270 CheatSheet Slides - Inventory Stock of any item used in...

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Inventory: Stock of any item used in an organization: Raw materials & component parts, Work in Process, Finished products, Replacement parts, tools, &supplies, & Goods-in-transit to warehouses & customers Reasons for holding Inventory 1. Meet predictable variability => Seasonal Inventories, Build-up diagrams 2. Safeguard for unpredictable variability => Safety Stocks; Extra stock maintained to mitigate risk; Newsvendor model 3. Deal with production of service variability => Buffer Inventory; Build Up 4. Economies of scale (cycle stocks) => Reduce the production cost by using big batches; Reduce the transportation cost by shipping large loads; EOQ 5. Pipeline Inventories => Time lag b/w ordering and receiving; Little’s Law 6. Strategic Inventories => Optimal Planning (iPhone?) 7. Speculative inventories => attempt to corner a commodity market. (Consume a big portion in the market, and let the price increase) 8. To wait while being transported: The freight takes time Reasons for not holding Inventory 1.Storage costs 2.Opportunity cost of Capital 3.Risky => Short product cycle increase obsolescence risk 4.May not be needed => Information substitution (OM triangle) 5.Hides problem Managers are required to perform : 1.Safely storing and using inventories 2.Tracking inventories and using inventory control models 3.Forecasting demands and lead times 4.Estimating inventory costs 5. Inventory Classification (ABC) Items are valued (item cost * quantity sold in some time period) Type A: Small group of high values items; 15 %#items & 75-80% total value Type B: 35% of number of items and 10-15% of total value Type C: 50% of number of items and 5-10% of total value SKUs: Stock-keeping units; Y: cumulative dollar volume X: #SKUs ; Class A: Once a month ; B: Once a quarter ; C: Once every six months Fixed Order Quantity (Q-Model) Continuous Review: each order is exact same size; ordering is triggered by an event; timing of this event is random. ADV: Shortages can be avoided; Order quantity is fixed; management can determine optimal order quantity and use it for every order DISADV: Added cost of continual record keeping An order of a fixed quantity Q is placed every time the inventory falls below a reorder point R. Fixed Time Period (P-Model) Periodic Review: Each order maybe a different size; ordering is triggered by a moment in time; timing is deterministic and predictable Adv : Orders from same supplier can be issued at same time, which can result in economies in processing and shipping DISADV : Possibility of stock-out between review, so extra stock should be carried; Time and cost of a physical count Every P days, current inventory position (IP) is obtained and an order quantity is placed such that IP goes up to a level S. Two bin system: Reorder when first bin is empty; use second bin until order arrives; Top off the second bin and leave the rest in the first bin; Start drawing inventory from the first bin until it is empty again, and repeat.
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  • Fall '13
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