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Inventory4controlsystems PDF
Inventory4controlsystems PDF
INVENTORY
CONTROL SYSTEMS
Inventory Management
INVENTORY POSITION IP = OH + SR – BO
Production & Operations Management
IP – Inventory Position
Indicates the stock’s ability to satisfy future demand.
OH – On-hand Inventory
The actual inventory present in the system.
SR – Scheduled Receipt
Orders which have been placed but not yet received.
Also known as ‘Open orders’.
BO – Backorder
INVENTORY POSITION IP = OH + SR – BO
Production & Operations Management
At 9:30 am on May 2nd, 2020, Ramesh finds that his warehouse has
24 units of the SONY 16 GB USB drive in stock. His records show
that on April 15th and 23rd, orders for 12 and 18 units respectively of
this item had been placed with two different suppliers. The latter
order was received last night and added to the stock, while the
former is yet to arrive. There is no other pending receipt. His order
book shows orders from three different customers for 4 units, 8
units and 6 units respectively that are yet to be fulfilled. A fresh
order for 10 units is expected later in the day. What is the current
inventory position of the SONY 16 GB USB drive in Ramesh’s
warehouse?
OH = 24 IP = OH + SR – BO
The current
SR = 12 = 24 + 12 – 18 inventory position is
BO = 18 = 18 18 units.
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Inventory Management
SINGLE-PERIOD
INVENTORY SYSTEM
5
Inventory Management
7
Inventory Management
𝐸 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝐸 𝑎 ∗ min(𝑄, 𝐷) − 𝑏 ∗ 𝑄
𝑎 − 𝑡ℎ𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 (𝑠𝑎𝑙𝑒𝑠, 𝑠𝑐𝑟𝑎𝑝)
𝑏 − 𝑖𝑛𝑝𝑢𝑡 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
Then,
𝑐𝑠 = 𝑎 − 𝑏 the lost profit per unit (opportunity cost owing to shortage)
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Inventory Management
Production & Operations Management
CONTINUOUS
REVIEW SYSTEM
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Inventory Management
Inventory
level Qmax3
Qmax1
Qmax4
Qmax2
Q Q Q Q
0
Time (t)
L1 L2 L3 L4
R1 R2 R3 R4
Across The order quantity (Q) and the reorder point (r)
order are fixed as policies.
cycles The review period (R) – time between consecutive
orders – can vary.
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Inventory Management
Inventory
level Qmax3
Qmax1
Qmax4
Qmax2
Q Q Q Q
0
Time (t)
L1 L2 L3 L4
R1 R2 R3 R4
Inventory
level Qmax3
Qmax1
Qmax4
Qmax2
Q Q Q Q
0
Time (t)
L1 L2 L3 L4
R1 R2 R3 R4
Inventory
level Qmax3
Qmax1
Qmax4
Qmax2
Q Q Q Q
0
Time (t)
L1 L2 L3 L4
R1 R2 R3 R4
Inventory
level Qmax3
Qmax1
Qmax4
Qmax2
Q Q Q Q
0
Time (t)
L1 L2 L3 L4
R1 R2 R3 R4
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Inventory Management
Production & Operations Management
PERIODIC REVIEW
SYSTEM
17
Inventory Management
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
Across The target inventory (T) and review period (R) are
order fixed as policies.
cycles The order quantity Q and reorder point r can vary.
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Inventory Management
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
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Inventory Management
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
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Inventory Management
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
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Inventory Management
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
T Target Inventory
Qmax3
Qmax2 Qmax4
Inventory Qmax1
level
Q1
r1
Q2 Q3 Q4
r4
r3
r2
L1 L2 L3 L4
Time (t)
R R R
P1 P2 P3
BASE STOCK
SYSTEM
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Production & Operations Management
-2
-1
0
1
2
3
4
5
No Order placed
Inventory Management
30
Production & Operations Management
-2
-1
0
1
2
3
4
5
No Order placed
Inventory Management
Both lead time (L) and demand (D) are stochastic and so is
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Production & Operations Management
-2
-1
0
1
2
3
4
5
No Order placed
𝐼𝑃∗
Inventory Management
=
Order placed for 1 unit
𝐹 −1 (
1 unit replenishment received
𝑐𝑏
Order placed for 1 unit
𝑐ℎ + 𝑐𝑏
)
Order placed for 1 unit
1 unit replenishment received
INVENTORY
CONTROL SYSTEMS
IN SUMMARY
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Inventory Management
36
Production & Operations Management Inventory Management
THANK YOU
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