1. Operation Management Week 03 Inventory Fundamental and Inventory Management 1

2. Inventory Kekurangan atau kelebihan persediaan merupakan gejala yang kurang baik. Kekurangan dapat berakibat larinya pelanggan. Kelebihan dapat berakibat pemborosan atau tidak efisien 2

3. Tujuan Inventory 1. Menghilangkan risiko keterlambatan datangnya barang 2. Menghilangkan risiko barang yang rusak 3. Mempertahankan stabilitas operasi perusahaan 4. Mencapai penggunaan mesin yang optimal 5. Memberi pelayanan yang sebaik – baiknya bagi konsumen 3

4. Inventory Menyembunyikan Masalah Poor Quality Unreliable Supplier Machine Breakdown Inefficient Layout Bad Design Lengthy Setups 4

5. Untuk Mengungkap Masalah: Kurangi Inventory Levels Poor Quality Unreliable Supplier Machine Breakdown Inefficient Layout Bad Design Lengthy Setups 5

6. Pindahkan Sumber Masalah dan Ulangi Proses Tersebut Poor Quality Unreliable Supplier Machine Breakdown Inefficient Layout Bad Design Lengthy Setups 6

7. Inventory Costs Holding (or carrying) costs: Adalah biaya yang timbul karena perusahaan menyimpan persediaan Setup (or production change) costs atau ordering costs: Adalah biaya yang berhubungan dengan pemesanan dan pengadaan bahan Shortage costs atau stock out costs: Adalah biaya yang timbul akibat perusahaan kehabisan persediaan 7

8. Economic Order Quantity Model: Cost Curves Slope = 0 Total Cost Ordering Cost Order Quantity, Q Annual cost ($) Minimum total cost Optimal order Q optimal Carrying Cost 8

9. Basic Fixed-Order Quantity Model Total Annual Cost = Annual Purchase Cost Annual Ordering Cost Annual Holding Cost ++ TC Total annual cost D Demand CCost per unit Q Order quantity SCost of placing an order or setup cost RReorder point LLead time HAnnual holding and storage cost per unit of inventory 9

10. EOQ dan ROP 10

11. Contoh EOQ Annual Demand = 1,000 units Days per year considered in average daily demand = 365 Cost to place an order = $10 Holding cost per unit per year = $2.50 Lead time = 7 days Cost per unit = $15 Hitung economic order quantity dan reorder point? 11

12. Solusi Pada saat inventory level mencapai 20 unit, pesan lagi 90 units. 12

13. Financial Implications of Inventory Inventory is often a very large portion of the Asset portion of the balance sheet Inventory turns = (annual cost of goods sold)/(average inventory value) –A common measure of effectiveness of many production systems Operation Management 13

14. ABC Inventory Analysis Determine the relative importance of inventory –Annual monetary usage –Critical/difficult items to obtain Degree of control based on ABC value –A items about 20% of items, 80% of value –B items about 30% of items, 15% of value –C items about 50% of items, 5% of value Operation Management 14

15. Inventory Mangement Two Questions 1. How much inventory should be ordered at one time? 2. When should an order be placed? Management needs some decision rules Operation Management 15

16. Operation Management Development of the EOQ Formula Average inventory = order quantity 2 Number of orders / yr = annual demand order quantity 16

17. Operation Management Development of the EOQ Formula - Example Order Quantity (Q) = 200 units Usage = 100 units per week Average inventory = Q = 200 = 100 units 2 2 Number of orders per year = annual demand order quantity = 100 x 52 200 = 26 times per year 17

18. Operation Management Development of the EOQ Formula - Example Figure 10.1 Inventory on hand over time 18

19. Operation Management Example Problem Annual demand = 10,075 units per year Order quantity = 650 units Average inventory = Q/2 = 650/2 = 325 units Number of orders per year = A/Q = 10,075/650 =15.5 orders per year 19

20. Operation Management Economic Order Quantity Minimizes the total costs of Carrying and Ordering Assumptions 1. Demand is relatively constant and known 2. The item is purchased in lots or batches 3. Preparation costs and ordering costs are constant and known 4. Replacement occurs all at once 20

