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MODULE 3 > 4 - Inventory Management > Flashcards

4 - Inventory Management Flashcards

1
Q

Mention the Materials Planning Approaches

A
  • Stock based “PULL” also called “Inventory Management”

- Requirments based “PUSH” also called “On Demand Management”

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2
Q

What is Inventory Management?

A
  • The moment and the quantity to order are decided only based on the actual level of stock.
  • Stock management approach is basically to simply react to demand.
  • When should the Stock management approach be used? Stock management can be use when:
  • Demand stationary, or constant, overtime or
  • It is Impossible to foresee demand with enough accuracy.
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3
Q

why to Hold Inventory?

A
  • To absorb demand uncertainty
  • Safety stock (stock of flexibility)
  • Seasonal stock (stock of capacity)
  • To decouple different operations phases
  • To keep stock is a way to allow source, make and delivery systems to work with different rate, as it allows the different phases to be “asynchronous” and it absorbs upstream variations

*Speculative stocks

*Total cost minimization
-Setup costs reduction
-Order emission cost reduction
.

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4
Q

Why is inventory important to deal with?

A

*Financial issues
- Major financial investments
ºMaterial cost,
ºStorage cost,
- Should inventory levels ideally be as low as possible?

*Operational issues -
-Inventory acts as a buffer:
ºAgainst variation in demand
ºAgainst variation in production plan

-Should inventory levels ideally be as high as possible?

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5
Q

Which are the objective of the Inventory management?

A

Is to minimize the related costs and to maximize the service level for the downstream phases.

This objective can be expressed as the minimization of a total cost function composed by:

  • Stock holding costs;
  • Execution costs (order / setup);
  • Costs of control;
  • Costs of low service level at downstream phases (stock-out costs).
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6
Q

Main Characteristics of the ECONOMIC ORDER QUANTITY - RE ORDER POINT model.

A
  • VAriable interval of orders issuing.
  • Fixed quantity ordered.
  • Continuous control.
  • Independent entries reorder.

some hyphotesis:

  • constant consumption over time
  • constant setup/ordering cost
  • constant variable cost/price per unit
  • constant leat time
  • constant ownership rate
  • pre-defined working days
  • infinite stock replenishment rate
  • infinite warehouse capacity
  • negligable cost of shipment (or included in the re-ordering cost)
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7
Q

Main Objectives of the ECONOMIC ORDER QUANTITY - RE ORDER POINT model.

A
  • Identify the quantity Q to reorder that minimize total cost, sum of the ordering cost, purchasing/production cost and stock holding cost.
  • The condition that determine the orders issuing
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8
Q

Principles definition of Safety Stock

A
  • SS are used to prevent from Stock-out.
  • SS protect inventory management against high variability in the consumption.
  • SS are “untouchable” and they are “subtracted” from the real availability.
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9
Q

Define PULL Control mode

A

Related with the Just in Time. The production requirements are generated by the control mechanism of the intermediate stocks of material among the various production departments. Schedule (short term) is generated dynamically (i.e. order replanishment). Stock is necesarry.

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10
Q

What is the definition of Reorder time as Inventory Issue??

A
  • Time from issuing a procurement order to when receiving the ordered products.
  • Can be Time fixed or Variable. Depends on Amount of work, Current production workload, Availability of MAterial, Reliability of the Manuf. Process.
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11
Q

Mention the Major categories of Inventory Costs.

A
  • Cost of items (Raw material and MAnufacturing cost)
  • Order preparation cost ( administration cost, quality assurance and Setup cost).
  • Inventory holding cost ( Storage facilities and Capital cost).
  • Shortage costs ( additional work for expediting/shipping and Loss customer trust and Stock-out cost).
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12
Q

Provide the objective of the Fixed-Time period model.

A

Identify the quantity to re-order that allows the availability of each product to achive a pre-define level, called Objective Level [OL].

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13
Q

When we need to use Stock Management approach?

A
  • Demand is stationary, or constant, over time,
  • It is impossible to foresee demand with enough accuracy, or
  • Upstream phase is highly flexible.
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14
Q

Which is the objective of the Stock Managed Production?

A

-The required items permanently, at least with a safety level defined by the service level provided as a target.

