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Chapter 6: Inventory Control
Chapter 6: Inventory Control
Chapter 6: Inventory Control
Economies of Scale
Uncertainty in delivery lead times
Speculation. Changing Costs Over Time
Smoothing.
Demand Uncertainty
Costs of Maintaining Control System
2.Relevant Costs
1.Holding Costs - Costs proportional to the quantity of inventory held.
2.Ordering Cost (or Production Cost). Includes both fixed and variable components.
3.Penalty or Shortage Costs. All costs that accrue when insufficient stock is available
to meet demand leading to Loss of revenue for lost demand, Costs of bookkeeping for
backordered demands ,Loss of goodwill for being unable to satisfy demands
3. Inventory Systems
3.1Single-period inventory:
3.2Multi-period Models:
Question: An auto parts supplier sells Hardy-brand batteries to car dealers and auto
mechanics. The annual demand is approximately 1,200 batteries. The supplier pays $28
for each battery and estimates that the annual holding cost is 30 percent of the battery’s
value. It costs approximately $20 to place an order (managerial and clerical costs). The
supplier currently orders 100 batteries per month. Determine the ordering, holding, and
total inventory costs for the current order quantity and find EOQ?
: The EOQ is
Lean Production
production using minimal inventories (raw materials, work in process, and finished
goods) involves
The timing of production resources (i.e., parts arrive at the next workstation “just
in time”
Elimination of Waste
2. Group technology
4. JIT production
Types of Kanban
workstation
• Setting up a kanban system requires determining the number of kanbans cards (or
containers) needed
• Level payrolls
• Subcontractor networks
• Link operations
What is Logistics?
• The movement of goods through the supply chain
• “the art and science of and product in the proobtaining, producing, and distributing
material per place and in proper quantities”
• This methodology involves formulas used to compute the coordinates of the two-
dimensional point that meets the distance and volume criteria stated above.
Where
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the its location
diy = Y coordinate of the its location
Vi = volume of goods moved to or from its location
• To find what is the best location?
1. To begin, you must identify the existing facilities on a two- dimensional plane or
grid and determine their coordinates.
2. You must also have the volume information on the business activity at the existing
facilities.
3. You then compute the new coordinates using the formulas.
4. You then take the coordinates and place them on the map.
Chapter 10: Quality Management
1.Meaning of Quality
Six Sigma
A process for developing and delivering near perfect products and services.
Measure of how much a process deviates from perfection.
It allows managers to readily describe process performance using a common metric:
Defects per Million
Opportunities (DPMO)
Cost of Quality :
Cost of Achieving Good Quality
--Prevention costs:costs incurred during product design
--Appraisal costs: costs of measuring, testing, and analyzing
Process Capability
• Tolerances
• Process capability
– Capability Index shows how well parts being produced fit into design
limit specifications.
– As a production process produces items small shifts in equipment or
systems can cause differences in production performance from differing
samples.
– A Standard Measure of How Good a Process Is. We use a simple ratio to
measure.
– Defects refer to the number of defects per unit which may be higher than
the number of defectives.
– p-chart application
• Variable (Continuous)
2. Use the sample statistic to calculate control limits and draw the control chart
3. Plot sample results on the control chart and determine the state of the process (in
or out of control)
5. Continue sampling from the process and reset the control limits when necessary
n = sample size
x = mean of the sample means or a target value set for the process
n = sample size
R – Chart
Table S6.1
Acceptance Sampling
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