311_Session22

311_Session22 - Session22:InventoryManagement Introduction...

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Operations Management Session 22:  Inventory Management
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 Session 22 Operations Management                    2 Introduction Definition:  Inventory is the stock of any item or  resource  used in an organization. An  inventory system  is the  set of policies and controls   that monitors levels of inventory or determines what levels  should be maintained. The fundamental problem of inventory management : When to place order for replenishing the stock ?    How much to order?
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 Session 22 Operations Management                    3 Why Hold Inventories Smoothing production (capacity) Producing and storing inventory in anticipation of peak  demand helps to alleviate the disruptions caused by changing  production rates and workforce level.  Coping with uncertainties (responsive) Uncertainty in demand Uncertainty in lead time Uncertainty in supply For economies of scale It may be economical to produce/acquire a relatively large  number of items
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 Session 22 Operations Management                    4 Why holding inventory is bad Inventory cost Opportunity cost/financing cost Storage cost Handling and maintenance cost Spoilage cost Annual inventory cost/holding cost is estimated to  be approximately 15%-35% of the purchase cost. 
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 Session 22 Operations Management                    5 Cycle Inventory The Fundamental Tension  Holding inventory is expensive. But it may economical to produce/acquire a  relatively large number of items How do we trade-off the cost of holding  inventory with the cost of acquiring items?
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 Session 22 Operations Management                    6 A Basic Inventory Model Inventory Time 1 months 2 months 3 months Amount  to order 4 months Assumptions: Demand is known, and there is a constant demand rate. Deliveries are instantaneous, and all demand is satisfied. How much should we order (which sets how often to order)?
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 Session 22 Operations Management                    7 Throughput time and frequency of  deliveries A Gap store has: Known demand for 10,000 T-shirts per month Suppose the 10,000 units are delivered once at the beginning  of the month What is the average inventory level? What is the average throughput time of a T-shirt? What is the average holding cost if the cost per unit of average   inventory is $1?
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 Session 22 Operations Management                    8 Throughput time and  frequency of deliveries    Time Quantity 1 5 30 10000 . . . .
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 Session 22 Operations Management                    9 Throughput time and 
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311_Session22 - Session22:InventoryManagement Introduction...

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