21. Operation Management Relevant Costs Annual cost of placing orders Annual cost of carrying inventory As the order quantity increases –the average inventory and the cost of carrying inventory increases –the number of orders per year and the annual cost of placing orders decreases Need to find the order quantity where: “the cost of carrying inventory and the costs of ordering will be a minimum” 21

22. Operation Management Inventory Costs A = annual demand S = ordering cost in dollars/order (setup) i = annual carrying cost as a decimal or percentage (interest rate) c = unit cost in dollars Q = order quantity in units 22

23. Operation Management Annual Ordering Cost (Biaya Pesan) = (number of orders/year) x (cost/order) = S x Q A 23

24. Operation Management Annual Carrying Cost (Biaya Simpan) = average inventory x cost of carrying one unit for one year = average inventory x unit cost x carrying cost = Q 2 xx ic 24

25. Operation Management Example Problem The annual demand is 10,000 units, the ordering cost $30 per order, the carrying cost 20% (dari unit cost biaya simpan), and the unit cost $15. The order quantity is 600 units. Calculate: a. Annual ordering cost b. Annual carrying cost c. Total annual cost 25

26. Operation Management Example Problem - Solution A = 10,000 units S = $30 (biaya pesan per order) c = $15 i = 20% (.20) a. Annual ordering cost = = (10,000/600) x $30 = $500 S x Q A 26

27. Operation Management Example Problem - Solution Continued b. Annual carrying cost = = (600/2) x $15 x.20 = $900 c. Total annual cost = cost of ordering + cost of carrying = $500 + $900 = $1,400 Q 2 xx ic 27

28. Operation Management Trial-and-Error Method A = 1,000 S = $20 per order c = $5 per unit i = 20% (.20) Cost of ordering = 1,000 x $20 Q Cost of carrying = Q x $5 x.20 2 What happens to total cost when we change Q? 28

29. Operation Management Trial-and-Error Method Figure 2.2 Costs for different lot sizes 29

30. Operation Management Total Costs and Order Quantity There is an order quantity which minimizes total costs The lowest cost occurs where the cost of ordering equals the cost of carrying The total cost varies little for a wide range of lot sizes about the minimum 30

31. Operation Management Total Costs and Order Quantity Figure 10.3 Cost versus lot size 31

32. Operation Management Economic Order Quantity Formula The EOQ is found by solving for the order quantity (Q) where the costs of carrying are equal to the costs of ordering 32

33. Operation Management Economic Order Quantity Formula Qic = AS 2 Q Q 2 = 2AS ic Q = 2AS ic eo Q the Q uantity you order 33

34. Operation Management EOQ example from trial and error method EOQ = 2 A S i c = 2x1,000x20.2 x 5 = 200 units A = 1,000 units S = $20 i =.20 c = $5 34

35. Operation Management Costs example from trial and error method Carrying Cost = Qic 2 = 200 x.2 x $5 2 = $100 Ordering Cost (annual) = A S Q = 1,000 x $20 200 = $100 35

36. Operation Management EOQ Minimizes Total Cost of Carrying and Ordering Cost to Order = Cost to Carry 36

37. Operation Management Quantity Discounts A discount is given for orders over a certain volume Must consider: –Ordering cost (usually annual) –Carrying cost (also annual) If no order quantity is given, compare the discount quantity with the EOQ 37

38. Operation Management Quantity Discounts Encourages buying more than normal Will increase the amount of inventory –Increases inventory carrying cost (biaya simpan) –Decreases ordering costs (biaya pesan) Savings from lower unit cost must be enough to offset higher carrying cost (biaya simpan) 38

39. Operation Management Quantity Discount - Example An item has an annual demand of 25,000 units, a unit cost of $10, an order preparation cost of $10, and a carrying cost of 20%. It is ordered on the basis of an EOQ, but the supplier has offered a discount of 2% on orders of $10,000 or more. Should the offer be accepted? *Note the discount is in dollars. It would be easier to calculate the EOQ in dollars. 39

40. Quantity Discount - Example Annual Demand = 2400 kuintal tepung terigu Pembelian < 500 kuintal = price Rp 20000/kuintal Pembelian >= 500 kuintal = price Rp 18000/kuintal Biaya simpan Rp 400/ kuintal Biaya pesan = Rp 35000 per order 40

