inventory control adjusted

7/17/2019 Inventory Control Adjusted

1/54

12 - 1 2011 Pearson Education, Inc. publishing as Prentice Hall

12Inventory

Management


2/54


Inventory ManagementInventory Management

The objective o inventor!The objective o inventor!

"anage"ent is to stri#e a balance"anage"ent is to stri#e a balancebet$een inventor! invest"ent andbet$een inventor! invest"ent and

custo"er servicecusto"er service


3/54

12 - % 2011 Pearson Education, Inc. publishing as Prentice Hall

Importance of InventoryImportance of Inventory

&ne o the "ost e'pensive assetso "an! co"panies representing as

"uch as (0) o total investedcapital

&perations "anagers "ust balance

inventor! invest"ent and custo"erservice


4/54

12 - * 2011 Pearson Education, Inc. publishing as Prentice Hall

Types of InventoryTypes of Inventory

+a$ "aterial Purchased but not processed

or#-in-process

ndergone so"e change but not co"pleted unction o c!cle ti"e or a product

/aintenancerepairoperating /+&

3ecessar! to #eep "achiner! andprocesses productive

4inished goods

5o"pleted product a$aiting ship"ent


5/54

12 - ( 2011 Pearson Education, Inc. publishing as Prentice Hall

The Material Flow CycleThe Material Flow Cycle

4igure 12.1

Input ait or ait to /ove ait in 6ueue 7etup +un &utputinspection be "oved ti"e or operator ti"e ti"e

5!cle ti"e

8() ()


6/54


Managing InventoryManaging Inventory

1. Ho$ inventor! ite"s can beclassiied

2. Ho$ accurate inventor! recordscan be "aintained


7/5412 - : 2011 Pearson Education, Inc. publishing as Prentice Hall

ABC AnalysisABC Analysis

;ivides inventor! into three classesbased on annual dollar volu"e

5lass - high annual dollar volu"e

5lass < - "ediu" annual dollarvolu"e

5lass 5 - lo$ annual dollar volu"e

sed to establish policies thatocus on the e$ critical parts andnot the "an! trivial ones


8/54

12 - = 2011 Pearson Education, Inc. publishing as Prentice Hall


Ite"7toc#

3u"ber

Percent o3u"ber o

Ite"s7toc#ed

nnual>olu"eunits '

nit5ost ?

nnual;ollar

>olu"e

Percent onnual;ollar

>olu"e 5lass

@102=9 20) 1,000 A 80.00 A 80,000 %=.=)

@11(29 (00 1(*.00 ::,000 %%.2)

@12:90 1,((0 1:.00 29,%(0 11.%) olu"eunits '

nit5ost ?

nnual;ollar

>olu"e

Percent onnual;ollar

>olu"e 5lass

@12(:2 900 A 1*.1: A =,(02 %.:) 5

@1*0:( 2,000 .90 1,200 .() 5

@010%9 (0) 100 =.(0 =(0 .*) 5

@01%0: 1,200 .*2 (0* .2) 5

@10(:2 2(0 .90 1(0 .1) 5

=,((0 A2%2,0(: 100.0)

()


10/54


5 Ite"s


Ite"s

< Ite"s

Perce

ntoannualdollarusage

=0 B

:0 B

90 B

(0 B

*0 B

%0 B

20 B

10 B0 B C C C C C C C C C C

10 20 %0 *0 (0 90 :0 =0 80 100

Percent o inventor! ite"s4igure 12.2


11/54



&ther criteria than annual dollarvolu"e "a! be used

nticipated engineering changes ;eliver! proble"s

Dualit! proble"s

High unit cost


12/54


Holding, Ordering, andHolding, Ordering, and

Setp CostsSetp Costs Holding costsHolding costs- the costs o holding

or carr!ingF inventor! over ti"e

&rdering costs&rdering costs- the costs oplacing an order and receivinggoods

7etup costs7etup costs- cost to prepare a"achine or process or"anuacturing an order


13/54

12 - 1% 2011 Pearson Education, Inc. publishing as Prentice Hall

Holding CostsHolding Costs

5ategor!

