http://www.achain.com.br/

Principles of Inventory Management

© 2013 APICS Instructor Guide Version 2.0 ii

This page left intentionally blank

______________________________________________________________________________________

.. ..

Table of Contents

Page

______________________________________________________________________________________ Instructor Guide Version 2.0 © 2013 APICS iii

Brief Table of Contents

Session 1 Operations Management Foundations

Session 2 Fundamentals of Inventory Management

Session 3 Purpose and Function of Inventory

Session 4 Inventory Replenishment Management

Session 5 Additional Inventory Replenishment Techniques and Inventory Performance

Session 6 Mid–Term Examination

Session 7 Lean Inventory – Theory and Practice

Session 8 Fundamentals of Purchasing

Session 9 Sourcing Strategies

Session 10 Purchase Order Management and Performance Measurement

Session 11 Final Exam

aChain - APICS International Channel Partner - www.achain.com.br

....

Principles of Inventory Management

© 2013 APICS Instructor Guide Version 2.0 iv

Table of Contents

Session 1: Operations Management Foundations Principles of Operations Management – Program Overview.............................. 1-3 Principles of Managing Operations – Course Overview..................................... 1-5 Operations Management Foundations – Session Overview …………............... 1-7 Session Learning Objectives………………………..………................................. 1-9 What is Operations Management?………..…………………..……….................. 1-11 Why Study Operations Management?............................................................... 1-13

What Business Trends are Impacting Operations Management?...................... 1-15

What Do Operations Managers Do?................................................................... 1-23

What Value-Added Activities are Performed?.................................................... 1-25

How does Operations Management Fit into the Organization?………............... 1-27

What is the Scope of Operations Management Functions?............................... 1-31

Operations Management – Changing Perspectives........................................... 1-37

Operations Management and Business Strategy............................................... 1-39 Contributing Role of Operations Management to Strategy……….…………....... 1-41

Ten Strategic Operations Management Decisions……………………………….. 1-45

Career Opportunities in Operations Management…..………............................. 1-47

Managing Operations Concepts Self-Assessment……………………………….. 1-49

Inventory Management Terms Matching Exercise…………............................... 1-51

Order Point Logic Exercise………...................................................................... 1-53

Cycle Count Analysis Exercise..…………………..……………………………….. 1-55

Review, Terms, Discussion Questions, Exercises………................................... 1-57

Terms Check…………........................................................................................ 1-59

Performance Check – Answers and Test Documents.…................................... 1-64

Discussion Questions………….…...................................................................... 1-67

Suggested Additional Readings…...................................................................... 1-71

....

Table of Contents

Page

______________________________________________________________________________________ Instructor Guide Version 2.0 © 2013 APICS v

Session 2: Fundamentals of Inventory Management

Fundamentals of Inventory Management Overview........................................... 2-3

Session Learning Objectives.............................................................................. 2-5

Defining Inventory Management…..................................................................... 2-7

Why Does Inventory Have to be Managed?……................................................ 2-9

Inventory Management Objectives..................................................................... 2-11

What Does Inventory Management Do?............................................................ 2-13

Classes of Inventory........................................................................................... 2-15

Levels of inventory Management………............................................................. 2-17

Characteristics of Inventory in the Supply Chain…............................................ 2-21

Strategic Inventory Management Process.......................................................... 2-23

Strategic Inventory Management Issues............................................................ 2-25

Balancing Demand and Supply Objectives........................................................ 2-27

Inventory – Conflicting Objectives…................................................................... 2-29

Inventory Trade-Off Decisions............................................................................ 2-37

Inventory Demand Flows.................................................................................... 2-39

Supply Chain Inventory and Demand Flows...................................................... 2-41

Inventory Dynamics............................................................................................ 2-43

How Does Inventory Provide Value?………………………................................. 2-45

Inventory – Asset or Liability?...……………………………………………………. 2-47

Return on Assets................................................................................................ 2-49

Financial Impact of Inventory.............................................................................. 2-51

Review, Terms, Discussion Questions, Exercises………................................... 2-53

Terms Check...................................................................................................... 2-55

Performance Check............................................................................................ 2-60

Discussion Questions......................................................................................... 2-63

Case Study………...………………………........................................................... 2-67

Suggested Additional Readings……………………………………………………. 2-71

....

Principles of Inventory Management

© 2013 APICS Instructor Guide Version 2.0 vi

Session 3: Purpose and Function of Inventory

Purpose and Function of Inventory Overview……….......................................... 3-3

Session Learning Objectives.............................................................................. 3-5

Purpose of Inventory ……………....................................................................... 3-7

Functions of Inventory……………….................................................................. 3-9

Purpose of Decoupling/Buffering Inventories..................................................... 3-11

How Much Inventory Is Needed?....................................................................... 3-13

Components of Inventory Decisions……...…..................................................... 3-15

Defining Cycle Inventory……….......................................................................... 3-17

Defining Safety Inventory………........................................................................ 3-19

Defining Seasonal Inventory.............................................................................. 3-21

Inventory Costs…………………..…................................................................... 3-23

Unit Costs………………………………................................................................ 3-25

Order Costs…..................................................................................................... 3-27

Inventory Carrying Cost Components................................................................ 3-29

Stockout Cost…….……….................................................................................. 3-33

Capacity-Related Costs……………………………….......................................... 3-35

Inventory Valuation……………….…………………………………………………. 3-39

Surplus/Obsolete Inventory................................................................................ 3-41

Transportation Cost............................................................................................ 3-43

Measuring Inventory Performance..................................................................... 3-45

Cost-Benefit Trade-Off………………………....................................................... 3-47

Review, Terms, Discussion Questions, Exercises………................................... 3-49

Terms Check...................................................................................................... 3-51

Performance Check............................................................................................ 3-56

Discussion Questions......................................................................................... 3-59

Case Study………...………………………........................................................... 3-63

Suggested Additional Readings……………………………………………………. 3-67

....

