Download presentation
Presentation is loading. Please wait.
1
Chapter 8 Inventory Management
2
Introduction
3
Radio Frequency Identification (RFID)
Conventional bar codes are replaced with computer chips or smart tags. Use wireless technology to track inventory. Chapter 8 - Inventory Management
4
Chapter 8 - Inventory Management
Wal-Mart RFID Early adopter of RFID is Wal-Mart. By January 2005, 53 of its top 100 suppliers were sending RFID-tagged goods to its three distribution centers in the Dallas, Texas area. Wal-Mart’s goal is to have all top 100 suppliers shipping RFID-tagged goods by the end of February 2005 in addition to 37 other suppliers. Chapter 8 - Inventory Management
5
Wal-Mart RFID continued
The impetus for Wal-Mart’s investment in RFID was the lack of visibility it had into its backroom storage areas. The major drawback to RFID is its cost. In 2005, the cost of smart tags was $0.25 each if purchased in volume, and $0.75 if purchased in smaller quantities. The stated goal in the industry is to get the price of smart tags down to $.05 Chapter 8 - Inventory Management
6
Vendor-Managed Inventory (VMI)
With VMI, suppliers are given responsibility for managing the inventory carried by their retail or wholesale customers. Rich Products, a $2 billion family-owned food company headquartered in Buffalo, NY, has a partnership with IBM to provide VMI services to the grocery industry for its frozen food items. Chapter 8 - Inventory Management
7
General Considerations
8
Functions of Inventories
Transit Inventories Buffer Inventories (safety stocks) Anticipation Inventories Decoupling Inventories Cycle Inventories Chapter 8 - Inventory Management
9
Chapter 8 - Inventory Management
Forms of Inventories Raw materials Maintenance, repair, and operating supplies Work-in-process (WIP) Finished goods Chapter 8 - Inventory Management
10
Inventory-Related Costs
Ordering or setup costs Inventory carrying or holding costs Stockout costs Opportunity costs Cost of goods Chapter 8 - Inventory Management
11
Decisions in Inventory Management
When to order? How much to order? Chapter 8 - Inventory Management
12
Types of Inventory Management Systems
Reorder point systems time between orders varies constant order quantity Periodic review systems time between orders fixed order quantity varies Material requirements planning (MRP) dependent demand items Chapter 8 - Inventory Management
13
Fluctuations in Inventory
Chapter 8 - Inventory Management
14
Chapter 8 - Inventory Management
Reorder Point Systems Reorder point Lead time Two-bin system Perpetual inventory system Chapter 8 - Inventory Management
15
Chapter 8 - Inventory Management
A Reorder Point System Chapter 8 - Inventory Management
16
Periodic Review System
maximum inventory level - on-hand inventory - on-order quantity + demand over lead time reorder quantity Chapter 8 - Inventory Management
17
Periodic Review System Without Considering On-Order Quantity
Chapter 8 - Inventory Management
18
Periodic Review System (Assumes None On Order at Time of Reorder)
Chapter 8 - Inventory Management
19
Priorities for Inventory Management: The ABC Concept
A items 15-20% of items that account for 75-80% of annual inventory value B items 30-40% of items that account for 15% of annual inventory value C items 40-50% of items that account for 10-15% of annual inventory value Chapter 8 - Inventory Management
20
ABC Inventory Categories
Chapter 8 - Inventory Management
21
The Economic Order Quantity (EOQ)
22
Chapter 8 - Inventory Management
Assumptions Constant rate of demand Shortages not allowed Stock replenishment can be scheduled to arrive exactly when inventory drops to zero Purchase price, ordering cost, and per unit holding cost are independent of quantity ordered Items are ordered independently of each other Chapter 8 - Inventory Management
23
Chapter 8 - Inventory Management
Notation Q = order quantity U = annual usage CO = order cost per order CH = annual holding cost per unit Chapter 8 - Inventory Management
24
Water Distributor’s Inventory Pattern
Chapter 8 - Inventory Management
25
Water Distributor’s Inventory Graph
Chapter 8 - Inventory Management
26
Chapter 8 - Inventory Management
Annual Order Cost $ Q Chapter 8 - Inventory Management
27
Chapter 8 - Inventory Management
Annual Holding Cost $ Q Chapter 8 - Inventory Management
28
Graph of Annual Inventory Costs
Chapter 8 - Inventory Management
29
Finding an Optimal Policy
Chapter 8 - Inventory Management
30
Alternative Way of Deriving EOQ
Chapter 8 - Inventory Management
31
Alternative Way of Deriving EOQ continued
Chapter 8 - Inventory Management
32
Chapter 8 - Inventory Management
EOQ Example Given: 25,000 annual demand $3 per unit per year holding cost $100 ordering costs Chapter 8 - Inventory Management
33
Cautions Regarding EOQ
GIGO Exclude “sunk” costs Very small EOQ values my not be valid Chapter 8 - Inventory Management
34
Chapter 8 - Inventory Management
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.