Chapter_14_Independent_Demand_Inventory

Chapter_14_Independent_Demand_Inventory - SCM 303...

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Michigan State University, 2010 - 1 - SCM 303 SCM 303 Independent Demand Inventory Independent Demand Inventory Management Management
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Michigan State University, 2010 - 2 - Demand that is random or unpredictable Demand not linked to another scheduled product or event Examples - Maintenance supplies - Repair parts - Customer demand Most Attention in this course will be devoted to independent demand . Specifically we will look most carefully at continuous review inventory methodologies. INDEPENDENT DEMAND
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Michigan State University, 2010 - 3 - Demand that is directly related to scheduled product or event Requirements that can be predicted by knowing the schedule or demand for the related product or event Examples - Component parts or sub-assemblies needed to meet an established production schedule - Cartons and packaging materials for a similar established schedule DEPENDENT DEMAND
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Michigan State University, 2010 - 4 - Several Models for Managing Independent Demand Situations Continuous Review Systems (this will be our major focus) Periodic Review Systems One-time (News Stand) Situations
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Michigan State University, 2010 - 5 - Two Fundamental Questions to Answer When I place an order to replenish my inventory, how much should I order? When should I order?
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Michigan State University, 2010 - 6 - Simple Inventory Example: No Uncertainty, No Variability at all Suppose demand is 10 units per day (assume there are 240 working days per year) Lead time is 20 days These are absolutely certain and constant How much should I order? When should I place a reorder? In the absence of any knowledge, you could make any choice. A naïve approach might be to: Order every 20 days Order 200 units each time
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Michigan State University, 2010 - 7 - Place order Place order Average inventory Days Inventory (units) 0 20 40 60 100 200 Place order Receive Inventory Saw-tooth Diagram
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Michigan State University, 2010 - 8 - Which Would Result In: Average inventory = 100 units 12 orders/year Inventory turnover = 24 times
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Michigan State University, 2010 - 9 - When to Place an Order: The Reorder Point Reorder point (ROP)= (Avg. Daily Demand)(Lead time) + Safety Stock (10u. sales/day)(20 days to receive order) + 0 =200 When the amount on-hand and on-order = ROP, then place an order
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