1. INDEPENDENT - DEPENDENT DEMAND INVENTORY Sekolah Tinggi Manajemen PPM

2. Schroeder/Operations Management OUTLINE Purpose of Inventories Purpose of Inventories Inventory Cost Structures Inventory Cost Structures Independent versus Dependent Demand Independent versus Dependent Demand Independent Demand: EOQ, Q-System, P- System Independent Demand: EOQ, Q-System, P- System Dependent Demand: MRP Dependent Demand: MRP

3. Schroeder/Operations Management A MATERIAL-FLOW PROCESS Work in process Work in process Work in process Finished goods Work in process Vendors Customer Productive Process

4. Schroeder/Operations Management A Water Tank Analogy for Inventory Supply Rate Inventory Level Demand Rate Inventory Level

5. Schroeder/Operations Management REASONS TO CARRY INVENTORIES To protect against uncertainties To protect against uncertainties To allow economic production and purchase To allow economic production and purchase To cover anticipated changes in demand or supply To cover anticipated changes in demand or supply To provide for transit To provide for transit

6. Schroeder/Operations Management INDEPENDENT DEMAND DEPENDENT DEMAND Influenced By Market Condition Outside the Control Of Operations Related to Demand for Another Item, Not Independently Determined by the Market

7. Schroeder/Operations Management Inventory Cost Structures Item cost Item cost Ordering (or setup) cost Ordering (or setup) cost Carrying (or holding) cost: Carrying (or holding) cost: –Cost of capital –Cost of storage –Cost of obsolescence, deterioration, and loss Stock out cost Stock out cost

8. Schroeder/Operations Management Total Cost of Inventory

9. Schroeder/Operations Management Economic Order Quantity (EOQ) Assumptions Demand rate is constant, recurring, and known. Demand rate is constant, recurring, and known. Lead time is constant and known. Lead time is constant and known. No stock outs allowed. No stock outs allowed. Material is ordered or produced in a lot or batch and the lot is received all at once. Material is ordered or produced in a lot or batch and the lot is received all at once. Unit cost is constant (no quantity discounts). Unit cost is constant (no quantity discounts). Carrying cost depends linearly on the average level of inventory. Carrying cost depends linearly on the average level of inventory. Ordering (setup) cost per order is fixed. Ordering (setup) cost per order is fixed. The item is a single product. The item is a single product.

10. Schroeder/Operations Management Continuous Review System Assumption of “constant demand” is relaxed. Assumption of “constant demand” is relaxed. Monitoring of “on hand” stock position in a continuous system Monitoring of “on hand” stock position in a continuous system Q system (another name for continuous review system) Q system (another name for continuous review system)

11. Schroeder/Operations Management Q System R = Reorder Point Q = Order Quantity L = Lead time

12. Schroeder/Operations Management All assumption of EOQ (except that demand is constant and “no stockout”) remains in effect. All assumption of EOQ (except that demand is constant and “no stockout”) remains in effect. Also known as “P System” or “Fixed-order- Interval System” Also known as “P System” or “Fixed-order- Interval System” Periodic Review System

13. Schroeder/Operations Management P System

14. Schroeder/Operations Management Using P and Q System in Practice Use P system when orders must be placed at specified intervals. Use P system when orders must be placed at specified intervals. Use P systems when multiple items are ordered from the same supplier (joint- replenishment). Use P systems when multiple items are ordered from the same supplier (joint- replenishment). Use P system for inexpensive items. Use P system for inexpensive items.

15. Schroeder/Operations Management Service Level versus Inventory Level (Figure 15.10)

16. Schroeder/Operations Management ABC Inventory Management Based on “Pareto” concept (80/20 rule) Based on “Pareto” concept (80/20 rule) Classification of items as A, B, or C Classification of items as A, B, or C Example (See Table 15.4) Example (See Table 15.4)

17. Schroeder/Operations Management Annual Usage of Items by Dollar Value

18. Schroeder/Operations Management ABC Chart A BC

19. Schroeder/Operations Management Definitions of MRP Systems “Closed-loop” MRP System (See Figure 16.1)“Closed-loop” MRP System (See Figure 16.1) Three principal functions of MRP (Orlicky):Three principal functions of MRP (Orlicky): –Inventory –Priorities –Capacity Types of MRP:Types of MRP: –Type I. An inventory control system –Type II. A production and inventory control system –Type III. An Enterprise Resource Planning (ERP) system

20. Schroeder/Operations Management MRP versus Order-Point Systems

21. Schroeder/Operations Management BOM (Table Example) Top Leg Long Rail Short Rail

22. Schroeder/Operations Management BOM (Product Structure) Short Rails (2) Table (End Item) Long Rails (2) Legs (4) Top (1) Leg Assembly (1)

23. Schroeder/Operations Management MRP Elements Bill of Materials (BOM) Bill of Materials (BOM) Master Scheduling Master Scheduling Inventory Records Inventory Records Capacity Planning Capacity Planning Purchasing Purchasing Shop Floor Control Shop Floor Control

24. Schroeder/Operations Management Elements of Success in MRP Implementation planning Implementation planning Adequate computer support Adequate computer support Accurate data Accurate data Management support Management support User knowledge User knowledge