30-03-2012, 09:36 AM
Inventory Management
Inventory Management.ppt (Size: 697.5 KB / Downloads: 65)
Purposes of Inventory
Meet anticipated demand
Demand variability
Supply variability
Decouple production & distribution
permits constant production quantities
Take advantage of quantity discounts
Hedge against price increases
Protect against shortages
Two Questions
Two main Inventory Questions:
How much to buy?
When is it time to buy?
Also:
Which products to buy?
From whom?
Types of Inventory
Raw Materials
Subcomponents
Work in progress (WIP)
Finished products
Defectives
Returns
Inventory Costs
Costs associated with inventory:
Cost of the products
Cost of ordering
Cost of hanging onto it
Cost of having too much / disposal
Cost of not having enough (shortage)
Shrinkage Costs
How much is stolen?
2% for discount, dept. stores, hardware, convenience, sporting goods
3% for toys & hobbies
1.5% for all else
Where does the missing stuff go?
Employees: 44.5%
Shoplifters: 32.7%
Administrative / paperwork error: 17.5%
Vendor fraud: 5.1%
Inventory Holding Costs
Category % of Value
Housing (building) cost 4%
Material handling 3%
Labor cost 3%
Opportunity/investment 9%
Pilferage/scrap/obsolescence 2%
Total Holding Cost 21%
Inventory Models
Fixed order quantity models
How much always same, when changes
Economic order quantity
Production order quantity
Quantity discount
Fixed order period models
How much changes, when always same
Economic Order Quantity
Assumptions
Demand rate is known and constant
No order lead time
Shortages are not allowed
Costs:
S - setup cost per order
H - holding cost per unit time