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Chapter 13 PDF
Chapter 13 PDF
CHAPTER
11
Inventory
Management
A Dependent
Demand
B(4) C(2)
FUNCTIONS OF INVENTORY
• To meet anticipated demand
• To decouple operations
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• Lead time: time interval between ordering and receiving the order
• Holding (carrying) costs: cost to carry an item in inventory for a length
of time, usually a year
• Ordering costs: costs of ordering and receiving inventory
• Shortage costs: costs when demand exceeds supply
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A - very important
B - mod. important High
A
C - least important Annual
$ value B
of items
Low C
Few Many
Number of
Items
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CYCLE COUNTING
• A physical count of items in inventory
• Cycle counting management
• How much accuracy is needed?
• When should cycle counting be performed?
• Who should do it?
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Reorder
point
Tim
Receive Place Receive Place Receive e
order order order order order
Lead
time
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TOTAL COST
Annual Annual
Total cost = carrying + ordering
cost cost
Q + DS
TC = H
2 Q
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Ordering Costs
Order Quantity
QO(optimal order
quantity) (Q)
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Using calculus, we take the derivative of the total cost function and set the
derivative (slope) equal to zero and solve for Q.
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The total cost curve reaches its minimum where the carrying and
ordering costs are equal.
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TC without
PD
P
D
0 EOQ Quantit
y
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TC
Total Cost
aTC
b
Decreasing
TCc Price
CC a,b,c
O
C
EO Quantity
Q
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SAFETY STOCK
Figure 11.12
Quantit
Expected demand
during lead time
RO
P
Safety stock reduces risk of Safety stock
stockout during lead time L Tim
T e
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REORDER POINT
Figure 11.13
Service level
Risk of
a stockout
Probability of
no stockout
ROP Quantit
Expected
y
demand Safety
stock
0 z z-scale
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FIXED-ORDER-INTERVAL MODEL
• Orders are placed at fixed time intervals
• Order quantity for next interval?
• Suppliers might encourage fixed intervals
• May require only periodic checks of inventory levels
• Risk of stockout
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FIXED-INTERVAL BENEFITS
• Tight control of inventory items
• Items from same supplier may yield savings in:
• Ordering
• Packing
• Shipping costs
• May be practical when inventories cannot be closely monitored
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FIXED-INTERVAL DISADVANTAGES
• Single period model: model for ordering of perishables and other items
with limited useful lives
• Shortage cost: generally the unrealized profits per unit
• Excess cost: difference between purchase cost and salvage value of
items left over at the end of a period
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OPERATIONS STRATEGY
• Wise strategy
• Reduce lot sizes
• Reduce safety stock
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Chapter 13
Managing the Systems
Development Life Cycle
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1. Systems Strategy
- Assessment Feedback:
- Develop Strategic Plan User requests for New Systems
System Interfaces, Architecture
and User Requirements
High Priority Proposals undergo
Additional Study and Development
2. Project Initiation
- Feasibility Study
- Analysis
- Conceptual Design
- Cost/Benefit Analysis Feedback:
User requests for System
Selected System Proposals go Improvements and Support
forward for Detailed Design
Phase 1
Systems Strategy
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Assessing Strategic
Information Needs
• Strategic systems planning involves the
allocation of resources at the macro level.
– usually a time frame of three to five years
• Key inputs in developing a sound systems
strategy include:
– strategic business needs of the organization
– situations involving legacy systems
– end user feedback
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Legacy Systems
• Use legacy components to help develop an
architecture description.
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Phase 2
Project Initiation
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Project Initiation
• The second phase in SDLC involves:
– understanding of users’ needs and problems
– proposing multiple alternative solutions
– assessing alternatives in terms of feasibility and
cost-benefit characteristics
– selecting the best option and proceeding to the
construct phase
– examining whether the selected option will require
in-house development, a commercial package, or
both
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Systems Analysis
• A business problem must be fully
understood before a solution can be
formulated.
– A defective analysis will lead to a defective
solution.
• System analysis is a two-step process
– survey of current systems
– analysis of users’ needs
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Cost-Benefit Analysis:
Identify Costs
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Cost-Benefit Analysis:
Identify Benefits—Tangible
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Cost-Benefit Analysis:
Identify Benefits—Intangible
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