Mcgraw Hill Chapter 13 Homework

Presentation on theme: "Chapter 13 Inventory Management McGraw-Hill/Irwin"— Presentation transcript:

1 Chapter 13 Inventory Management McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2 Chapter 13: Learning Objectives
You should be able to:Define the term inventory, list the major reasons for holding inventories, and list the main requirements for effective inventory managementDiscuss the nature and importance of service inventoriesExplain periodic and perpetual review systemsExplain the objectives of inventory managementDescribe the A-B-C approach and explain how it is usefulDescribe the basic EOQ model and its assumptions and solve typical problemsDescribe the economic production quantity model and solve typical problemsDescribe the quantity discount model and solve typical problemsDescribe reorder point models and solve typical problemsInstructor Slides13-2

3 Inventory Inventory Independent demand items A stock or store of goods
Items that are ready to be sold or usedInventories are a vital part of business: (1) necessary for operations and (2) contribute to customer satisfactionA “typical” firm has roughly 30% of its current assets and as much as 90% of its working capital invested in inventoryDefine Current AssetsDefine Working Capital13-3Instructor Slides

4 Types of Inventory Raw materials and purchased parts
Work-in-process (WIP)Finished goods (FG)inventories or merchandiseTools and suppliesMaintenance and repairs (MRO) inventoryGoods-in-transit to warehouses or customers (pipeline inventory)13-4Instructor Slides

5 Inventory Functions Inventories serve a number of functions such as:
To meet anticipated customer demandTo smooth production requirements – what demand patterns would need smoothing?To decouple operations – Bottlenecks?To protect against stockouts – safety stockTo take advantage of order cyclesTo hedge against price increasesTo permit operations - WIPTo take advantage of quantity discounts – Sam’s Club idea12-5

6 Objectives of Inventory Control
Inventory management has two main concerns:Level of customer serviceHaving the right goods available in the right quantity in the right place at the right timeCosts of ordering and carrying inventoriesThe overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs within reasonable boundsMeasures of performanceCustomer satisfactionNumber and quantity of backordersCustomer complaintsInventory turnoverInstructor Slides13-6

7 Inventory ManagementManagement has two basic functions concerning inventory:Establish a system for tracking items in inventoryMake decisions aboutWhen to orderHow much to order13-7Instructor Slides

8 Effective Inventory Management
Requires:A system keep track of inventoryA reliable forecast of demandKnowledge of lead time and lead time variabilityReasonable estimates ofholding costsordering costsshortage costsA classification system for inventory itemsInstructor Slides13-8

9 Inventory Counting Systems
Periodic SystemPhysical count of items in inventory made at periodic intervalsPerpetual Inventory SystemSystem that keeps track of removals from inventory continuously, thus monitoring current levels of each itemAn order is placed when inventory drops to a predetermined minimum levelTwo-bin systemTwo containers of inventory; reorderwhen the first is empty13-9Instructor Slides

10 Inventory Counting Technologies
Universal product code (UPC)Bar code printed on a label that has information about the item to which it is attachedRadio frequency identification (RFID) tagsA technology that uses radio waves to identify objects, such as goods in supply chains12-10

11 Demand Forecasts and Lead Time
Inventories are necessary to satisfy customer demands, so it is important to have a reliable estimates of the amount and timing of demandPoint-of-sale (POS) systemsA system that electronically records actual salesSuch demand information is very useful for enhancing forecasting and inventory managementLead timeTime interval between ordering and receiving the orderInstructor Slides13-11

12 Inventory Costs Purchase cost Holding (carrying) costs Ordering costs
The amount paid to buy the inventoryHolding (carrying) costsCost to carry an item in inventory for a length of time, usually a yearOrdering costsCosts of ordering and receiving inventorySetup costsThe costs involved in preparing equipment for a jobAnalogous to ordering costsShortage costsCosts resulting when demand exceeds the supply of inventory; often unrealized profit per unitInstructor Slides13-12

