ISQA 429

1
(No Transcript)
2
ISQA 429

• Inventory
• Warehouse Management
• Sustainability

3
Inventory Management

• Dont Control Inventories Control Processes
• Inventories are Symptoms of Processes

4
Why Do We Have Inventories?

• Cover Up For
• Customers Unreliable Forecasts
• Our Unreliable Forecasts, Bad Planning
• Inaccurate Shop Floor Scheduling
• Poor Inventory Control
• Poor Internal Quality
• Unreliable Supplier Deliveries, Quality
• Unreliable Transportation
• Excessive Supplier Lead Times
• Excessive Set-Up Times
• Poor Maintenance

5
Reasons to Keep Inventories

• Seasonal Demand Exceeds Capacity
• Hedges
• Supply
• Price
• In general, we should maintain inventories
• if they provide a competitive or strategic
  advantage,
• OR
• if inventories will provide necessary goods
  unavailable any other way.

6
Inventory Types

• Raw Materials and Components
• Work-in-Process
• Finished Goods
• Maintenance, Repair and Operating Supplies
• Squirrel Stock
• Excess, Surplus, Scrap

7
Inventory Carrying Costs
8
Inventory Carrying Costs

• Cost of Capital
• Lost Opportunity Cost
• Borrowing Costs
• Inventory Labor
• Wages
• Fringe Benefits
• Capital Investments
• Building
• Material Handling Equipment
• Storage Racks

9
Inventory Carrying Costs

• Variable Costs
• Heat and Light
• Taxes and Insurance
• Shrinkage and Obsolescence
• Tracking Costs
• Computer Time Data Entry

10
Economic Order Quantity
11
Inventory Transaction Costs
12
Classifications of Inventories

• Emergency Inventories
• Active Inventories
• Expensed Inventories

13
Safety Stock Calculations

• Safety Stock is a Function of Variability in
  Demand DURING LEAD TIME
• Stockouts Often Are Caused By INTERACTION Between
  Lead Times Longer Than Normal and Demand Greater
  Than Normal

14
Safety Stock Calculations

• Many Methods of Calculation
• Average Use During Lead Time Safety Stock
• Maximum Use During Lead Time - Average Use During
  Lead Time Safety Stock
• Mean Absolute Deviation
• Dangers of Letting The Computer Do It

15
Mean Absolute Deviation

• Step 1 Calculate Average Lead Time Usage
• Step 2 Compare Each Periods Usage to Average
• Step 3 Calculate Average Difference
• Step 4 Select Inventory Response Rate
• Step 5 Calculate Safety Stock (Average
  Difference x Multiplier from Step 4)

16
Usage Variability and Service Levels

• MAD Std Dev Svc Lvl
• 1.0 .8
  58
• 1.5 1.2
  77
• 2.0 1.6
  89
• 2.5 2.0
  95
• 3.0 2.4
  98
• 3.5 3.2
  99.5
• 1 MAD .8 Std Dev 1 Std Dev 1.25 MAD

17
Minimum and Maximum

• Min Reorder Point (ROP)
• Min Average Use During Lead Time Safety Stock
• Max EOQ Safety Stock

18
Consignment Inventories

• Definition
• Inventory Carrying Cost Sharing
• Advantages
• Investment
• Availability
• Potential Problems
• Ownership
• Flexibility
• Minimum Turns

19
Inventory Management Tools

• ABC Analysis
• Inventory Turnover Ratio

20
Inventory Management

• An Alternative View of ABC
• Criticality
• Lead Time
• Cycle Counting
• Risk Pooling
• Trading Premium Transportation for Inventory
• Hold Slow Movers at Only One or Two Central
  Locations

21
Total Cost of Ownership

• INV Cost (Avg Inv SS) x unit price x ICC
• ADMIN Cost Orders x PO Cost
• TC INV Cost ADMIN Cost
• As Inventory Sits, Its Value Declines, Its Costs
  Increase

22
Grocery Inventory

• If We Spend 500 Per Month On Groceries, and
• If We Bought Groceries Like We Buy Indirect
  Supplies
• 1 Turn 6,000 of Groceries On Hand
• 2 Turns 3,000
• 6 Turns 1,000

23
What Is Impact Of Increasing Turns By 1?
24
Inventory Technologies

• Bar Coding
• ASRS
• RF Technologies
• Voice Pick
• RFID Systems
• Computer Controlled Warehouse Activities
• Automated Reordering

25
Inventory Order SystemsTime, Quantity Variables

• Reorder Point System
• Varies Time, Holds Quantity Constant (more or
  less)
• Periodic Order System
• Holds Time Constant, Varies Quantity

26
Square Root Rule

• New Inventory Level
• Old Inventory Level X
• Square Root of Number of New Warehouses/Number of
  Old Warehouses
• This Maintains the Same Service Level
• (See pages 99, 100)

27
(No Transcript)