CHAPTER 9 Inventory Management. © 2008 Prentice Hall 9-2 Learning Objectives F To determine the costs of holding inventory F To identify the costs associated.

Slides:



Advertisements
Similar presentations
Managing Facilitating Goods
Advertisements

Chapter 8 Inventory Management. Introduction Chapter 8 - Inventory Management3 Radio Frequency Identification (RFID) Conventional bar codes are replaced.
Inventory Management Chapter 17. Topics Basic concepts. Management issues. Inventory-related costs. Economic order quantity model. Quantity discount model.
Inventory Management for Independent Demand Chapter 12, Part 2.
Inventory Control Chapter 17 2.
Introduction into Logistics
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna 6-1 © 2003 by Prentice Hall, Inc. Upper Saddle River, NJ Chapter 6 Inventory.
Chapter 9 Inventory Management.
Supply Chain Logistics Management
Dr. Mohamed A. Hamada Lecturer of Accounting Information Systems 1-1 PRACTICAL CASES ON CH 6 Inventory Management.
COPYRIGHT © 2012 Nelson Education Ltd.
1 5 Inventory Concepts.
Chapter 9 Inventory Management.
Transportation/Logistic Strategy Introduction to Inventory Total Cost Analysis Computation of Safety Stocks Setting Order Points Joint Replenishment Number.
Chapter 10—Inventory Management Inventory Management.
Managing Inventory throughout the Supply Chain
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Manufacturing Planning and Control MPC 6 th Edition Chapter.
Inventory Control Models
© 2007 Pearson Education Inventory Inventory Management Chapter 12.
Managing Goods Chapter 16. FactoryWholesalerDistributorRetailerCustomer Replenishment order Replenishment order Replenishment order Customer order Production.
MANAGING INVENTORY FLOWS IN THE SUPPLY CHAIN Week 6.
Where We Are Now.
F O U R T H E D I T I O N Inventory Systems for Independent Demand © The McGraw-Hill Companies, Inc., 2003 chapter 16 DAVIS AQUILANO CHASE PowerPoint Presentation.
Inventory Management for Independent Demand
Chapter 12: Inventory Control Models
CHAPTER 7 Managing Inventories
OPSM 301 Operations Management Class 15: Inventory Management EOQ Model Koç University Zeynep Aksin
Introduction into Logistics PhD Natasha Lutovinova Logistics Lecturer Room: G1.006.
12 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall Importance of Inventory One of the most expensive assets of many companies Can be 50%
Chapter 11: Strategic Leadership Chapter 10 Inventory management.
Copyright 2011 John Wiley & Sons, Inc. Chapter 9 Inventory Management 9-1.
Independent Demand Inventory Planning CHAPTER FOURTEEN McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Inventory Planning COB 300 C – Fall 2003 Dr. Michael Busing.
CHAPTER 9 Inventory Management.
12 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Inventory Management 12.
Module 2 Managing Material flow. Inventory Management 5.
Chapter 8 Inventory Management. Learning Objectives To learn about the ways that inventory can be classified To discuss inventory costs and the trade-offs.
Ch. 21 Inventory Control Learning Objectives Analyze the importance of inventory. Describe the features of an inventory control system. Analyze the costs.
20-0 Inventory Costs Carrying costs – range from 20 – 40% of inventory value per year Storage and tracking Insurance and taxes Losses due to obsolescence,
Understanding Inventory Fundamentals CHAPTER SEVEN McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Real-time management of inventory for items Inventory Concept LOGISTIC & WAREHOUSING.
Chapter 12 – Independent Demand Inventory Management Operations Management by R. Dan Reid & Nada R. Sanders 2 nd Edition © Wiley 2005 PowerPoint Presentation.
Real-time management of inventory for items Inventory Concept LOGISTIC & WAREHOUSING.
Chapter 11 Managing Inventory throughout the Supply Chain
Inventory Management FactoryWholesalerDistributorRetailerCustomer Replenishment order Replenishment order Replenishment order Customer order Production.
CHAPTER 13 INVENTORY MANAGEMENT. THE CONCEPTS Crucial for low profit margin, low cost strategy Determining appropriate inventory level by conflicting.
Operations Fall 2015 Bruce Duggan Providence University College.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Inventory.
Chapter 16 Inventory Management IDS 605 Busing.
Week 14 September 7, 2005 Learning Objectives:
CHAPTER 6 Inventory Management. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 6-2 Purposes of Inventory Enables.
Chapter 4 Inventory Management. INVENTORY MANAGEMENT Stockpile of the product, a firm is offering for sale and the components that make up the product.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Inventory.
CHAPTER 8 Inventory Management © Pearson Education, Inc. publishing as Prentice Hall.
McGraw-Hill/Irwin  The McGraw-Hill Companies, Inc. 2007, All Rights Reserved Independent-Demand Inventory Chapter 15.
Chapter 9 Inventory Management. Learning Objectives To determine the costs of holding inventory To identify the costs associated with a stockout To understand.
CHAPTER 8 Inventory Management © Pearson Education, Inc. publishing as Prentice Hall.
Copyright © 2015 Pearson Education, Inc.
Chapter 13 Inventory Management McGraw-Hill/Irwin
INVENTORY.
OPSM 301 Spring 2012 Class 13: Inventory Management
Functions of Inventory
LEARNING OBJECTIVES Highlight the need for and nature of inventory
Chapter 4 Inventory Management.
Inventory Planning COB 300 C – Fall 2002 Dr. Michael Busing.
Purposes of Inventory Meet expected demand Absorb demand fluctuations
Purposes of Inventory Meet expected demand Absorb demand fluctuations
EOQ Inventory Management
Chapter 9 Inventory Management
Presentation transcript:

