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Hansen-AISE-IM-Ch14 (1)
Hansen-AISE-IM-Ch14 (1)
14 INVENTORY MANAGEMENT
1
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
LEARNING GOALS
2
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
1. Describe the traditional inventory
management model.
2. Discuss JIT inventory management.
3. Explain the theory of constraints
(TOC) & tell how it can be used to
management inventory.
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Questions to Think About
3
QUESTIONS TO THINK ABOUT:
Swasey Trenchers
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QUESTIONS TO THINK ABOUT:
Swasey Trenchers
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QUESTIONS TO THINK ABOUT:
Swasey Trenchers
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QUESTIONS TO THINK ABOUT:
Swasey Trenchers
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LEARNING
LEARNING OBJECTIVE
OBJECTIVE
1
Describe the
traditional inventory
management model.
8
LO 1
INVENTORY MANAGEMENT
Managing inventory for competitive
advantage includes:
Quality product engineering
Prices
Overtime
Excess capacity
Ability to respond to customers
Lead times
Overall profitability
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LO 1
INVENTORY COSTS
Costs to acquire
Ordering costs
Setup costs
Carrying costs
Stockout costs
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LO 1
HOLDING INVENTORY
Traditional reasons for holding inventory are:
Balancing acquisition & carrying costs
Dealing with uncertainty in demand (stockout
costs)
Creating buffers for needed parts, etc.
Producing extra inventory because of unreliable
production processes
Taking advantage of discounts
Hedging against future price increases
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LO 1
EOQ:
EOQ: Definition
Definition
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LO 1
13
LO 1
TOTAL
TOTAL COST:
COST: Background
Background
The
Thetotal
totalcost
cost(TC)
(TC)formula
formulaincludes
includesthe
the
following:
following:
PP==$25$25per
perorder
order[[cost
costof
ofplacing
placing&&
receiving
receivingorder
order(setup production)]]
(setup&&production)
DD==10,000
10,000[[known demand]]
knowndemand
QQ==1,000
1,000[[order
ordersize
size(or
(orproduction
productionlot size)]]
lotsize)
CC==$2 $2per
perunit
unit[[carrying
carryingcost
costof
of11unit
unitfor
for11
year]]
year
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LO 1
16
LO 1
FORMULA: EOQ
EOQ is a calculation intended to lower total
inventory costs.
18
LO 1
REORDER
REORDER POINT:
POINT: Background
Background
When
Whenusing
usingthe
theEOQ
EOQmodel,
model,identify
identifythe
the
reorder
reorderpoint
point(ROP)
(ROP)reduces
reducesthe
the
probability
probabilityof
ofaastockout.
stockout.To
Toidentify
identifythe
the
reorder
reorderpoint,
point,you
youneed
needto
toknow:
know:
Rate
Rateof
ofusage
usage
Lead
Leadtime
timerequired
requiredfor
fororder
ordertotobe
beplaced
placed&&
received
received
20
LO 1
21
LO 1
REORDER POINT
Given an optimal
order quantity of 500
units, reordering
should occur when
200 units remain.
EXHIBIT 14-2
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LO 1
SAFETY
SAFETY STOCK:
STOCK: Definition
Definition
23
LO 1
Safety stock:
= Lead time x (maximum – average usage)
= 4 days x (60 – 50)
= 40 parts
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LO 1
25
LO 1
MANUFACTURING:
MANUFACTURING: Background
Background
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LO 1
2
Discuss JIT
inventory
management.
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LO 2
JUST-IN-TIME
JUST-IN-TIME (JIT):
(JIT): Definition
Definition
Is a demand-pull
manufacturing system that
requires goods to be pulled
through the system by present
demand.
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LO 2
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LO 2
Increase profits
Improve competitive position
BY
Controlling costs
Improving delivery performance
Improving quality
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LO 2
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LO 2
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LO 2
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LO 2
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LO 2
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LO 2
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LO 2
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LO 2
LIMITATIONS OF JIT
Time is required to build sound relations with
suppliers
Workers experience stress in changing over to
JIT
Production may be interrupted because of
absence of inventory supply buffer
May place current sales at risk to achieve
assurance of future sales
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LEARNING
LEARNING OBJECTIVE
OBJECTIVE
3
constraints (TOC) &
tell how it can be used
to management
inventory.
43
LO 3
CONSTRAINT:
CONSTRAINT: Definition
Definition
Is the limitation of
resources or product
demand.
44
LO 3
THEORY OF CONSTRAINTS
Theory of constraints (TOC) focuses on 3
measures of organizational
performance:
Throughput: rate of generating money
through sales
Inventory: money spent turning materials
into throughput
Operating expenses: money spent turning
inventory into throughput
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LO 3
46
LO 3
47
LO 3
TOC STEPS
1. Identify constraints
2. Exploit binding constraints
3. Subordinate everything to decision made in
#2 above
4. Elevate binding constraints
5. Repeat process
48
LO 3
BINDING
BINDING CONSTRAINTS:
CONSTRAINTS:
Definition
Definition
49
LO 3
DRUM-BUFFER-ROPE (DBR)
SYSTEM
Additional
inventory is placed
before the binding
constraint to give a
time buffer.
EXHIBIT 14-11
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CHAPTER 14
THE
THE END
END
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