup Costs 2. Inventory-Holding Costs 3. Shortage/Stockout Costs 4. Unit cost of the SKUs

Two principal decisions in an FPS

1. The interval between reviews 2. The replenishment level

Economic Order Quantity (EOQ) Model

A classic model developed in the early 1900s that minimizes the total cost, which is the sum of inventory-holding cost and ordering cost.

Materials Requirements Planning (MRP)

A forward-looking, demand-based approach for planning the production of manufactured goods and ordering materials and components to minimize unnecessary inventories and reduce costs.

Bill of Labor (BOL)

A hierarchical record that defines labor inputs necessary to create a good or service.

Stock Keeping Unit (SKU)

A single item or asset stored at a particular location.

marginal economic

A single-period inventory problem can be solved using a technique called _______ analysis.

Master Production Schedule (MPS)

A statement of how many finished items are to be produced and when they are to be produced.

A items

Account for a large dollar value but a relatively small percentage of total items.

C items

Account for a small dollar value but a large percentage of items.

Safety Stock

Additional amount that is kept over and above the average amount required to meet demand.

Safety Stock

Additional, planned on-hand inventory that acts as a buffer to reduce risk of a stockout.

Subassembly

Always has at least one immediate parent and also has at least one immediate component.

Parent Item

An item manufactured from one or more components.

Lot for Lot (LFL)

An ordering schedule that covers the gross requirements for each week.

Components

Any items other than an end item that goes into a higher-level parent item(s).

half of the order quantity

Based on the constant demand assumption in the economic order quantity (EOQ) model, the average cycle inventory is _____ ___ ____ ________ _______.

ABC Inventory Analysis

Categorizes inventory items into 3 groups according to their annual dollar usage.

Finished Goods Inventory

Completed products ready for distribution or sale to customers.

Work in Process Inventory

Consists of partially finished products in various stages of completion that are awaiting further processing.

Stockout Costs

Costs associated with inventory being unavailable when needed to meet demand.

Ordering/Setup Costs

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.

Order/Lot Size Inventory

Cycle inventory is also called...

Resource Management

Deals with the planning, execution, and control of all the resources that are used to produce goods or provide services in a value chain.

Bill of Materials (BOM)

Defines the hierarchical relationships between all items that comprise a finished good, such as subassemblies, purchased parts, and manufactured in-house parts.

Final Assembly Schedule (FAS)

Defines the quantity and timing for assembling subassemblies and component parts into a final finished good.

Dependent Demand

Demand for an SKU that is directly related to the demand of other SKUs and can be calculated without needing to be forecasted.

Independent Demand

Demand for an SKU that is unrelated to the demand for other SKUs and needs to be forecasted.

Dynamic Demand

Demand that varies over time is called...

End Items

Finished goods scheduled in the MPS or FAS that must be forecasted.

Raw materials, component parts, subassemblies, and supplies

Inputs to the manufacturing and service-delivery processes.

Enterprise Resource Planning (ERP)

Integrate all aspects of a business into a unified information system, and they provide more timely analysis and reporting of sales, customer, inventory, manufacturing, human resource, and accounting data.

Cycle Inventory

Inventory that results from purchasing or producing in larger lots than are needed for immediate consumption or sale.

Inventory Management

Involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs.

No

Is shipping cost an inventory holding cost?

B items

Items between A and C items.

Inventory Position Equation...IP=

OH + SR - BO

Lost Sale

Occurs when a customer is unwilling to wait and purchases the item elsewhere.

Backorder

Occurs when a customer is willing to wait for an item.

Periodic-Order Quantity (POQ)

Orders a quantity equal to the gross requirement quantity in one or more predetermined time periods minus the projected on-hand quantity of the previous time period.

Scheduled or Planned Receipts (S/PR)

Orders that are due or planned to be delivered.

Level Production Strategy

Plans for the same production rate in each time period.

Execution

Refers to moving work from one workstation to another, assigning people to tasks, setting priorities for jobs, scheduling equipment and controlling processes.

Chase Demand Strategy

Sets the production rate equal to the demand in each time period.

Planned Order Release (PORel)

Specifies the planned quantity and time an order it is to be released to the factory or a supplier.

Planned Order Receipt (PORec)

Specifies the quantity and time an order is to be received.

Static Demand

Stable demand is also known as...

Fixed-Period System (FPS)

System in which the inventory position is checked only at fixed intervals of time, T, rather than on a continuous basis.

Environmentally Preferable Purchasing (EPP)

The 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.

Action Bucket

The current time period.

Service Level

The desired probability of not having a stock-out during a lead time period.

Aggregate Planning

The development of a long-term output and resource plan in aggregate units of measure.

Projected On-Hand Inventory (POH)

The expected amount of inventory on hand at the beginning of the time period considering on-hand inventory from the previous period plus scheduled receipts or planned order receipts minus the gross requirements.

Inventory Holding/Carrying Costs

The expenses associated with carrying inventory.

Stockout

The inability to satisfy the demand for an item is called...

Inventory Position

The on-hand quantity plus any orders placed but which have not arrived (scheduled receipts), minus any backorders.

Fixed-Quantity System (FQS)

The order quantity is fixed. The same amount, Q, is ordered every time. Which inventory system?

Unit Cost

The price paid for purchased goods or the internal cost of producing them.

Capacity Requirements Planning (CRP)

The process of determining the amount of labor and machine resources required to accomplish the tasks of production on a more detailed level, taking into account all component parts and end items in the materials plan.

Lot Sizing

The process of determining the appropriate amount and timing of ordering to reduce costs.

Disaggregation

The process of translating aggregate plans into short-term operational plans that provide the basis for weekly and daily schedules and detailed resource requirements.

MRP Explosion

The process of using logic of dependent demand to calculate the quantity and timing of orders for all subassemblies and components that go into and support the production of the end item(s).

Lead Time

The time between placement of an order and its receipt is called...

Time Buckets

The time-period size used in the MRP explosion process and usually are one week in length.

Gross Requirements (GR)

The total demand for an item derived from all of its parents.

Reorder Point

The value of the inventory position that triggers a new order is called...

True

True or False: Backorders result in additional costs.