Inventory Flashcards
Inventory
and decisions are about balancing
Stock of items including materials, orders, information used in process to satisfy customer demand
inventory costs with pressure to increase inventory
Inventory Management policies must be….,
Less is….
aligned with competitive priorities -> less is not always more
Inventory Costs (3) or pressures for low inventory
Little’s Law, Holding Costs, Ordering Costs
Littles Law
Throughput time increases with WIP
WIP
Throughput Output Rate
Inventory Holding Costs and includes (3)
Variable Cost of keeping items in inventory
1. Cost of Capital
2. Storage and Handling
3. Taxes, Insurance, Shrinkage
Cost of Capital
Opportunity cost of investing in inventory relative to expected return if invested elsewhere
Storage and Handling
costs associated with renting, staffing storage space, opportunity cost associated with use of space for storage
Taxes, Insurance Shrinkage
cost of insuring inventory, theft, spoilage and obsolescence
Ordering Costs
costs of placing an order, etc staffing or administration
What is the difference between cost for inventory holding and ordering
Holding costs are per unit (variable)
Ordering costs are fixed per order regardless of size
High Inventory Pressures:
Inventory can support_____and avoid______
Higher volume orders may optimize_______
Produce larger batch sizes may
Producing inventory increases (2)
Increase_____ and reduce less than
quick delivery and avoid stockouts
ordering costs from suppliers
decrease set up costs
productivity and resource utilization
Efficiency. truck load shipments
Safety Stock and protect against (4)
Inventory is held to protect against uncertainty in demand, lead time, processing time, quality and supply
Decoupling
inventory that accommodates different rates of production in a system
Pipeline Inventory
Inventory in transit, including materials on way from suppliers (daily demand x lead time)
anticipation inventory
manage predictable variation in demand
Cycle Inventory
portion of total inventory that varies based on size of an order or production batch
Total Annual Costs
Annual Holding Costs + Annual Ordering (Set up)
Total Annual Costs=Q/2(H) + D/Q(S)
define each letter
H: Holding Costs per unit (% of items value)
S: cost per order or set up in $/batch
Q: order, lot of batch size
D: Annual demand in units per year
Economic Order Quantity (EOQ)
value of quantity that gives you lowest total annual inventory costs
EOQ= root(2DS/H)
Define variables
EOQ: optimal value of Q
H: Holding cost per unit (% of items value)
S: Cost per order or set up in $/batch
D: Annual Demand in units per year
Demand Increase then EOQ
Increase
Setup/order cost decrease then EOQ
Decrease
Holding Cost Decrease then EOQ
Increase
Independent Demand
Influenced by market conditions, not related to inventory decisions for other items in stock
Inventory Review Systems (2)
Continuous and Periodic Review
Continuous Review (3)
- Replenishment decisions made in real time based on inventory level
- System triggers order when inventory reaches set reorder point
- Time between orders varies, size is consistent
Periodic Review (3)
- restock decisions made based on time between orders
- inventory review happens at fixed time intervals
- order size determined by current inventory level
Continuous Review most important decision and inventory hits……
setting reorder point, inventory should hit zero when receive new order
reorder point equation
what if you use safety stock
reorder point=dL
reorder = dL + safety stock
Periodic Review most important decisions (2)
selecting time between orders and target inventory level
Time between orders (P) can be set based on
convenience or TBOeoq
Target Inventory Level (T) based on (3)
daily demand, protection interval and desired safety stock
Protection Interval and equation
Time interval for which inventory must be planned when each new order is placed. Time between reviews + lead time
Continuous Review Control System benefits (3)
- may reduce holding and ordering costs by tailoring reorder point
- fixed order sizes may support quantity
- requires less safety stock
Periodic Review Control System benefits(3)
- supports standardization of deliveries, scheduling of inventory assessments
- combine orders for multiple products from same supplier
- does not require computerized inventory management system
