Notes 6_Inventory

Notes 6_Inventory - Inventory Management IELM120 1 Learning...

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IELM120 Inventory Management 1
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IELM120 Learning Objectives Understand the importance of inventory management in general. Understand the ABC Classification. Describe the basic EOQ model, its assumption and solve problems related. Describe the Newsboy model, its assumption and solve problems related. 2
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IELM120 Importance of Inventory Control Inventory control is an important part of cost control as well as maximization of capital utilization This is especially true for business involves heavily with materials such as supermarket Since a lot of business, the profit margins is less than 10%, inventory control can make or break a business 3
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IELM120 Why we want to hold inventory? 4
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IELM120 Why we don’t want to hold inventory? 5
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IELM120 Inventory Management 6 Objectives Achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. Two fundamental decisions How many items to order (lot size)? When to order (Reorder point)?
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IELM120 Costs in Inventory Management 7 Holding cost - costs proportional to the quantity of inventory held Ordering cost (or setup cost) A fixed component : order processing, delivery, production setup Shortage (stock-out) cost Lost sales Back orders Category Cost as a Percent of Inventory Value Housing costs Insurance, tax 5% 3% Opportunity loss 12% Pilferage obsolescence 2% Overall carrying cost 22%
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IELM120 Inventory Control – ABC Classification 8 Item Stock Number Percent of Inventory Items Stocked Annual Volume (units) x Unit Cost = Annual Dollar Value Percent of Annual Dollar Value Class #10286 17.5% 1,000 $ 90.00 $ 90,000 38.8% 72% A #11526 500 154.00 77,000 33.2% A #12760 1,550 17.00 26,350 11.3% B #10867 33.9% 350 42.86 15,001 6.4% 23% B #10500 1,000 12.50 12,500 5.4% B #12572 600 $ 14.17 $ 8,502 3.7% C #14075 2,000 .60 1,200 .5% C #01036 48.5% 100 8.50 850 .4% 5% C #01307 1,200 .42 504 .2% C #10572 250 .60 150 .1% C
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IELM120 ABC Analysis 9 B Items C Items Percent of annual dollar usage 80 70 60 50 40 30 20 10 0 | | | | | | | | | | 10 20 30 40 50 60 70 80 90 100 Percent of inventory items A Items Class A 10 – 20 % of units 70 – 80 % of value Class B 30 – 40 % of units 15 – 25 % of value Class C 50 – 60 % of units 5 – 15 % of value
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IELM120 ABC Inventory Control 10 As different types of inventory has different value and frequency of usage, they should not be treated equally A Items: very tight control, complete and accurate records, frequent review B Items: less tightly controlled, good records, regular review C Items: loose and simple control, minimal records, bulk orders
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IELM120 Two-Bin System for C Type The bin contains enough stock to satisfy expected demand during lead time plus safety stock.
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This note was uploaded on 01/28/2011 for the course IELM 120 taught by Professor Fu,qi during the Spring '09 term at HKUST.

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Notes 6_Inventory - Inventory Management IELM120 1 Learning...

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