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Sch.No.132116201
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Inventory Management
The objective of inventory management is to strike a balance between inventory investment and customer service
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Importance of Inventory
One of the most expensive assets of many companies representing as much as 50% of total invested capital Operations managers must balance inventory investment and customer service
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Functions of Inventory
1. To decouple or separate various parts of the production process
2. To decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers
3. To take advantage of quantity discounts 4. To hedge against inflation
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Types of Inventory
Raw material
Purchased but not processed
Work-in-process
Undergone some change but not completed A function of cycle time for a product
Maintenance/repair/operating (MRO)
Necessary to keep machinery and processes productive
Finished goods
Completed product awaiting shipment
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5%
Output
Move Wait in queue Setup Run time for operator time time
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ABC Analysis
Divides inventory into three classes based on annual dollar volume
Class A - high annual dollar volume Class B - medium annual dollar volume Class C - low annual dollar volume
Used to establish policies that focus on the few critical parts and not the many trivial ones
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ABC Analysis
Percent of annual dollar usage 80 70 60 50 40 30 20 10 0 A Items B Items | | | | 10 20 30 40
C Items
| | | | | |
50
60
70
80
90 100
Record Accuracy
Accurate records are a critical ingredient in production and inventory systems Allows organization to focus on what is needed Necessary to make precise decisions about ordering, scheduling, and shipping Incoming and outgoing record keeping must be accurate
Cycle Counting
Items are counted and records updated on a periodic basis Often used with ABC analysis to determine cycle Has several advantages
1. Eliminates shutdowns and interruptions 2. Eliminates annual inventory adjustment 3. Trained personnel audit inventory accuracy 4. Allows causes of errors to be identified and corrected 5. Maintains accurate inventory records
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Inventory level
Minimum inventory
0 Time
Figure 12.3
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Minimizing Costs
Objective is to minimize total costs
Total cost of holding and setup (order) Minimum total cost Annual cost Holding cost
Setup (or order) cost Optimal order quantity (Q*) Order quantity
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Table 12.4(c)
Kuldeep kumar anal 132116201
Reorder Points
EOQ answers the how much question The reorder point (ROP) tells when to order
ROP =
=dxL
D d = Number of working days in a year
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Q*
Resupply takes place as order arrives
Slope = units/day = d
ROP (units)
Time (days)
Figure 12.5
Kuldeep kumar anal 132116201
Lead time = L
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Maximum inventory
Time
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Total cost $
a
1st price break
Q* for discount 2 is below the allowable range at point a and must be adjusted upward to 1,000 units at point b 2nd price break
0
Kuldeep kumar anal 132116201
1,000
Conclusion
Small businesses have limited financial resources and bargaining power. Long-distance suppliers, big fluctuation of demand and lack of formalized inventory control system result on inventory management. The authors analyze the collected data and establish a formal inventory control system as the solution to improve the companys inventory management.
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Reference
1.Buxey, G. (2006). Reconstructing inventory management theory. International Journ Onwubolu, G. C., & Dube, B. C. (2006). Implementing an Improved Inventory Control 2.System in a Small Company: A Case Study. Production Planning & Control, 17(1), 67-76. al of Operations& Production Management, 26(9), 996-1012. 3.Chopra, S., & Meindl, P. (2001). Supply Chain Management: Strategy, Planning, and Operation. Englewood Cliffs: Prentice-Hall. 4.Fuerst, W. L. (1981). Small Business Get A New Look at ABC Analysis for Inventory Control.Journal of Small Business Management, 19(3), 39-44.
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thank you
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