13 ABC Classification System
A-B-C approachClassifying inventory according to some measure of importance, and allocating control efforts accordinglyA items (very important)10 to 20 percent of the number of items in inventory and about 60 to 70 percent of the annual dollar valueB items (moderately important)C items (least important)50 to 60 percent of the numberof items in inventory but onlyabout 10 to 15 percent of theannual dollar valueInstructor Slides13-13

14 How Much to Order: EOQ Models
Economic order quantity models identify the optimal order quantity by minimizing the sum of annual costs that vary with order size and frequencyThe basic economic order quantity modelThe economic production quantity modelThe quantity discount model13-14Instructor Slides

15 Basic EOQ ModelThe basic EOQ model is used to find a fixed order quantity that will minimize total annual inventory costsAssumptions:Only one product is involvedAnnual demand requirements are knownDemand is even throughout the yearLead time does not varyEach order is received in a single deliveryThere are no quantity discountsInstructor Slides13-15

16 Profile of Inventory Level Over Time
The Inventory CycleProfile of Inventory Level Over TimeQuantityon handQReceiveorderPlaceLead timeReorderpointUsagerateTimeInstructor Slides13-16

17 Total Annual Cost13-17Instructor Slides

18 Goal: Total Cost Minimization
Order Quantity (Q)The Total-Cost Curve is U-ShapedOrdering CostsQOAnnual Cost(optimal order quantity)Holding Costs13-18Instructor Slides

19 Deriving EOQUsing calculus, we take the derivative of the total cost function and set the derivative (slope) equal to zero and solve for Q.The total cost curve reaches its minimum where the carrying and ordering costs are equal.Instructor Slides13-19

20 Quantity Discount Model
Price reduction for larger orders offered to customers to induce them to buy in large quantities13-20Instructor Slides

21 When to Reorder Reorder point
When the quantity on hand of an item drops to this amount, the item is reordered.Determinants of the reorder pointThe rate of demandThe lead timeThe extent of demand and/or lead time variabilityThe degree of stockout risk acceptable to management13-21Instructor Slides

22 Reorder Point: Under Certainty
13-22Instructor Slides

23 Reorder Point: Under Uncertainty
Demand or lead time uncertainty creates the possibility that demand will be greater than available supplyTo reduce the likelihood of a stockout, it becomes necessary to carry safety stockSafety stockStock that is held in excess of expected demand due to variable demand and/or lead time13-23Instructor Slides

24 Safety Stock13-24Instructor Slides

25 Safety Stock?As the amount of safety stock carried increases, the risk of stockout decreases.This improves customer service levelService levelThe probability that demand will not exceed supply during lead timeService level = 100% - Stockout risk13-25Instructor Slides

26 How Much Safety Stock?The amount of safety stock that is appropriate for a given situation depends upon:The average demand rate and average lead timeDemand and lead time variabilityThe desired service level13-26Instructor Slides

27 Reorder Point The ROP based on a normal
Distribution of lead time demandRisk ofstockoutService levelExpecteddemandROPQuantitySafetystockzz-scale12-27

28 Reorder Point: Demand Uncertainty
Note: If only demand is variable, thenInstructor Slides13-28

29 Reorder Point: Lead Time Uncertainty
Note: If only lead time is variable, thenInstructor Slides13-29

30 Operations StrategyImproving inventory processes can offer significant cost reduction and customer satisfaction benefitsAreas that may lead to improvement:Record keepingRecords and data must be accurate and up-to-dateVariation reductionLead variationForecast errorsLean operationsSupply chain management13-30Instructor Slides

31 Homework for Chapter 13 Problem 1, page 602/362
EOQ ( basic or common) embedded in notesEOQ with quantity discounts, embedded in notes.ROP with stockout risks, embedded in notes.

Верхняя пуговица блузки расстегнулась, и в синеватом свете экрана было видно, как тяжело вздымается ее грудь. Она в ужасе смотрела, как он придавливает ее к полу, стараясь разобрать выражение его глаз.

Похоже, в них угадывался страх. Или это ненависть.

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