CHAPTER 9 Inventory Management

© 2008 Prentice Hall 9-2 Learning Objectives F To determine the costs of holding inventory F To identify the costs associated with a stockout F To understand the EOQ concept

© 2008 Prentice Hall 9-3 Learning Objectives F To differentiate the various inventory flow patterns F To appreciate the role of scanners in inventory control

© 2008 Prentice Hall 9-4 Inventory Management F Key Terms –ABC analysis –Economic order quantity (EOQ) –Fixed order interval system –Fixed order quantity system F Key Terms –Handling costs –Insurance costs –Inventory carrying (holding) costs –Inventory shrinkage

© 2008 Prentice Hall 9-5 Inventory Management F Key Terms –Marginal analysis –Obsolescence –Opportunity cost –Reorder point (ROP) –Safety stocks F Key Terms –Stockouts –Storage costs –Taxes –Vendor-managed inventory (VMI)

© 2008 Prentice Hall 9-6 Inventory Management F Inventories are stocks of goods and materials that are maintained to satisfy normal demand patterns F Inventory management –Decisions drive other logistics activities –Different functional areas have different inventory objectives –Inventory costs are important to consider u Inventory turnover

© 2008 Prentice Hall 9-7 Inventory Management F Inventory management (continued) –Inventory costs are important to consider u Inventory turnover: cost of goods sold divided by average inventory at cost cost of goods sold = inventory turnover average inventory $200,000 = inventory is sold 4 times per year $ 50,000 u Compare with competitors or benchmarked companies

© 2008 Prentice Hall 9-8 Inventory Management F Low inventory turnover = high inventory carrying costs, little (or no) stockout costs F High inventory turnover = low inventory carrying costs, high stockout costs F Managing the tradeoff is important to maintain service levels

© 2008 Prentice Hall 9-9 Inventory Classifications F Psychic stock (stimulates demand) F Cycle or base stock F Safety or buffer stock F Pipeline or in-transit stock F Speculative stock

© 2008 Prentice Hall 9-10 Inventory-Related Costs F Inventory carrying (holding) costs –Obsolescence –Inventory shrinkage –Storage costs –Handling costs –Insurance costs –Taxes –Interest charges –Opportunity cost F Stockouts

© 2008 Prentice Hall 9-11 Table 9-1: Determination of the Average Cost of a Stockout AlternativeLossProbabilityAverage Cost 1. Brand-loyal customer$ $ Switches and comes back $ $ Lost customer$1, Average cost of a stockout 1.00$ These are hypothetical figures for illustration.

© 2008 Prentice Hall 9-12 Inventory-Related Costs F Trade-offs exist between carrying and stockout costs –Marginal analysis

© 2008 Prentice Hall 9-13 Table 9-2: Determination of Safety Stock Level Number of Units of Safety Stock Total Value of Safety Stock ($480 per Unit) 25% Annual Carrying Cost Carrying Cost of Incremental Safety Stock Number of Additional Orders Filled Additional Stockout Costs Avoided 10$4,800$1,200 20$6, ,600 2,400 1, , ,400 3,600 1, , ,200 4,800 1,2008 2, ,000 6,000 1,2006 1, ,800 7,200 1,2004 1, ,600 8,400 1,

© 2008 Prentice Hall 9-14 When to Order F Fixed order quantity system F Fixed order interval system F Reorder point (ROP) ROP = DD x RC under certainty ROP = (DD x RC) + SS under uncertainty Where DD = daily demand RC = length of replenishment cycle SS = safety stock

© 2008 Prentice Hall 9-15 How Much to Reorder F Economic order quantity (EOQ) in dollars EOQ = √2AB/C Where EOQ = the most economic order size, in dollars A = annual usage, in dollars B = administrative costs per order of placing the order C = carrying costs of the inventory (%)

© 2008 Prentice Hall 9-16 How Much to Reorder F Economic order quantity (EOQ) in units EOQ = √2DB/IC Where EOQ = the most economic order size, in units A = annual demand, in units B = administrative costs per order of placing the order C = carrying costs of the inventory (%) I = dollar value of the inventory, per unit

© 2008 Prentice Hall 9-17 Figure 9-2: Determining EOQ by Use of a Graph

© 2008 Prentice Hall 9-18 Table 9-3: EOQ Cost Calculations Number of orders per year Order size ($) Ordering cost ($) Carrying cost ($) Total cost (sum of ordering and carrying cost) ($) 11,

© 2008 Prentice Hall 9-19 Figure 9-3: Inventory Flow Diagram

© 2008 Prentice Hall 9-20 Inventory Flows F Safety stock can prevent against two problem areas –Increased rate of demand –Longer-than-normal replenishment F When fixed order quantity system like EOQ is used, time between orders may vary F When reorder point is reached, fixed order quantity is ordered

© 2008 Prentice Hall 9-21 Contemporary Approaches to Managing Inventory F ABC Analysis F Just-in Time (JIT) Approach F Vendor-Managed Inventory (VMI) F Inventory Tracking

© 2008 Prentice Hall 9-22 Inventory Management: Special Concerns F Defining stock-keeping units (SKUs) F Dead inventory F Deals F Substitute items F Complementary items F Informal arrangements outside the distribution channel F Repair/replacement parts F Reverse logistics