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HR - Om11 - ch12 Inventory
HR - Om11 - ch12 Inventory
Management 12
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 12 - 1
Outline
► Global Company Profile:
Amazon.com
► The Importance of Inventory
► Managing Inventory
► Inventory Models
► Inventory Models for Independent
Demand
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 12 - 6
Inventory Management at
Amazon.com
1. Each order is assigned by computer to the
closest distribution center that has the
product(s)
2. A “flow meister” at each distribution center
assigns work crews
3. Lights indicate products that are to be picked
and the light is reset
4. Items are placed in crates on a conveyor, bar
code scanners scan each item 15 times to
virtually eliminate errors
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 12 - 7
Inventory Management at
Amazon.com
5. Crates arrive at central point where items
are boxed and labeled with new bar code
6. Gift wrapping is done by hand at 30
packages per hour
7. Completed boxes are packed, taped,
weighed and labeled before leaving
warehouse in a truck
8. Order arrives at customer within 1 - 2 days
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 12 - 8
Inventory Management
Cycle time
95% 5%
Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Figure 12.1
10 20 30 40 50 60 70 80 90 100
Percentage of inventory items
(maximum
inventory Q
level) 2
Minimum
inventory 0
Time
Total cost of
holding and
setup (order)
Minimum
total cost
Annual cost
Holding cost
Order quantity
= (Holding cost per unit per year)
2
æQ ö
= ç ÷H
è2 ø
© 2014 Pearson Education, Inc. 12 - 35
Minimizing Costs D
Annual setup cost = S
Q
Q
Q = Number of pieces per order Annual holding cost =
2
H
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year
2DS
Q* =
H
*2(1,000)(10)
Q = = 40,000 =200 units
0.50
Expected Demand D
number of = N = = *
orders Order quantity Q
1,000
N= = 5 orders per year
200
250
T= = 50 days between orders
5
D Q
TC = S + H
Q 2
1,000 200
= ($10) + ($.50)
200 2
=(5)($10) + (100)($.50)
=$50 +$50 =$100
© 2014 Pearson Education, Inc. 12 - 40
The EOQ Model
When including actual cost of material P
D Q
TC = S + H + PD
Q 2
=dxL
D
d=
Number of working days in a year
Q*
Resupply takes place as order arrives
Inventory level (units)
Slope = units/day = d
ROP
(units)
Time (days)
Lead time = L
© 2014 Pearson Education, Inc. 12 - 45
Reorder Point Example
Demand = 8,000 iPods per year
250 working day year
Lead time for orders is 3 working days, may take 4
D
d=
Number of working days in a year
= 8,000/250 = 32 units
ROP = d x L
= 32 units per day x 3 days = 96 units
= 32 units per day x 4 days = 128 units
t Time
© 2014 Pearson Education, Inc. 12 - 47
Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
t = Length of the production run in days
= pt – dt
= pt – dt
However, Q = total produced = pt ; thus t = Q/p
Maximum Q Q d
inventory level =p p –d p =Q 1–
p
2DS
Q *p =
Hé
ë1- (
d p ù
û)
2(1,000)(10)
Q *p =
0.50é ù
ë1- (4 8)û
20,000
= = 80,000
0.50(1 2)
=282.8 hubcaps, or 283 hubcaps
* 2DS
Q =p
æ Annual demand rate ö
H ç1- ÷
è Annual production rate ø
D Q
TC = S + H + PD
Q 2
where Q = Quantity ordered P = Price per unit
D = Annual demand in units H = Holding cost per unit per year
S = Ordering or setup cost per order
2DS
Q* =
IP
0 1,000 2,000
Order quantity Figure 12.7
2(5,000)(49)
Q2* = = 714 cars/order
(.2)(4.80)
2(5,000)(49)
Q3* = = 718 cars/order
(.2)(4.75)
© 2014 Pearson Education, Inc. 12 - 57
Quantity Discount Example
Calculate Q* for every discount * 2DS
Q =
IP
2(5,000)(49)
Q1* = = 700 cars/order
(.2)(5.00)
2(5,000)(49)
Q2* = = 714 cars/order
(.2)(4.80) 1,000 — adjusted
2(5,000)(49)
Q3* = = 718 cars/order
(.2)(4.75) 2,000 — adjusted
© 2014 Pearson Education, Inc. 12 - 58
Quantity Discount Example
TABLE 12.3 Total Cost Computations for Wohl’s Discount Store
ANNUAL ANNUAL ANNUAL
DISCOUNT UNIT ORDER PRODUCT ORDERING HOLDING
NUMBER PRICE QUANTITY COST COST COST TOTAL
1 $5.00 700 $25,000 $350 $350 $25,700
2 $4.80 1,000 $24,000 $245 $480 $24,725
3 $4.75 2,000 $23.750 $122.50 $950 $24,822.50
ROP = d x L + ss
30 .2
40 .2
ROP 50 .3
60 .2
70 .1
1.0
Cs
Service level =
Cs + Co
Q4
Q2
On-hand inventory
Q1 P
Q3
Time
© 2014 Pearson Education, Inc. 12 - 78
Fixed-Period Systems
▶ Inventory is only counted at each
review period
▶ May be scheduled at convenient times
▶ Appropriate in routine situations
▶ May result in stockouts between
periods
▶ May require increased safety stock