5ost and rangeas a Percent oInventor! >alue

Housing costs building rent ordepreciation, operating costs, ta'es,

insurance

9) % - 10)

/aterial handling costs e6uip"ent lease ordepreciation, po$er, operating cost

%) 1 - %.()

Gabor cost %) % - ()

Invest"ent costs borro$ing costs, ta'es,and insurance on inventor! 11) 9 - 2*)

Pilerage, space, and obsolescence %) 2 - ()

&verall carr!ing cost 29)

Table 12.1


14/54

12 - 1* 2011 Pearson Education, Inc. publishing as Prentice Hall

Holding CostsHolding Costs

5ategor!

5ost and rangeas a Percent oInventor! >alue

Housing costs building rent ordepreciation, operating costs, ta'es,

insurance

9) % - 10)

/aterial handling costs e6uip"ent lease ordepreciation, po$er, operating cost

%) 1 - %.()

Gabor cost %) % - ()

Invest"ent costs borro$ing costs, ta'es,and insurance on inventor! 11) 9 - 2*)

Pilerage, space, and obsolescence %) 2 - ()

&verall carr!ing cost 29)

Table 12.1

Holdingcostsvar!cons

iderabl!depending

onthebusiness,location,andinter

estrates.

enerall!greaterthan

1(),so"ehightech

ite"shaveholdingcos

tsgreaterthan*0).


15/54

12 - 1( 2011 Pearson Education, Inc. publishing as Prentice Hall

Inventory ModelsInventory Models

1.


16/54


Basic !O" ModelBasic !O" Model

1. ;e"and is #no$n, constant, andindependent

2. Gead ti"e is #no$n and constant

%. +eceipt o inventor! is instantaneous andco"plete

*. Duantit! discounts are not possible(. &nl! variable costs are setup and holding

9. 7toc#outs can be co"pletel! avoided

I"portant assu"ptions


17/54

12 - 1: 2011 Pearson Education, Inc. publishing as Prentice Hall

Inventory #sage Over TimeInventory #sage Over Time

4igure 12.%

&rder6uantit! ? ""a'i"u"inventor!

level

sage rate verageinventor!on hand

"2

/ini"u"

inventor!

Inventor!level

Ti"e0


18/54

12 - 1= 2011 Pearson Education, Inc. publishing as Prentice Hall

Minimi$ing CostsMinimi$ing Costs

&bjective is to "ini"ie total costs

Table 12.*c

.nn

ualcost

&rder 6uantit!

Total cost oholding andsetup order

Holding cost

7etup or ordercost

/ini"u"total cost

&pti"al order6uantit! "J


19/54


An !O" !%ampleAn !O" !%ample

;eter"ine opti"al nu"ber o needles to order&? 1,000 unitsS? A10 per orderH? A.(0 per unit per !ear

"J ?2&S

H

"J ?21,00010

0.(0? *0,000 ? 200 units


20/54



;eter"ine opti"al nu"ber o needles to order&? 1,000 units "J ? 200 unitsS? A10 per orderH? A.(0 per unit per !ear

? '? ?E'pectednu"ber o

orders

;e"and

&rder 6uantit!&

"J

'? ? ( orders per !ear1,000200


21/54



;eter"ine opti"al nu"ber o needles to order&? 1,000 units "J ? 200 unitsS? A10 per order ' ? ( orders per !earH? A.(0 per unit per !ear

? T?E'pected

ti"e bet$eenorders

3u"ber o $or#ingda!s per !ear

'

T? ? (0 da!s bet$een orders2(0(


22/54



;eter"ine opti"al nu"ber o needles to order&? 1,000 units "J ? 200 unitsS? A10 per order ' ? ( orders per !earH? A.(0 per unit per !ear T ? (0 da!s

Total annual cost ? 7etup cost K Holding cost

TC? S K H&

"

"

2

TC? A10 K A.(01,000200

2002

TC? (A10 K 100A.(0 ? A(0 K A(0 ? A100


23/54

12 - 2% 2011 Pearson Education, Inc. publishing as Prentice Hall


/anage"ent underesti"ated de"and b! (0)&? 1,000 units "J ? 200 unitsS? A10 per order ' ? ( orders per !earH? A.(0 per unit per !ear T ? (0 da!s

TC? S K H&

"

"

