quantity and dilivery

8/13/2019 Quantity and Dilivery

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QUANTITY &

DELIVERY

Chapter 6


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CLASSIFICATION OF PURCHASES

Type of Purchases

Energy

Raw Materials MRO

Resale Items

Parts and Subassemblies

Packaging

Services or tools

Capital Goods


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Frequency of Purchases

Stock items

Physical or Chemical Nature

Transport Type

CLASSIFICATION OF PURCHASES


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Based on Monetary Value Pareto 80-30 Rule

ABC CLASSIFICATION OF PURCHASES


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EXAMPLE OF ABC ANALYSIS


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PURCHASE VALUE IS A COMBINATION OF

PRICE AND QUANTITY


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Responsibility for

Forecasting.

Unreliable Nature of

Forecasts .

FORECASTING


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FORECASTS SHOWING UNCERTAINTY


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FORECASTING

PROCESS


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Qualitative Delphi Method

Quantitative Techniques

Causal Models Statistical tools Linear regression etc.

Time Series Forecasting

FORECASTING TECHNIQUES


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INVENTORIES

Efforts to reduce inventories

Inventories hold a significant position in balance sheet

Involves a lot of costs

Can bring in competitive advantage

Working capital

Order fulfillment Turnover

KANBAN

JIT

MRP


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ABC CLASSIFICATION OF INVENTORY


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Purpose of Inventory

Provide and maintain customercare

Smooth flow of goods throughproductive process

Protection against uncertainties

Reasonable utilization of peopleand equipment

Carrying, Holding or

Possession costs Handling charges, operating

costs, pilferage, breakage

Cost of storage facilities,storage, labor, insurance

Warehouse rentals, cost ofequipment, obsolesces.

INVENTORY COSTS


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Types of Car rying Costs

Capital Costs , InventoryServices Costs, Storage spacecosts, Inventory risk costs

Types of Ordering Costs

Ordering or Purchasing costs

Managerial, clerical, email, fax,accounting, transportation,inspection,

Types of Setup Costs Production Run

Stock out Costs

INVENTORY COSTS


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unctions of Inventories1. Transit or pipeline

inventories (JIT)

2. Cycle inventories (lots)

3. Buffer or uncertaintyinventories or safety

stock (WIP)

4. Anticipation or certainty

inventories (Strikes,

weather, price changesetc.)

5. Decoupling inventories

Process Linkage

THE FORMS AND FUNCTIONS OF

INVENTORY

orms of Inventories1. Raw materials,

purchased parts and

packaging2. Work-in-progress

3. Finished goods

4. MRO items

5. Resale items


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INVENTORY: TYPES,

FUNCTIONS, OBJECTIVES

TYPE FUNCTION

It takes time to move products (transittime, handling time, delays)

Demand pattern does not equal supplypattern (goods produced in lot sizes)

Demand pattern varies. Customerservice levels must be maintained.

Variations in demand relative to

productive capacity or significant costadvantages to holding supply inanticipation of demand

Distribution and production efficiencygained from independence betweenstages of production and distribution

OBJECTIVE

Balance in-transit inventory costsagainst cost of reducing delays

Balance cost of ordering (or setup) andcost of carrying inventory

Balance cost of carrying extra inventoryagainst cost of stocking out

Balance inventory costs againstproduction costs, transportation costs,

purchase discounts, and costs ofavoiding price changes

Balance efficiency of production -distribution activities against costs

Transit orPipeline

Decoupling

Cycle

Buffer orSafety

Anticipation


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EXAMPLES OF INVENTORY FUNCTIONS

TYPE EXAMPLE

Transit orPipeline

parts on trains, forklifts, etc.

paper forms being moved between departments

Cycle a retail store that orders furniture by the truckload to save ordering and

shipping (set-up) costs student buys $25 of credit instead of $10 for a photocopy card to reduce

trips for extra credit

Buffer or Safety extra shirts ordered for unanticipated demand by a retailer

extra bottles ordered by a brewery to allow for unexpected breakage

Anticipation air conditioners produced and stored during winter sandwiches assembled during the morning and stored for lunch

Decoupling plastic moulding machine produces at 100 parts/hr, assemblers work at50 parts/hr, parts are held in operations to balance production rates ( andmoulding is shutdown periodically).


