Keller: Stats for Mgmt & Econ, 7th Ed

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Presentation transcript:

Keller: Stats for Mgmt & Econ, 7th Ed Inventory Management May 23, 2018 Homework; 2, 3, 5, 7 Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Keller: Stats for Mgmt & Econ, 7th Ed Inventory May 23, 2018 Inventory is a stock of anything held to meet some future demand. It is created when the rate of receipts exceeds the rate of disbursements. Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Keller: Stats for Mgmt & Econ, 7th Ed ABC Analysis May 23, 2018 10 20 30 40 50 60 70 80 90 100 Percentage of items Percentage of dollar value 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class C Class A Class B Figure 10.1 Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Keller: Stats for Mgmt & Econ, 7th Ed Order Quantity, Q May 23, 2018 On-hand inventory (units) Time Average cycle inventory Q — 2 1 cycle Receive order Inventory depletion (demand rate) Figure 10.2 Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Keller: Stats for Mgmt & Econ, 7th Ed Formulas and Notation May 23, 2018 Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Keller: Stats for Mgmt & Econ, 7th Ed Total Cost May 23, 2018 Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Find Q*, TBO, and make cost comparisons Keller: Stats for Mgmt & Econ, 7th Ed Find Q*, TBO, and make cost comparisons May 23, 2018 Suppose that you are reviewing the inventory policies on an item stocked at a hardware store. The current policy is to replenish inventory by ordering in lots of 360 units. Additional information given: D = 60 units per week, or 3120 units per year S = $30 per order H = 25% of selling price, or $20 per unit per year Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Keller: Stats for Mgmt & Econ, 7th Ed Lead Time May 23, 2018 On-hand inventory (units) R Time Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Service Levels, Demand Varies During Lead Time Keller: Stats for Mgmt & Econ, 7th Ed Service Levels, Demand Varies During Lead Time May 23, 2018 Probability of stockout (1.0 – 0.85 = 0.15) Cycle-service level = 85% Average demand during lead time zL R Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Determine EOQ, Reorder Point Keller: Stats for Mgmt & Econ, 7th Ed Determine EOQ, Reorder Point May 23, 2018 The Discount Appliance Store uses a continuous review system (Q system). One of the company’s items has the following characteristics: Demand = 10 units/wk (assume 52 weeks per year) Ordering and setup cost (S) = $45/order Holding cost (H) = $12/unit/year Lead time (L) = 3 weeks Standard deviation in weekly demand = 8 units Cycle-service level = 70% Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Keller: Stats for Mgmt & Econ, 7th Ed Other Notes May 23, 2018 Inventory Position IP = OH + SR – BO Inventory position = on-hand inventory + scheduled receipts – units back ordered Continuous Review System (Q) The concepts discussed on the previous slides are for a continuous review system. That is a system that tracks the remaining inventory of an item (or level) each time an order is made to determine whether it is time to replenish. Also called a reorder point system. Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Periodic Review System (P) Keller: Stats for Mgmt & Econ, 7th Ed Periodic Review System (P) May 23, 2018 Inventory position is reviewed periodically (rather than continuously). The time between orders is always fixed at P. The lot size (order size), Q, may change from one order to the next. Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Periodic Review System (P) Keller: Stats for Mgmt & Econ, 7th Ed Periodic Review System (P) May 23, 2018 T IP IP Order received IP Order received Order received Q3 Q1 OH OH Q2 IP1 IP3 IP2 On-hand inventory Order placed Order placed L Time P Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Periodic Review System (P) Keller: Stats for Mgmt & Econ, 7th Ed Periodic Review System (P) May 23, 2018 Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.