2

TC? A10 K A.(0 ? A:( K A(0 ? A12(

1,(00

200

200

2

1,(00 units

Total annual cost increases b! onl! 2()


24/54

12 - 2* 2011 Pearson Education, Inc. publishing as Prentice Hall


ctual E&D or ne$ de"and is 2**.8 units&? 1,000 units "J ? 2**.8 unitsS? A10 per order ' ? ( orders per !earH? A.(0 per unit per !ear T ? (0 da!s

TC? S K H&

"

"

2

TC? A10 K A.(0

1,(00

2**.8

2**.8

2

1,(00 units

TC? A91.2* K A91.2* ? A122.*=

&nl! 2) lessthan the totalcost o A12(

$hen theorder 6uantit!

$as 200


25/54

12 - 2( 2011 Pearson Education, Inc. publishing as Prentice Hall

(eorder )oints(eorder )oints

E&D ans$ers the ho$ "uchF 6uestion

The reorder point +&P tells $henF toorder

+&P ? Gead ti"e or ane$ order in da!s

;e"andper da!

? d' *

d?&

3u"ber o $or#ing da!s in a !ear


26/54


(eorder )oint !%ample(eorder )oint !%ample

;e"and ? =,000 iPods per !ear2(0 $or#ing da! !earGead ti"e or orders is % $or#ing da!s

+&P ? d' *

d?&

3u"ber o $or#ing da!s in a !ear

? =,0002(0 ? %2 units

? %2 units per da! ' % da!s ? 89 units


27/54

12 - 2: 2011 Pearson Education, Inc. publishing as Prentice Hall

"antity &iscont Models"antity &iscont Models

+educed prices are oten available $henlarger 6uantities are purchased

Trade-o is bet$een reduced product costand increased holding cost

Total cost ? 7etup cost K Holding cost K Product cost

TC? S K HK )&&

"

"

2


28/54

12 - 2= 2011 Pearson Education, Inc. publishing as Prentice Hall


;iscount3u"ber ;iscount Duantit! ;iscount ) ;iscountPrice )

1 0 to 888 no discount A(.00

2 1,000 to 1,888 * A*.=0

% 2,000 and over ( A*.:(

Table 12.2

t!pical 6uantit! discount schedule


29/54



1. 4or each discount, calculate "J

2. I "J or a discount doesnLt 6uali!,choose the s"allest possible order sieto get the discount

%. 5o"pute the total cost or each "J oradjusted value ro" 7tep 2

*. 7elect the "J that gives the lo$est totalcost

7teps in anal!ing a 6uantit! discount7teps in anal!ing a 6uantit! discount


30/54

12 - %0 2011 Pearson Education, Inc. publishing as Prentice Hall


1,000 2,000

TotalcostA

0

&rder 6uantit!

"J or discount 2 is belo$ the allo$able range at point a

and "ust be adjusted up$ard to 1,000 units at point +

a

+

1st pricebrea#

2nd pricebrea#

Total costcurve or

discount 1

Total cost curve or discount 2

Total cost curve or discount %

4igure 12.:


31/54


"antity &iscont !%ample"antity &iscont !%ample

5alculate "J or ever! discount " -2&SI)

"1J ? ? :00 carsorder2(,000*8

.2(.00

"2J ? ? :1* carsorder2(,000*8

.2*.=0

"%J ? ? :1= carsorder2(,000*8

.2*.:(


32/54



5alculate "J or ever! discount " -2&SI)

"1J ? ? :00 carsorder2(,000*8

.2(.00

"2J ? ? :1* carsorder2(,000*8

.2*.=0

"%J ? ? :1= carsorder2(,000*8

.2*.:(

1,000 M adjusted

2,000 M adjusted


33/54

12 - %% 2011 Pearson Education, Inc. publishing as Prentice Hall


;iscount3u"ber

nitPrice

&rderDuantit!