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15
Q

Which are the Inventory issues?

A
  • Nature of demand
  • Reorder time
  • costs
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16
Q

according to Inventory issues. which are the types of Nature of demand ?

A
  • Indipendent:
    Demand depends on the customer/market
    (example: electrical plugs)
  • Dependent:
    Demand related to that for another item (Exm: pins for electrical plugs)
  • Deterministic /Stochastic
  • How certain is the demand?
17
Q

according to Inventory issues. What about the types of reorder time ?

A

Definition of Reorder Time: Time from issuing a procurement order to when receiving the ordered products

if Redorder time fixed or variable?
Time to get the ordered products as manufactured (from the company itself or from a supplier) depends on:
Amount of work content;
Current production workload of the factory;
Availability of raw material;
Reliability of the manufacturing process.

18
Q

according to Inventory issues. Which are the types of Costs?

A
  • Cost of items
  • Raw material cost
  • Manufacturing cost
  • Order preparation cost
  • Administration cost, quality assurance,
  • Set up cost (for internal orders), etc.
  • *Inventory holding cost
  • Costs of storage facilities: space, heat, lighting, etc.
  • Cost of capital (function of value, time, interest rate)
  • Shortage costs
  • Additional work for expediting, shipping, etc.
  • Loss of customer trust (very difficult to quantify)
  • Stock-out cost
19
Q

Which are the Inventory management decisions?

A

*Replenishment policy, i.e. how much and when to order.

ºImpact on:

  • Stock holding costs;
  • Setup/order emission costs;
  • Stock out / downstream service costs;

ºConstraints:

  • Production capacity and flexibility of upstream productive stage;
  • Physical space capacity of warehouses.

*Control level, i.e. the detail and the frequency of control of the stock level of each item.

ºImpact on:
-Cost of control

ºConstraints :
-Availability of resources to perform the controls (people, computers, …).

20
Q

About the Classification of profiles.. Which are the Profles types?

A
  • Type of control
  • Continuous control;
  • Discrete control (time intervals)
  • Order issue interval
  • Fixed-time period;
  • Variable-time period.
  • Ordered quantity
  • Fixed quantity;
  • Variable quantity.
  • Type of re-order
  • Independent entries: each item is re-ordered independently from the others;

-Joint entries: orders for the different items are coordinated (combined).

----------------
Therefore the three models (cuadro) are:
FIXED-TIME PERIOD MODEL
EOQ-ROP model
SWITCH MODEL
21
Q

On which aspect does the Safety Stock (SS) depend?:

A
  • variation of downstream consumption (demand) with respect to forecast
  • desired service level
  • lead time duration
  • lead time reliability
22
Q

What can be possible thanks to the Safety Stock (SS)?

A
  • When the Safety stock is determined a minimum service level SL is reached
  • The probability of stock coverage is equal or higher than SL

NOTE: The Service Level (SL): it is percentage of times in which company has not incurred in stockout (product was available when the market asked for it)

23
Q
  • *

(cuadro) Comparison in tems of POSITIVE ASPECTS between the two models: FIXED QUANTITY and FIXED TIME?

A

FIXED QUANTITY:

  • low average stock level (continuous control)
  • Minimization of relevant costs (OPTIMIZATION)

FIXED TIME:

  • easy joint (combined entries) re-orders planning
  • easy control of availiability level (periodic control)
24
Q
  • *

(cuadro) Comparison in tems of NEGATIVE ASPECTS between the two models: FIXED QUANTITY and FIXED TIME?

A

FIXED QUANTITY (like EOQ-ROP for example):

  • difficult joint (combined entries) re-orders planning
  • many replenishment orders (also to the same supplier)
  • burdensome control of availiability level (continuous control)

FIXED TIME:
- higher average stock level (periodic control)

25
Q

features of the SWITCH MODELS?

A
  • cpntious control of inventory level : allows to define the time («when») and the quantity («how much») to reorder
  • They are calibrated by simulation to minimize the total costs
26
Q

features of the FIXED-TIME PERIOD MODEL?

