Professional Documents
Culture Documents
12-1
ABC Analysis
Sort products from largest to smallest annual $ volume.
Divide into A, B and C classes.
Focus on A products.
12-3
Class A B C
% $ Vol % Items 39% 12% (3/25) 52% 40% (10/25) 9% 48% (12/25)
A B
40 60
C
80 100
% of Products
12-4
Inventory Costs
Holding costs - Associated with holding or carrying inventory over time.
Ordering costs - Associated with costs of placing order and receiving goods. Setup costs - Cost to prepare a machine or process for manufacturing an order. Stockout costs - Cost of not making a sale and lost future sales.
12-5
Inventory Questions
How much to order (each time)?
100 units, 50 units, 23.624 units, etc. Every 3 days, every week, every month, etc.
When to order?
When only 5 items are left, when only 10 items are left, when only 20 items are left, etc.
Many different models can be used, depending on nature of products and demand.
12-6
Inventory Models
Fixed order-quantity models
Economic order quantity Production order quantity Quantity discount
Minimum inventory
D Q S+ H Q 2
Take derivative of total cost with respect to Q and set equal to zero:
D 1 S+ H=0 Q2 2
Solve for Q to get optimal order size:
EOQ = Q* =
2 D S H
12-10
154.92
Large variation in order size
12-11
Order Quantity
Time
Lead Time
Transparenc 12-12 y Masters to
2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Service Level
P(Stockout)
SS
Receive order
Time
12-14
Other EOQ assumptions apply. Model provides production lot size (like EOQ amount) for one product. Similar to EOQ with setup cost rather than order cost.
Average Inventory
Time
Lead Time
Transparenc 12-16 y Masters to
2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Given
Optimal Production Run Size = Q* = Maximum inventory level = Q [1- (d/p)] Total Cost =
2 D S = H[1-(d/p)]
2DS H
p p-d
D Q S+ H [1-(d/p)] Q 2
12-18
12-19
Operations Management
Buy vs. Make with Lean Strategy (pdf)
Transparenc 11-20 y Masters to
2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Supply-Chain Management
Planning, organizing, directing, & controlling flows of materials
Begins with raw materials Continues through internal operations Ends with distribution of finished goods
The Supply-Chain
VISA
Material Flow
Credit Flow
Supplier
Supplier
Manufacturing
Retailer
Wholesaler
Consumer
Retailer Cash Flow
Schedules
Order Flow
Transparenc 11-22 y Masters to
Supply-Chain Strategies
Plans to help achieve company mission Affect long-term competitive position Strategic options
Many suppliers Few suppliers Keiretsu network Vertical integration Virtual company
Plan
Supply-Chain Strategies
Negotiate with many suppliers; play one supplier against another Develop long-term partnering arrangements with a few suppliers who will work with you to satisfy the end customer Vertically integrate; buy the actual supplier Keiretsu - have your suppliers become part of a company coalition Create a virtual company that uses suppliers on an as-needed basis.
Linked by technology
12-31
Reduced price when item is purchased in larger quantities Other EOQ assumptions apply
Possibility of stockout between intervals Example: P&G representative calls every 2 weeks
Transparenc 12-35 y Masters to
2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Target maximum
Q1 Q2 Q4
On-Hand Inventory
Q3
of good
12-37