nnualProduct

5ost

nnual&rdering

5ost

nnualHolding

5ost Total

1 A(.00 :00 A2(,000 A%(0 A%(0 A2(,:00

2 A*.=0 1,000 A2*,000 A2*( A*=0 A2*,:2(

% A*.:( 2,000 A2%.:(0 A122.(0 A8(0 A2*,=22.(0

Table 12.%

5hoose the price and 6uantit! that givesthe lo$est total cost


34/54

12 - %* 2011 Pearson Education, Inc. publishing as Prentice Hall

)ro+a+ilistic Models and)ro+a+ilistic Models and

Safety Stoc.Safety Stoc. sed $hen de"and is not constant

or certain

se saet! stoc# to achieve a desiredservice level and avoid stoc#outs

+&P ? d' *K ss

nnual stoc#out costs ? the su" o the units short' the probabilit! ' the stoc#out costunit

' the nu"ber o orders per !ear


35/54

12 - %( 2011 Pearson Education, Inc. publishing as Prentice Hall

Safety Stoc. !%ampleSafety Stoc. !%ample

3u"ber o nits Probabilit!%0 .2

*0 .2

+&P (0 .%

90 .2

:0 .1

1.0

+&P ? (0 units 7toc#out cost ? A*0 per ra"e&rders per !ear ? 9 5arr!ing cost ? A( per ra"e per !ear


36/54


Safety Stoc. !%ampleSafety Stoc. !%ample

+&P ? (0 units 7toc#out cost ? A*0 per ra"e&rders per !ear ? 9 5arr!ing cost ? A( per ra"e per !ear

7aet!

7toc#

dditional

Holding 5ost 7toc#out 5ost

Total

5ost20 20A( ? A100 A0 A100

10 10A( ? A (0 10.1A*09 ? A2*0 A280

0 A 0 10.2A*09 K 20.1A*09 ? A890 A890

saet! stoc# o 20 ra"es gives the lo$est total cost

+&P ? (0 K 20 ? :0 ra"es


37/54

12 - %: 2011 Pearson Education, Inc. publishing as Prentice Hall

7aet! stoc# 19.( units

+&P

Place

order

)ro+a+ilistic &emand)ro+a+ilistic &emand

Inventor!level

Ti"e0

/ini"u" de"and during lead ti"e

/a'i"u" de"and during lead ti"e

/ean de"and during lead ti"e

3or"al distribution probabilit! ode"and during lead ti"e

E'pected de"and during lead ti"e %(0 #its

+&P ? %(0 K saet! stoc# o 19.( ? %99.(

+eceive

order

Geadti"e

4igure 12.=


38/54

12 - %= 2011 Pearson Education, Inc. publishing as Prentice Hall


se prescribed service levels to set saet!stoc# $hen the cost o stoc#outs cannot bedeter"ined

+&P ? de"and during lead ti"e K /d*T

$here /? nu"ber o standarddeviations

d*T? standard deviation o

de"and during lead ti"e


39/54



7aet!stoc#

Probabilit! o

no stoc#out8() o the ti"e

/ean

de"and%(0

+&P ? N #its Duantit!

3u"ber ostandard deviations

0

+is# o a stoc#out() o area onor"al curve


40/54

12 - *0 2011 Pearson Education, Inc. publishing as Prentice Hall

)ro+a+ilistic !%ample)ro+a+ilistic !%ample

verage de"and ? ? %(0 #its7tandard deviation o de"and during lead ti"e ? d*T? 10 #its

() stoc#out polic! service level ? 8()

sing ppendi' I, or an area under the curveo 8(), the /? 1.9(

7aet! stoc# ? /d*T? 1.9(10 ? 19.( #its

+eorder point ? e'pected de"and during leadti"e K saet! stoc#

? %(0 #its K 19.( #its o saet!stoc#

? %99.( or %9: #its


41/54


Other )ro+a+ilistic ModelsOther )ro+a+ilistic Models

1. hen de"and is variable and leadti"e is constant

2. hen lead ti"e is variable and

de"and is constant%. hen both de"and and lead ti"e

are variable

hen data on de"and during lead ti"e isnot available, there are other "odelsavailable


42/54



;e"and is variable and lead ti"e is constant

+&P ? average dail! de"and

' lead ti"e in da!s K /d*T

$here d ? standard deviation o de"and per da!

d*T ? d lead ti"e


43/54

12 - *% 2011 Pearson Education, Inc. publishing as Prentice Hall


verage dail! de"and nor"all! distributed ? 1(7tandard deviation ? (Gead ti"e is constant at 2 da!s80) service level desired

