chapter12a - Operations Operations Management Management...

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12-1 Operations Operations Management Management Inventory Management Inventory Management Chapter 12 - Part I Chapter 12 - Part I
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12-2 Outline Outline Functions of Inventory. ABC Analysis. Inventory Costs . Inventory Models for Independent Demand. Economic Order Quantity (EOQ) Model. Production Order Quantity (POQ) Model. Quantity Discount Model. Probabilistic Models with Varying Demand. Fixed Period Systems.
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12-3 Types of Inventory Types of Inventory Raw materials. Work-in-progress. Maintenance/repair/operating (MRO) supply. Finished goods.
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12-4 The Functions of Inventory The Functions of Inventory To ”decouple” or separate various parts of the production process. To smooth production (link supply and demand). To provide goods for customers (quick response). To take advantage of quantity discounts. Buy more to get a reduced price. To hedge against inflation and upward price changes (speculation). Buy more now if you think price will rise.
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12-5 The Material Flow Cycle The Material Flow Cycle
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12-6 High cost - $$$$$ Money tied up in inventory could be better used elsewhere in the organization. Difficult to control. Inventories occur in many places. Hides production problems. Large inventories may overcome poor quality production or poor quality materials. Disadvantages of Inventory Disadvantages of Inventory
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12-7 Divide inventory into 3 classes based on annual $ volume. Annual $ volume = Annual demand x Unit cost. A class - Most important. 15-20% of products. 60-80% of value. B class -Less important. 20-40% of products. 15-30% of value. C class - Least important. 50-60% of products. 5-10% of value. ABC Analysis ABC Analysis
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12-8 Sort products from largest to smallest annual $ volume. Divide into A, B and C classes. Focus on A products. Develop class A suppliers more. Give tighter physical control of A items. Forecast A items more carefully. Consider B products only after A products. ABC Analysis ABC Analysis
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12-9 0 20 40 60 80 100 5 10 Product Product Annual $ Usage (x1000) Annual $ Usage (x1000) Classifying Items as ABC Classifying Items as ABC 25 products sorted by Annual $ Volume 25 products sorted by Annual $ Volume (Sales) (Sales) 15 20 25 Product Sales % 1 100 14 2 92 13 3 88 12 4 60 8 5 58 8 6 53 7 7 49 7 8 41 6 9 32 4 10 26 4 11 21 3 12 18 2 13 16 2 14-25 66 9 Total 720 1
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12-10 0 20 40 60 80 100 20 40 % of Products % of Products Classifying Items as ABC Classifying Items as ABC 60 80 100 A B C 0 Annual $ Usage (x1000) Annual $ Usage (x1000) Class % $ Vol % Items A 39% 12% (3/25) B 52% 40% (10/25) C 9% 48% (12/25)
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12-11 Inventory accuracy importance: To determine when and how much to order. To achieve high level of service. Information system tracks inventory, but… Not all items sold are entered (scanned) properly. Some items disappear without being sold (theft, defective, damaged, etc.) Inventory Accuracy Inventory Accuracy
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12-12 Count products to verify inventory records.
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