chapter12a

chapter12a - 12-1Operations Operations...

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Unformatted text preview: 12-1Operations Operations ManagementManagementInventory ManagementInventory ManagementChapter 12 - Part IChapter 12 - Part I12-2OutlineOutline♦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.12-3Types of InventoryTypes of Inventory♦Raw materials.♦Work-in-progress.♦Maintenance/repair/operating (MRO) supply.♦Finished goods.12-4The Functions of InventoryThe 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.12-5The Material Flow CycleThe Material Flow Cycle12-6♦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 InventoryDisadvantages of Inventory12-7♦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 AnalysisABC Analysis12-8♦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 afterA products.ABC AnalysisABC Analysis12-920406080100510ProductProductAnnual $ Usage (x1000)Annual $ Usage (x1000)Classifying Items as ABCClassifying Items as ABC25 products sorted by Annual $ Volume 25 products sorted by Annual $ Volume (Sales)(Sales)152025ProductSales%1100142921338812460855886537749 7841693241026411213121821316214-25669Total720112-10204060801002040% of Products% of ProductsClassifying Items as ABCClassifying Items as ABC6080100AB CAnnual $ Usage (x1000)Annual $ Usage (x1000)Class% $ Vol% ItemsA39%12% (3/25) B52%40% (10/25)C9%48% (12/25)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....
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This note was uploaded on 02/15/2012 for the course BA 252 taught by Professor Jamescampbell during the Winter '03 term at UMSL.

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chapter12a - 12-1Operations Operations...

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