power point presentations 12

Slack, Chambers and Johnston, Operations Management, 6th Edition,© Nigel Slack, Stuart Chambers, and Robert Johnston 201012.1

12.1

Chapter 12

Inventory planning and control

Photodisc. Kim Steele


12.2

Design

Planning and control

Operations strategy

Improvement



The operation supplies… the delivery of a

quantity of products and services when required

The market requires… a quantity of products

and services at a particular time


12.3 Key operations questions

In Chapter 12 – Inventory planning and control – Slack

et al. identify the following key questions:

•What is inventory?

•Why is inventory necessary?

•What are the disadvantages of holding inventory?

•How much inventory should an operation hold?

•When should an operation replenish its inventory?

•How can inventory be controlled?


12.4 Inventory is created to compensate for the differences intiming between supply and demand

Input process

Inventory

Output process

Rate of supply from input process

Rate of demand from output processInventory


12.5

e.g. Automotive parts distributor

e.g. Local retail store

Single-stage inventory system

Suppliers Suppliers

Stock Sales operation

Central depot

Distribution Local distribution

point

Sales operation

Two-stage inventory system

Single-stage and two-stage inventory systems


12.6

e.g. Television manufacturerSuppliers

Input stock

Stage 1

A multi-stage inventory system

WIP Stage 2

WIP Stage 3

Finished goods stock


12.7 A multi-echelon inventory system

Yarn producers

Cloth manufacturers

Garment manufacturers

Regional warehouses

Retail stores


12.8 A paper merchant must get its inventory planning andcontrol right


12.9 Inventory profiles chart the variation in inventory level

Time

per period DQInstantaneous deliveries at a rate of

QD

Inve

ntor

y le

vel

Steady and predictable demand (D) Slope = demand rate (D)

=Average inventory

Q2

Order quantity = Q


12.10 Two alternative inventory plans with differentorder quantities (Q)

Time

Inve

ntor

y le

vel Plan A

Q = 400

Demand (D) = 1000 items per year

Average inventory for plan A = 200

Average inventory for plan B = 50

0.1 yr 0.4 yr

100

400

Plan BQ = 100


12.11

400

350

300

250

200

150

100

50

40035030025020015010050Order quantity

Cos

ts

Economic order quantity (EOQ)

Total costs

Holding costs

Order costs

Traditional view of inventory-related costs


12.12 Cycle inventory in a bakeryIn

vent

ory

leve

l

Deliver A

Produce ADeliver

B

Produce BDeliver

C

Produce CDeliver

A

Produce A Produce BDeliver

B

Produce CDeliver

C

Time


12.13

Time

Inve

ntor

y le

vel

Inventory profile for gradual replacement of inventory

Order quantity

Q

QP

M

Slope = P – DSlope = D


12.14

Inve

ntor

y le

vel

Time

Shortages

Inventory planning allowing for shortages


12.15 The re-order point

400

300

200

100Inve

ntor

y le

vel

00 1 2 3 4 5 6 7 8

Re-order level

Re-order point

Time

Demand (D) = 100 items per week

Order lead time


12.16 Safety stock(s) helps to avoid stock-outs when demand and/or order lead times are uncertain

Inve

ntor

y le

vel

S

Q

Timet1 t2

d1

d2

Re-order level (ROL)

Distribution of lead-time

usage

?


12.17 The probability distributions for order lead time and demandrate combine to give the lead-time usage distribution

0.4

0.3

0.2

0.10

110 120 130 140

Pro

babi

lity

Demand rate

0.4

0.3

0.2

0.10

1 2 3 4 5

Pro

babi

lity

Order lead time

0.4

0.3

0.2

0.10

Pro

babi

lity

100–199Lead-time usage

120–299 300–399 400–499 500–599 600–699 700–799


12.18 A periodic review approach to order timing with probabilistic demand and lead time

Inve

ntor

y le

vel

Qm

To T1 T2 T3 Timet1 t2 t3

tf tf tf

Q1 Q2 Q3


12.19

100

90

80

70

6050

40

30

20

10

100908070605040302010

Class C items

Class B items

Class A items

Pareto curve for stocked items

Percentage of types of items

Per

cent

age

of v

alue

of i

tem

s


12.20 Inventory classifications and measures

Class A items – the 20% or so of high-value items which account for around 80% of the total stock value.

Class B items – the next 30% or so of medium-value items which account for around 10% of the total stock value.

Class C items – the remaining 50% or so of low-value items which account for around the last 10% of the total stock value.


12.21 If the true costs of stock holding are taken into account, and if the cost of ordering (or changeover) is reduced, the economic order quantity ( EOQ) is much smaller

Original holding costs

Original total costs

Revised holding costs

Order quantity

Cos

ts

Original EOQ

Revised EOQ

Revised order costs

Revised total costs

Original order costs


12.22

Two bin system Three bin system

The ‘Two bin’ and ‘Three bin’ systems of re-ordering system

Bin 2Bin 1 Bin 1 Bin 2 Bin 3

Items being used

Re-order level + safety

inventory

Items being used

Re-order level

inventory

Safety inventory

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