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Definition of Inventory
Inventory
The stock of any item or resource used in an organization, includes raw materials, finished goods, and work-in-process.
McGraw-Hill/Irwin 144
Types of Inventory
Raw Materials
Vendor-supplied items that have not had any labor added by the firm receiving the items.
Finished Goods
Completed products that are still in the possession of the firm that manufactured them.
Work-in-Process (WIP)
Items that have been partially processed but are still incomplete.
Copyright 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 145
Managerial Issues
Inventory is no longer viewed as an asset
Product life cycles are becoming shorter increasing the likelihood of product obsolescence.
Inventory concealing other problems. The high costs of inventory storage.
Copyright 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 146
12-7
12-9
Output
Cycle Time
1 Run time: Job is at machine and being worked on 2 Setup time: Job is at the work station, and the work station is being "setup." 3 Queue time: Job is where it should be, but is not being processed because other work precedes it. 4 Move time: The time a job spends in transit 5 Wait time: When one process is finished, but the job is waiting to be moved to the next work area. 6 Other: "Just-in-case" inventory.
2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 12-10
ABC Analysis
What is ABC Analysis ? Inventory aplication of what is known as the Pareto Principle. Pareto principle states Critical few and trivial many The objective is to separate the important from the unimportant
12-11
Class A B C
% $ Vol 80 15 5
% Items 15 30 55
A B
50
12-12
C
100
2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
% of Inventory Items
Inventory Classifications
Inventory
1984-1994 T/Maker Co.
Process stage
Demand Type
Other
Independent Dependent
Maintenance Operating
12-13
Cycle Counting
Physically counting a sample of total inventory on a regular basis Used often with ABC classification
A items counted most often (e.g., daily)
12-14
Disadvantages of Inventory
Higher costs
Item cost (if purchased) Ordering (or setup) cost
Costs of forms, clerks wages etc.
12-17
Part No 1 2 3 4 5 6 7 8 9 10 Total
Unit Usage Unit Cost $ 1100 2 600 40 100 4 1300 1 100 60 10 25 100 2 1500 2 200 2 500 1 5510
Annual $ Usage 2200 24000 400 1300 6000 250 200 3000 400 500 38250
18
Part No
Annual $ Usage
Cumulative $ Usage
Cumulative % $ Usage
Class
Part No 2 5 8 1 4 10 9 3 6 7
Annual $ Usage 24,000 6,000 3,000 2,200 1,300 500 400 400 250 200
Cumulative $ Usage 24,000 30,000 33,000 35,200 36,500 37,000 37,400 37,800 38,050 38,250
Cumulative % $ Usage 62.75 78.43 86.27 92.03 95.42 96.73 97.78 98.82 99.48 100.00
Class A A B B B C C C C C
20