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
