CHAPTER 20: INVENTORY MANAGEMENT - Coggle Diagram
CHAPTER 20: INVENTORY MANAGEMENT
1. Inventory Management
Fixed–order quantity model:
Used when we want to maintain on item “in-stock” and when we restock, a certain number of units must be ordered
Fixed–time period model
: Items are ordered at certain intervals of time.
The single-period model
: Used when we are making a one-time purchase of an item.
Purposes of Inventory
To provide a safeguard for variation in raw material delivery time.
To take advantage of economic purchase order size.
To allow flexibility in production scheduling.
Many other domain-specific reasons.
To meet variation in product demand.
To maintain independence of operations.
Supply Chain Inventory Model
Raw materials -> Manufacturing Plant Inventory -> Warehouse Inventory -> Retail Store Inventory.
Setup (or production change) costs: Costs for arranging specific equipment setups,...
Ordering costs: Cost of placing an order.
Holding (or carrying) costs: Costs for storage, handling, insurance,...
Shortage costs: Costs of running out.
is the set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be.
is typically classified into raw materials, finished products, component parts, supplies, and work-in-process.
is the stock of any item or resource used in an organization.
means the demands for these items are unrelated to each other.
means the need for an item is a direct result of the need for some other item.
3. Inventory Planning And Accuracy
The Pareto Principle
can be applied in a wide range of areas such as manufacturing, management, and human resources. For instance, the efforts of 20% of a corporation's staff could drive 80% of the firm's profits.
The ABC approach
divides this list into three groupings by value:
constitute roughly the top 15 percent of the items
the next 35 percent
the last 50 percent.
Inventory Accuracy and Cycle Counting
refers to how well the inventory records agree with physical count
is a physical inventory-taking technique in which inventory is counted frequently rather than once or twice a year
2. Inventory Control Systems
Multiperiod Inventory Model
Fixed-order quantity models
Favors more expensive items.
Is more appropriate for important items
Has a smaller average inventory
Requires more time to maintain - but is usually more automated
Inventory remaining must be continually monitored
Is more expensive to implement.
Fix-time period models
Favors less expensive items
Is sufficient for less-important items.
Has a larger average inventory.
Requires less time to maintain.
Counting takes place only at the end of the review period.
Is less expensive to implement.
Inventory Models with Price Breaks
To find the lowest-cost, calculate the order quantity for each price and see if the quantity is feasible.
Two-step procedure can be used
Sort the prices from lowest to highest and then, beginning with the lowest price.
If the first feasible economic order quantity is for the lowest price, this quantity is best and you are finished
The price-break model
deals with the fact that, generally, the selling price of an item varies with the order size.
A Single-Period Inventory Model
Seeks to balance the costs of inventory overstock and under stocks.
Single-period inventory models are useful
Ordering of fashion items.
Any type of one-time order.
Overbooking of airline flights.
One-time purchasing decision.
Inventory Control and Supply Chain Management
Average Inventory = Q/2 + SS
Average Inventory Value = [Q/2 + SS]C
Expected amount of inventory over time.
Number of times inventory is cycled through over time - a measure of how efficiently inventory is used.
Inventory Turn = D / [Q/2 + SS]