Classes 24-25 - Inventory - Chapter 14

Classes 24-25 - Inventory - Chapter 14 - BUS 370: Inventory...

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Unformatted text preview: BUS 370: Inventory Management Chapter 14 Donavon Favre College of Management North Carolina State University Inventory Management The Role of Inventory Inventory Systems Periodic Review Continuous Review Single Period ABC Classification Method Northcutt Bike Case Study Any idle resource held for future use – Those stocks or items used to support production (raw material), supporting activities (drill bits) and customer service (finished goods, spare parts) Definition of Inventory Forms of inventory Oranges => “raw material” “Work-in-process” (WIP) Empty cans ==> “components” Filled & sealed cans ==> “finished goods” Inventory is about 30% of current assets in typical firm Inventory Types Cycle Stock Safety Stock Anticipation Inventory Hedge Inventory Transportation Inventory Smoothing Inventories Inventory Types Cycle Stock Inventories 20,000 10,000 0 Time Mouse order received ... Inventory drawn down gradually ... Another order received ... And the process repeats itself Inventory Inventory Types Safety Stock Inventories 21,000 11,000 1000 Time Mouse order received ... Inventory drawn down gradually ... Another order received ... And the process repeats itself Safety stock of 1000 mice Inventory Inventory Types Anticipation inventories Held in anticipation of customer demand Hedging inventories Buffer against a potential event (strike, price increase) Transportation (Pipeline) inventories Thailand U.S. Inventory Types Smoothing Inventories Production Level Build up stock Demand Four inventory drivers Inventory Driver Impact Uncertainty in supply or demand Safety stock Hedge inventory Mismatch between downstream partner’s demand and most efficient production or shipment volumes for upstream partner Cycle stock Mismatch between downstream demand levels and upstream production capacity Smoothing inventory Mismatch between timing of customer demand and supply chain lead times Anticipation inventory Transportation inventory Key distinction “Independent demand” items “Dependent demand” items Independent Demand - Tables Demand from outside the organization Unpredictable usually forecasted Demand for tables . . . Dependent Demand – Table Legs Tied to the production of another item Relevant mostly to manufacturers If we decide to make 10 tables, legs are dependent demand. We don’t need to forecast – we make 4 x 10 or 40. Independent Demand Systems Periodic Review Restocking Levels Continuous Review Economic Order Quantity Reorder Point and Safety Stock Quantity Discounts Single Period Target Service Level Target Stocking Point Periodic review system Restocking level Inventory Level R Q Q 2 4 6 8 weeks Q = R – I Q = order quantity R = restocking level Periodic review system Restocking level Inventory...
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This note was uploaded on 04/21/2009 for the course BUS 370 taught by Professor Favre during the Spring '08 term at N.C. State.

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Classes 24-25 - Inventory - Chapter 14 - BUS 370: Inventory...

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