A

Characteristics

  • Fixed-time for reordes between reviews T
  • Variable ordered quantity
  • Discontinuous control
  • Combined (or independent) entries reorder

NOTE: it has the same hypthoses of the EOQ-ROP model

27
Q

Stock Management Models (EOQ and FOP?

A

Stock management models can be used as control mechanism for PULL production management (and they have extensively used in the past to this concern)

28
Q

Advantages of EQP model?

A
  • Higher security in stock management
  • Economically oriented management
  • Homogeneuos quantities
29
Q

Advantages of FOP model?

A
  • Better production planning and worklad control
  • Emission of aggregated orders
  • Simpler, lower risk of erros.
30
Q

objective of STOCK MANAGEMENT PRODUCTION?

A

The objective is to have in stock the required items permanently, at least with a safety level defined by the service level provided as a target.

The supply/production orders are issued when the available quantity of an item reaches a predetermined threshold for reordering (or after a fixed period of time)

31
Q

limitation of the STOCK MANAGEMENT PRODUCTION (4 major limitations)?

A
  1. Demand is assumed as stationary, so they are static models.

2 .the total demand is assumed to be the sum of a lot of “small” and independent requests (which leads to a small variance, i.e. to be “regular”)

  1. the interactions among the products/parts, through the link between the independent and dependent demand, are neglected
  2. the constraints of production capacity are neglected
32
Q

For what type of companies Inventory or Stock management models are suitable?

NOTE: It is a consequence related to limitations:
1. Demand is assumed to be stationary

  1. the total demand is assumed to be the sum of a lot of “small” and independent requests (which leads to a small variance, i.e. to be “regular”)
A

For managing stocks of commercial companies like supermarkets, or manufacturing companies; when they have many clients, each of which purchases “smal”” quantities compared to the total demand of the period.

Basically, for companies that produce to stock (make-to-stock)

33
Q

For what type of companies Inventory or Stock management models ARE NOT suitable?

NOTE: It is a consequence related to limitations:
1. Demand is assumed to be stationary

  1. the total demand is assumed to be the sum of a lot of “small” and independent requests (which leads to a small variance, i.e. to be “regular”)
A

For companies which produce to order (make-to-order) with big variations of the demand

or for companies which sell to a few number of clients

34
Q

For multi-stage production , when is the Stock Management applicable?

A

stock management techniques (i.e., a pull-style management) is applicable only in cases where there are raw materials or basic components in widespread use in a variety of finished products

In other cases, it is appropriate to utilize other techniques (each of them with specific applicability conditions), like the push approach (MRP)

35
Q

** PUSH and PULL?

A 
PUSH CONTROL:
the schedule (short-medium term) is generated starting by the due dates ("fechas de vencimiento") of orders by considering the lead time necessary for each operation to be performed. Stock of material b/w operations could be theoretically zero .

PULL CONTROL:
In Pull control mode, the production requirements are generated by the control mechanism of the intermediate stocks of material among the various production departments. Schedule (short term) is generated dynamically (i.e. order replenishment). Stock is necessary.

In simpler words:ç

PUSH system: schedules/authorizes the release of work based on demand (driven by orders).
PUSH system is Make-to-order

PULL system; schedules /authorizes the release of work based on the system status (driven by voids in the stock level).
PULL system is make-to-Stock

36
Q

What is the Magee Boodem Model ?

A

*It is a model for production planning (both aggregate – mainly adopted - and materials planning) derived from inventory management models

Suitable for situations:
multi-product
single-machine
with stationary demand statistically predictable

37
Q

Problems resulting from the limitation 4): limited production capacity ?

A
  • Stock management models do not take into account the production capacity constraints
  • In addition, these models take into account the costs of set-up, but they neglect the problems of set-up times
  • Orders compete among themselves for the use of finite resources: the effect is a delay in the estimated lead time, with a consequent increase in the level of stocks needed to cope with it, that increases WIP which in turn tends to increase the lead time, thus generating a trend of progressive production control deterioration
38
Q

Problems resulting from limitation 3): dependent demand ?

A
  • The problem can be solved only by substantially decreasing the size of ordered lots.
  • In fact, in this case, the discontinuity (i.e. lumpiness) on the following layers can be reduced if the ordered lot is very small.

MODULE 3 (6 decks)

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