12 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Inventory Management 12

12 – 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Percentage of SKUs Percentage of dollar value 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class C Class A Class B ABC Analysis Figure 12.1 – Typical Chart Using ABC Analysis

12 – 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Annual cost (dollars) Lot Size ( Q ) Holding cost Ordering cost Total cost Calculating EOQ Figure 12.3 – Graphs of Annual Holding, Ordering, and Total Costs

12 – 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Selecting the Reorder Point Time On-hand inventory TBO L L L Order placed Order placed Order placed IP R Q Q Q OH Order received Order received Order received Order received Figure 12.6 – Q System When Demand and Lead Time Are Constant and Certain

12 – 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Continuous Review Systems Time On-hand inventory TBO 1 TBO 2 TBO 3 L1L1 L2L2 L3L3 R Order received Q Order placed Order placed Order received IP Q Order placed Q Order received Order received 0 IP Figure 12.7 – Q System When Demand Is Uncertain

12 – 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. σ t = Demand for week 1 σ t = Demand for 3-week lead time + 75 Demand for week 2 σ t = 15 = 75 Demand for week 3 σ t = 15 Demand During Lead Time Figure 12.8 –Development of Demand Distribution for the Lead Time

12 – 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Demand During Lead Time Average demand during lead time Cycle-service level = 85% Probability of stockout (1.0 – 0.85 = 0.15) z σ dLT R Figure 12.9 –Finding Safety Stock with a Normal Probability Distribution for an 85 Percent Cycle-Service Level

12 – 8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Periodic Review System ( P ) PP T LLL Protection interval Time On-hand inventory IP 3 IP 1 IP 2 Order placed Order placed Order placed Order received Order received Order received IP OH Q1Q1 Q2Q2 Q3Q3 Figure – P System When Demand Is Uncertain

12 – 9 Computing Q and P Systems