41. Operation Management Quantity Discount - Example continued Annual Demand (A D )= 2,400 kuintal Biaya pesan (S) = Rp 35,000 Biaya Simpan = Rp 400 / kuintal EOQ = 2 x 2,400 x 35,000 = 648,07 kuintal 400 Karena 648 kuintal > dari batas potongan harga, maka titik Q optimal = 648 kuintal 41

42. Seandainya dalam contoh kasus di atas, biaya pemesanan tidak Rp 35,000, tetapi diganti dengan Rp 10,000, maka: EOQ = 2 x 2,400 x 10,000 = 346.41 kuintal 400 TC 346.41 = {346.41/2 x 400} + {2400/346.41 x 10000}+{ 2400 x 20000}= Rp 48 jt TC 500 = {500/2 x 400} + {(2400/500) x 10000}+{ 2400 x 18500}= Rp 44.5 juta 42

43. Operation Management Quantity Discount - Example continued Annual Demand = 25,000 unit Discounted Order Quantity = $10,000 x 0.98 = $9,800 No DiscountWith Discount Unit price $10$9.80 Lot Size $5,000$9,800 Avg Inventory Qc/2$2,500$4,900 # of Orders/yr A/Q5025 Demand x unit price (Purchase Cost) = $250,000$245,000 Carrying Cost (20%) 500 980 Biaya simpan Ordering Cost ($10) 500 250 Biaya Pesan Total Cost$251,000$246,230 $ 250,000/$5000 = 50 $ 245,000/$4900 = 25 43

44. Operation Management Quantity Discount - Example continued There is a savings in purchase cost $250,000 - 245,000 = $5,000 Carrying cost increases $980 - 500 = $480 Ordering cost decreases $500 - 250 = $250 Total cost decreases $251,000 - 246,230 = $4,770 Good Idea? 44

45. Operation Management Period Order Quantity (POQ) EOQ assumes demand is uniform –this is usually not true EOQ orders a quantity that attempts to balance the cost of ordering with the cost of carrying POQ sets a time interval that orders the same number of times per year as the EOQ POQ can reduce carrying costs especially with non-uniform demand 45

46. Operation Management Period Order Quantity POQ weeks = EOQ average weekly usage Example The EOQ for an item is 2800 units and the annual usage is 52,000 units. What is the POQ? Average usage = 52,000 / 52 = 1,000 per week POQ = 2800 / 1000 = 2.8 weeks 3 weeks When an order is placed the order quantity is set to cover requirements for the next 3 weeks 46

47. Operation Management POQ Example Problem Setiap stock kurang, pesan lagi Stock pada akhir perencanaan nol. Pesan sesuai kebutuhan 47

48. Operation Management Practical Considerations When Using the EOQ Lumpy demand Anticipation inventory Minimum order quantities Transportation inventory Multiple order quantities 48

49. Operation Management Practical Considerations When Using the EOQ Lumpy Demand –EOQ assumes continuous, constant demand –Better to use POQ Anticipation Inventory –planned buildup for future capacity or demand 49

50. Operation Management Practical Considerations When Using the EOQ Minimum order quantities –suppliers may set a minimum order quantity –may be the value of the total order Transportation inventory –quantity ordered my be set by transportation considerations –similar approach to quantity discounts 50

51. Operation Management Practical Considerations When Using the EOQ Multiple order quantities –constrained by package size carton / case barrel etc 51

52. In-Class Case Study Annual Demand = 10,000 units Days per year considered in average daily demand = 365 Cost to place an order = $10 Holding cost per unit per year = 10% of cost per unit Lead time = 10 days Cost per unit = $15 Determine the economic order quantity and the reorder point. Philips electric uses 4000 switches a year. Switches are priced as follows: 1 to 499 = $ 0.9 each, 500 to 999 = $ 0.85 each, and 1000 or more = $ 0.82 each. It costs $ 18 to prepare an order and receive it, and carrying costs are 18% of purchase price per unit on an annual basis. Determine the optimal order quantity and the annual cost Case 1 Case 2 52