Beruflich Dokumente
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OPERATIONS
MANAGEMENT
Chapter 23
INVENTORY
MANAGEMENT
Uses of Inventory
To satisfy the
expected
customer demand
(Anticipation
Inventory)
To protect
against price
increases and
to take
advantage of
Quantity
Discounts
To avoid
stock outs
(Safety Stock
or Buffer
Stock)
Inventory
To minimize
the total cost
by ordering the
Economic
Order Quantity
(Cycle
Stock)
To provide buffer
between successive
operations
(Decoupling Inventory
or Work-in-process
Inventory)
To satisfy periods of
seasonal high demand
(Seasonal Inventory)
Inventory Costs
Inventory costs includes ordering cost plus carrying
costs.
1. Ordering Costs
2. Carrying Costs
Opportunity Costs
3. Out-of-stock Costs
4. Capacity Costs
Inventory Management
and Control
Inventory management involves administration,
policies and procedures to reduce in inventory cost.
Factors Influencing Inventory Management and
Control
Type of Product
Type of Manufacture
Volume of Production
Other factors
Benefits of Inventory
Management and Control
1. Adequate supply of materials and stores
2. Low investment in inventories
3. Benefits of purchasing economies
4. No duplication in ordering
5. Better utilization of available stocks
6. Low loss of materials through carelessness or pilferage
7. Better cost accounting
8. Cost comparison
9.
Process of Inventory
Management and Control
Step 1. Determination of optimum inventory levels and
procedures of their review and adjustment.
Step 2. Determination of the degree of control that is
required for the best results.
Step 3. Planning and design of the inventory control
system.
Step 4. Planning of the inventory control organisation.
2DS
D
Q
TCQ S H; and Q
H
2
Q
EOQ (Q)
Q
2DS
2 * 10,000 * $75
500 units
$6
10,000
* 5 days 200 units
250 days
TC
Advantages of Q system
Each material can be procured in the most
economical quantity.
Purchasing and inventory control personnel
automatically devote attention to the items
that are needed only when required.
Positive control can easily be exerted to
maintain total inventory investment at the
desired level simply by manipulating the
planned maximum and minimum value.
Disadvantages of Q system
The orders are raised at regular interval which might not
be convenient for the supplier.
In case the lead time is very high, say three months, and
the ordering quantity happens to be material supplies for
one month, there would be two or three pending orders
with the supplier each time.
The items can not be grouped and ordered at a time
since the reorder points occur irregularly.
EOQ may give you an order quantity which is much
below the supplier minimum (for a good discount)
Further, the system assumes stable usage and definite
lead time.
Advantages of P System
The ordering and inventory costs are low.
The ordering cost is considerably reduced
though follow up work for each delivery may
be necessary.
The suppliers will also offer attractive
discounts as sales are guaranteed.
The system works well for materials which
exhibit an irregular or seasonal usage and
whose purchases must be planned in
advance on the basis of sales estimates.
Disadvantages
It compels a periodic review of all items, this
in itself makes the system somewhat
inefficient.
Usage patterns might change in between,
ABC Classification
ABC classification is a method for determining
level of control and frequency of review of inventory
items
A Pareto analysis can be done to segment items into
value categories depending on annual dollar volume
A Items typically 20% of the items accounting for
80% of the inventory value-use Q system
B Items typically an additional 30% of the items
accounting for 15% of the inventory value-use Q or
P
C Items Typically the remaining 50% of the items
accounting for only 5% of the inventory value-use P.
The A items (106 and 110) account for 60.5% of the value and 13.3% of the items
The B items (115,105,111,and 104) account for 25% of the value and 26.7% of the items
The C items make up the last 14.5% of the value and 60% of the items
How might you control each item classification? Different ordering rules for each?