Title: Why is Inventory Important?
1Why is Inventory Important?
2(No Transcript)
3Water Tank Analogy
Demand Flow (Finished Goods)
Inventory Level
Flow of Receipts (Raw Materials Parts)
Scrap or Reject Flow
4Outflow exceeds Inflow
Demand Flow (Finished Goods)
Flow of Receipts (Raw Materials Parts)
Scrap or Reject Flow
5Inflows exceed Outflows
Demand Flow (Finished Goods)
Flow of Receipts (Raw Materials Parts)
Scrap or Reject Flow
6Types of Demand
- Independent
- Items demand is influenced ONLY by market
conditions and is NOT related to production
decisions for any other items. - Only end items
- Demand must be forecast
- Examples
- Cars, TVs, Bicycles, Number of Seats in a
restaurant
7Types of Demand
- Dependent
- Items demand derives from the production
decisions of its parents. - All intermediate and purchased items in
manufacturing - Demand should be derived
- Examples
- Car doors, Tv remotes, Bicycle tires, Number of
T-bones for a given night
8A Bill of Materials
A
B(3)
D(3)
G(1)
C(1)
C(2)
E(2)
F(2)
9Pressures for Small Inventories
- Interest/Opportunity Cost
- Storage and handling
- Property Taxes
- Insurance premiums
- Shrinkage
- Spoilage
10Pressures for Large Inventories
- Customer Service
- Order/Setup Cost
- Labor/Equipment Utilization
- Transportation Cost
- Cost of Materials/Quantity Discounts
11The Gaming Co.
12(No Transcript)
13Economic Order Quantity
14Economic Order Quantity
15Economic Order Quantity
16Economic Order Quantity
17Economic Order Quantity
18Economic Order Quantity
19Economic Order Quantity
20Economic Order Quantity
21Economic Order Quantity
22Economic Order Quantity
23Economic Order Quantity
24Economic Order Quantity
25Economic Order Quantity
26Economic Order Quantity
27Economic Order Quantity
28Five Assumptions of the EOQ
- CONSTANT demand rate
- Two relevant COSTS
- Item INDEPENDENCE
- CERTAINTY in demand, lead time and supply
- Whole LOTS
29Realistic?
- No Way ......
- ................ BUT, since EOQ is relatively
insensitive to errors, IT WORKS ANYWAY!
30(No Transcript)
31Reorder Point
32Reorder Point
33Reorder Point
34Reorder Point
35Reorder Point / Safety Stock
36Reorder Point / Safety Stock
37Reorder Point / Safety Stock
38Reorder Point / Safety Stock
39Reorder Point / Safety Stock
40Reorder Point / Safety Stock
41Reorder Point / Safety Stock
Probability of stockout (1.0 - 0.85 0.15)
42Reorder Point / Safety Stock
43Reorder Point / Safety Stock
44Reorder Point / Safety Stock
45Reorder Point / Safety Stock
46Current Practice Papers