Operations CH7

Ordering Cost

(D/Q)*Co D=annual demand

demand per day

(Demand per year)/(working days/year)

Disadvantages of Inventory

-higher cost (item, order, setup, carrying cost) -difficult to control (due to "variability" in demand, production, logistics, etc) -hides production and quality problems

Purposes of Inventory

-meet anticipated demand -decouple production & distribution (permits constant production quantities) -Take advantage of quantity discounts -Provide hedge against inflation -Protect against shortages -Permit smooth operations through WIP (i.e decouple operations)

Class A items represent approximately?

15% of items and 75% of the total dollar value

Holding Cost

=(Q/2)* (U*Ci)

Expected # of orders

=N= D/Q*

Expected Time between Orders

=T=(working days/year)/N

Inventory Turns

?

Service Level

Ability to meet customer demand without a stock out

Managing Locations

Balance inv, lead time and service levels

Variation

Can occur in both demand rates and lead times σddlt=standard deviatino of demand during lead time

Bullwhip Effect

Demand variation increases upstream in the supply chain (from consumers to manufacturers) -due to overreacting to small changes in demand, batch ordering, and ordering more when price is low

The purpose of ABC analysis is to?

Determine which items in inventory should be monitored with the most intensity

Service Level Policy

Determining the acceptable stock out risk level

Periodic Review Model: Order Interval

Fixed time between inventory review, on hand level is unknown during this uncertainty period UP=uncertainty period OI=order interval A=inventory on hand

Identification systems

Global Trade Item Number (GTIN) Part number

Inventory systems

Identification systems Inventory record accuracy

continuous review models

Inventory is constantly monitored to decide when a replenishment order needs to be placed

MRO Inventory

Maintenance, repair, and operating supplies

Implementing Inventory Models

Matching management system to specific items

Single Period Inventory Model

Model used to determine the order size for a one time purchase -items are ordered once, and have little left over value

StockOut

No inventory is available

Target Service Level

Probability of meeting demand Cost of Stockout= unit selling price - unit cost Cost of Overstock= unit cost + Disposal cost - Salvage value

Periodic Review System

Reviews inventory level at "fixed time intervals" -order enough materials to make it to the predetermined level

Periodic review model

The management system is built around checking and ordering inventory at some regular interval

ABC analysis

The ranking of all items of inventory according to importance. -purpose being to focus on the most important items. Dollar Value, Total Items A:70% , 20% B: 20% , 30% C: 10% , 50% *hard to satisfy both %$ volume & % items. -if impossible, satisfy %$ volume

Pareto's Law

The rule that a small % of items account for a large % of sales, profit, or importance to a company -can see this after an ABC analysis is done

Which is not a function of inventories?

To guard against product obsolescence

Continuous Review Model

When the order point (OP) is reached put in order. -Order lead time- waiting time to get what ordered

Safety Stock

extra amount ordered to avoid a stock out

Global Trade Item Number (GTIN)

identification system for finished goods sold to consumers

Cycle Counting

inventory is physically counted on a routine schedule

Days of Supply

length of time operations can be supported with inventory on hand =Inv/Daily demand

Newsvendor Model

named for the situation in which a newspaper vendor must determine an amount of papers to stock before actual demand is known -have little to no value after a short period of time

EOQ with Price Discount

quantity discounts offered for ordering larger quantities at a time

Managing Cycle Stock

reducing lot sizes (use EOQ & POQ)

Collaborative Planning, Forecasting and replenishment (CPFR)

supply chain partners sharing information

Reorder Point

the minimum level of inventory that triggers the need to order more =d*t d=average demand per time period t=average supplier lead time

POQ (production order quantity)

the most economic quantity to order when units become available at the rate at which they are produced

EOQ (economic order quantity)

the order quantity that minimizes the sum of annual inventory carrying cost and annual ordering cost -what happens to order quantity of demand increases? _because demand is in the numerator, the order quantity (and avg inventory) goes up -what happens when ordering cost goes down? _ Order quantity and average inventory also decrease -What happens when carrying cost increases? _ EOQ goes down

Vendor Managed Inventory (VMI)

the vendor is responsible for managing inventory for the customer -vendor monitors and replenishes inventory balance -customer saves holding costs -vendor has higher visibility of inventory usage

Part Number

unique identifier used by a specific firm

Managing Safety Stock

using ABC analysis and reducing lead time -don't need a lot of SS if short lead time