/or 80) ? 1.2=4ro" ppendi' I

+&P ? 1( units ' 2 da!s K /d*T

? %0 K 1.2=( 2

? %0 K 8.02 ? %8.02 O %8

7aet! stoc# is about 8 iPods


44/54

12 - ** 2011 Pearson Education, Inc. publishing as Prentice Hall


Gead ti"e is variable and de"and is constant

+&P ? dail! de"and '

average lead ti"e in da!s? /' dail! de"and ' *T

$here *T ? standard deviation o lead ti"e in da!s


45/54

12 - *( 2011 Pearson Education, Inc. publishing as Prentice Hall


;ail! de"and constant ? 10verage lead ti"e ? 9 da!s7tandard deviation o lead ti"e ?

*T? %

8=) service level desired

/or 8=) ? 2.0((4ro" ppendi' I

+&P ? 10 units ' 9 da!s K 2.0((10 units%

? 90 K 91.9( ? 121.9(

+eorder point is about 122 ca"eras


46/54




47/54

12 - *: 2011 Pearson Education, Inc. publishing as Prentice Hall


verage dail! de"and nor"all! distributed ? 1(07tandard deviation ?

d? 19

verage lead ti"e ( da!s nor"all! distributed7tandard deviation ?

*T? 1 da!

8() service level desired /or 8() ? 1.9(4ro" ppendi' I

+&P ? 1(0 pac#s ' ( da!s K 1.9(d*T

? 1(0 ' ( K 1.9( ( da!s ' 192 K 1(02' 12? :(0 K 1.9(1(* ? 1,00* pac#s


48/54

12 - *= 2011 Pearson Education, Inc. publishing as Prentice Hall

Single )eriod ModelSingle )eriod Model

&nl! one order is placed or a product

nits have little or no value at the end othe sales period

Cs? 5ost o shortage ? 7ales priceunit B 5ostunit

Co? 5ost o overage ? 5ostunit B 7alvage value

7ervice level ?Cs

CsK Co


49/54


Single )eriod !%ampleSingle )eriod !%ample

verage de"and ? ? 120 papersda!

7tandard deviation ? ? 1( papers

Cs? cost o shortage ? A1.2( - A.:0 ? A.((

Co? cost o overage ? A.:0 - A.%0 ? A.*0

7ervice level ?Cs

CsK Co.((

.(( K .*0

.((

.8(

?

? ? .(:=

7ervicelevel

(:.=)

&pti"al stoc#ing level

? 120


50/54

12 - (0 2011 Pearson Education, Inc. publishing as Prentice Hall

Single )eriod !%ampleSingle )eriod !%ample

4ro" ppendi' I, or the area .(:=, / .20

The opti"al stoc#ing level

? 120 copies K .20? 120 K .201( ? 120 K % ? 12% papers

The stoc#out ris# ? 1 B service level

? 1 B .(:= ? .*22 ? *2.2)


51/54


Fi%ed0)eriod 1)2 SystemsFi%ed0)eriod 1)2 Systems

&rders placed at the end o a i'ed period

Inventor! counted onl! at end o period

&rder brings inventor! up to target level

&nl! relevant costs are ordering and holding

Gead ti"es are #no$n and constant

Ite"s are independent ro" one another


52/54


Fi%ed0)eriod 1)2 SystemsFi%ed0)eriod 1)2 Systems

&

n-handinvento

r!

Ti"e

"1

"2

Target 6uantit! T

)

"%

"*

)

)

4igure 12.8


53/54

12 - (% 2011 Pearson Education, Inc. publishing as Prentice Hall

Fi%ed0)eriod 1)2 !%ampleFi%ed0)eriod 1)2 !%ample

&rder a"ount " ? Target T - &n-hand inventor! - Earlier orders not !et

received K


54/54

Fi%ed0)eriod SystemsFi%ed0)eriod Systems

Inventor! is onl! counted at eachrevie$ period

/a! be scheduled at convenient ti"es ppropriate in routine situations

/a! result in stoc#outs bet$een

periods /a! re6uire increased saet! stoc#

inventory control adjusted

Documents

pearson education

inventory ne o

prentice hallholding

percent o inventor

een inventor

copleted unction o c

accurate inventor

lass ediu annual dollarvolue