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Figure 6-5 Page 209

INVENTORY FORMS AND INVENTORY

FUNCTIONS


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INVENTORY FORMS AND FUNCTIONS

FUNCTION

Transit

Cycle

Buffer

Anticipation

Decoupling

WHY

move speed/distance

make/use batch

cope with variability

smooth peak demand

reduce dependence

ELIMINATE REASON BY

make moves faster/shorter

reduce onetime batch costs

reduce variability

increase volume flexibility

coordinate/schedule


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Information Technology issues

Operational Design issues Production and fulfillment rate

Lead times, Quality and lot size

Stockless Purchasing (Systems Contracting) Supplies Takes ov er Purchasers stock

MANAGING SUPPLY CHAIN

INVENTORIES


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Refer to Another slide

DEPENDENT & INDEPENDENT

DEMAND


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THE EOQ MODEL FIXED QUANTITY

MODEL

KC

RSEOQ

2

where:

R = annual demandS = set-up or order cost per orderC = delivered purchase costK = carrying cost percentage

Therefore:

KC = unit holding cost


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ECONOMIC ORDER QUANTITY MODEL

Quantity Ordered

ordering costs

carrying costs

EOQ

total cost

CTmin


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Perpetual inventory system

Event triggered: Initiates order when stock depleted to a

specific level.

Reorder point

Inventory replaced in fixed amounts

Economic order quantities

Issues

visual signals, IT applications

FIXED ORDER QUANTITY SYSTEM


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FIXED ORDER QUANTITY SYSTEM

lead time (L)

ROP

cycle

stock

INVENTORY

TIMEROP = Ld


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Safety stock is held because of uncertainty in supply and/or

demand

The trade-off is the cost of stocking out versus the cost of

holding inventory

Safety stock levels can be calculated using statistical techniques.

e.g., Take into account standard deviation of demand

SAFETY STOCK


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FIXED ORDER QUANTITY SYSTEM:

CYCLE STOCK, SAFETY STOCK AND LEAD

TIME

ROP

cycle

stock

(Q)

INVENTORY

TIME

Safety

Stock

lead time


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Inventory on-hand counted at specific time intervals and

replenished to a desired level

Only the passage of time triggers the model .

FIXED TIME PERIOD SYSTEMS


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FIXED TIME PERIOD SYSTEM:

CYCLE STOCK, SAFETY STOCK AND LEAD

TIME

INVENTORY

TIME

SafetyStock

review

period

lead

time

Q


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Fixed order quantity system

Higher maintenance costs

Every transaction logged

Inventory controlled precisely

Fixed time period

Minimal record keeping

Higher average inventories toprotect against stock-outs

Higher stock-out rates

Different order quantities foreach cycle

Ability to batch orders tosuppliers

WHICH SYSTEM IS BETTER?


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Based on a master production schedule, a material requirements

planning system:

Creates schedules identifying the specific parts and materials required to

produce end items Determines exact numbers needed

Determines the dates when orders for those materials should be released,

based on lead times.

Get the right materials to the right place a t the right time .

MATERIALS REQUIREMENT

PLANNING (MRP)


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Master production schedule

(when do we need it)

Inventory record file (what do

we have and what do we

need)

Bill of material (how does itget made)

KEY INPUTS TO MRP


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DRP developed after MRP

Applies the same concepts to meeting a market demand for

various products

Started with a basic model and has become more sophisticated

Goal: Plan and monitor the resources required to meet anticipated

market demands

Leading DRP and MRP systems are integrated but the two terms

are still found

DISTRIBUTION RESOURCES

PLANNING (DRP)


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DISTRIBUTION REQUIREMENT PLANNING


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Accurate records for quantities, lead times, bills of material, and

specifications

Tight control of inventory

Cooperation from supp liers for on -time delivery, proper

quantities and batch sizes, exacting quality (zero defects)

May need to re-evaluate existing contracts

Long-term planning horizon

Less slack in the system

MRP IMPLICATIONS FOR PURCHASING


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JIT is characterized by providing the exactquantity needed at theprecisemoment it is required

However, to be able to support JIT firms require certain capabilities short production lead times

economical small batch production flexible resources (labor, material and equipment)

exacting quality

WHAT IS JIT?


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True JI T pr oduct i on systemsstrive to eliminate waste

Waste includes: inefficient set-up procedures,inventories

Focus on all aspects of the production system: humanresources, supply, technology, and inventories

JIT is based on the logic that nothing will be produceduntil it is needed

When a unit is sold, the system pullsa replacement unitfrom the last position in the system

This process continues throughout the system

WHAT IS JIT?


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JIT


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Kanban means sign or

instruction card in

Japanese

A number of visual methods

can be used

Authority to produce come

from downstream operations

Kanban cards represent the

number of containers used in

the system

Dictates the lot size production

levels and inventory

KANBAN


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Frequent deliveries

Small lot sizes

Exacting quality

Long-term

relationships/contract

s

Reduced number of

suppliers

JIT IMPOSED SUPPLIER ACTIVITIES


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Reduction in number ofsuppliers

Reduction in supplier lead

time Improvement in supplier

quality

Improvement in supplierdelivery

Increased inventoryturnover

Inventory reduction intotal dollars

SUPPLY MANAGERS JIT

EXPECTATIONS

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