Professional Documents
Culture Documents
ABC Analysis
Divides inventory into three classes based on
annual monetary volume
Class A - high annual rupee volume
Class B - medium annual rupee volume
Class C - low annual rupee volume
ABC Analysis
Item
Stock
Number
Percent of
Number of
Items
Stocked
#10286
20%
Annual
Volume
(units)
Unit
Cost
Annual
Dollar
Volume
1,000
$ 90.00
$ 90,000
#11526
500
154.00
#12760
1,550
#10867
#10500
1/13/2016
30%
Percent of
Annual
Dollar
Volume
Class
38.8% 72%
77,000
33.2%
17.00
26,350
11.3%
350
42.86
15,001
6.4% 23%
1,000
12.50
12,500
5.4%
ABC Analysis
Item
Stock
Number
Percent of
Number of
Items
Stocked
Annual
Volume
(units)
Unit
Cost
Annual
Dollar
Volume
Percent of
Annual
Dollar
Volume
Class
#12572
600
$ 14.17
$ 8,502
3.7%
#14075
2,000
.60
1,200
.5%
100
8.50
850
.4%
#01307
1,200
.42
504
.2%
#10572
250
.60
150
.1%
#01036
1/13/2016
50%
5%
ABC Analysis
80
70
60
50
40
30
20
10
0
A Items
B Items
C Items
|
10
20
30
40
50
60
70
80
90 100
Figure 11.2
5
1/13/2016
1/13/2016
Record Accuracy
Quantity
500
Each month
1,750
Each quarter
2,750
Every 6 months
Number of Items
Counted per Day
500/20 = 25/day
25/day
1,750/60 = 29/day
29/day
2,750/120 = 23/day
23/day
77/day
77/
day
1/13/2016
10
Exercise
Woodywood Furnitures has 5200 items in inventory. The owner
has identified that 9% items are in A category and 36% items are
in B category. She would like to establish a system in which all A
items are counted every 4 weeks, B items are counted every 13
weeks and C items are counted every 26 weeks. Calculate the
number of items to be counted each week.
5200 0.09 = 468
468 4= 117
1872 13 = 144
2860 26 = 110
371 items
1/13/2016
11
1/13/2016
12
13
Holding Costs
Category
Housing costs (including rent or depreciation,
operating costs, taxes, insurance)
6% (3 - 10%)
3% (1 - 3.5%)
Labour cost
3% (3 - 5%)
11% (6 - 24%)
3% (2 - 5%)
26%
Table 11.1
1/13/2016
14
1/13/2016
15
16
Inventory level
Order quantity
= Q (maximum
inventory
level)
Usage rate
Average
inventory on
hand
Q
2
Minimum
inventory
Time
Figure 11.3
1/13/2016
17
Minimizing Costs
Objective is to minimize total costs
Annual cost
Table 11.4
1/13/2016
Holding cost
curve
Minimum
total cost
Order quantity
18
Q
Q*
D
S
H
Annual demand
Number of units in each order
D
(S)
Q
1/13/2016
Setup or order
cost per order
19
Q
Q*
D
S
H
Q
Annual holding cost =
H
2
Q (H)
2
Supply Chain Management
20
Q
Q*
D
S
H
Q
2
2DS/H
Supply Chain Management
21
An EOQ Example
Determine optimal number of hypodermic needles to order
D = 1,000 units
S = $10 per order
H = $.50 per unit per year
Q* =
2DS
H
Q* =
2(1,000)(10)
0.50
1/13/2016
22
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units
Q* = 200 units
S = $10 per order
H = $.50 per unit per year
Expected
Demand
D
number of = N =
=
Order
quantity
Q*
orders
1,000
N=
= 5 orders per year
200
1/13/2016
23
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units
Q* = 200 units
S = $10 per order
N = 5 orders per year
H = $.50 per unit per year
Number of working
Expected time
days per year
between orders = T =
N
T=
1/13/2016
250
5
24
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units
Q* = 200 units
S = $10 per order
N = 5 orders per year
H = $.50 per unit per year
T = 50 days
Total annual cost = Setup cost + Holding cost
D
Q
TC =
S +
H
Q
2
1,000
200
TC =
($10) +
($.50)
200
2
TC = (5)($10) + (100)($.50) = $50 + $50 = $100
1/13/2016
25
Robust Model
The EOQ model is robust because
It works even if all parameters and assumptions
are not met
The total cost curve is relatively flat in the area
of the EOQ
1/13/2016
26
27
...Example
Actual EOQ for new demand is 244.9 units
D = 1,000 units 1,500 units
Q* = 244.9 units
S = $10 per order
N = 5 orders per year
H = $.50 per unit per year
T = 50 days
D
Q
TC =
S +
H
Q
2
1,500
244.9
TC =
($10) +
($.50)
244.9
2
TC = $61.24 + $61.24 = $122.48
1/13/2016
Only 2% less
than the total cost
of $125 when the
order quantity
was 200
28