Table of Contents

Page

______________________________________________________________________________________ Instructor Guide Version 2.0 © 2013 APICS vii

Session 4: Inventory Replenishment Management

Inventory Replenishment Management – Overview………................................ 4-3

Session Learning Objectives.............................................................................. 4-5

Understanding the Demand Driver …………….................................................. 4-7

Defining Inventory Replenishment Management................................................ 4-9

Components of Inventory Management............................................................. 4-11

Replenishment Review Interval………………………......................................... 4-15

Continuous Versus Periodic Review……...…..................................................... 4-17

Inventory Replenishment Principles................................................................... 4-19

Replenishment Ordering Techniques….…......................................................... 4-21

Visual Review Technique……………………...................................................... 4-25

Two Bin System Technique……………………................................................... 4-27

Periodic Review System Technique……………................................................. 4-29

Order Point Technique……………………........................................................... 4-35

Calculating the Safety Stock............................................................................... 4-41

Determining the Order Quantity.......................................................................... 4-47

Order and Inventory Carrying Cost Components…...…..................................... 4-49

Determining the Economic Order Quantity.….……………………………………. 4-51

Replenishment Planning Process………………………………………………….. 4-55

Review, Terms, Discussion Questions, Exercises………................................... 4-57

Terms Check...................................................................................................... 4-59

Performance Check............................................................................................ 4-62

Discussion Questions......................................................................................... 4-65

Case Study………...………………………........................................................... 4-69

Suggested Additional Readings……………………………………………………. 4-79

....

Principles of Inventory Management

© 2013 APICS Instructor Guide Version 2.0 viii

Session 5: Additional Inventory Replenishment Techniques and Inventory Performance

Additional Inventory Replenishment Techniques and Inventory Performance – Overview……….................................................................................................

5-3

Session Learning Objectives............................................................................. 5-5

Additional Inventory Replenishment Techniques ……………............................ 5-7

Supplier Lead Time Uncertainty…………........................................................... 5-9

Time-Phased Order Point (TPOP)………………................................................ 5-13

Replenishment by Item Class………………………............................................ 5-21

Inventory Performance Measurement……...….................................................. 5-23

Financial Statements and Inventory................................................................... 5-25

Inventory Values,Turns, and Ratios……...….…................................................. 5-27

Inventory Performance………………………....................................................... 5-33

ABC Inventory Control………………………….................................................... 5-35

Impact of Inventory Inaccuracy and Inventory Accuracy Tool Kit………………. 5-41

Three P’s of Inventory Control…………….......................................................... 5-43

Transaction Management…............................................................................... 5-45

Periodic and Perpetual Inventory Review………………..................................... 5-47

Year-End (Periodic) Physical Inventory.………………….……………………….. 5-49

Cycle Counting – Definition and Methods….……………………………………… 5-51

Electronic Data Collection…………………………………………………………… 5-61

Review, Terms, Discussion Questions, Exercises………................................... 5-63

Terms Check...................................................................................................... 5-64

Performance Check............................................................................................ 5-68

Discussion Questions......................................................................................... 5-71

Case Study………...………………………........................................................... 5-75

Suggested Additional Readings……………………………………………………. 5-79

.. ..

Table of Contents

Page

______________________________________________________________________________________ Instructor Guide Version 2.0 © 2013 APICS ix

Session 6: Mid-Term Exam

Session 7: Lean Inventory – Theory and Practice

Lean Inventory – Theory and Practice – Overview……..…................................ 7-3

Session Learning Objectives.............................................................................. 7-5

Defining Just-In-Time (JIT)..…………………….……………............................... 7-7

Defining Lean…………………...…………........................................................... 7-9

Why Implement Lean?..................………………................................................ 7-11

The Structure of Lean..………………………………............................................ 7-13

Three Major Areas of Waste..………………………............................................ 7-15

Managing Inventory in a Lean Environment....................................................... 7-23

Inventory Flow Analogy…………….................................................................... 7-25

Impact of Inventory Reduction.…....................................................................... 7-27

The Pull System – Basic Concepts…..……....................................................... 7-29

Kanban Overview……………………………….................................................... 7-31

Calculating Kanban Cards – Production. ..……………………............................ 7-33

Calculating Kanban Card – Move……..………..……………............................... 7-35

One-Card Kanban Production Example………….….......................................... 7-37

Calculating Kanban Cards – Supplier…………….….......................................... 7-39

Lean Benefits...................................................................................................... 7-41

Review, Terms, Discussion Questions, Exercises………................................... 7-43

Terms Check...................................................................................................... 7-45

Performance Check............................................................................................ 7-49

Discussion Questions......................................................................................... 7-51

Case Study………...………………………........................................................... 7-55

Suggested Additional Readings……………………………………………………. 7-59

.. ..

Principles of Inventory Management

© 2013 APICS Instructor Guide Version 2.0 x

Session 8: Fundamentals of Purchasing

Fundamentals of Purchasing – Overview……………..……................................ 8-3

Session Learning Objectives............................................................................. 8-5

Defining Purchasing…………………………….. ……………............................... 8-7

Purchasing as a Key Business Function............................................................ 8-9

Categories of Purchasing………...………………................................................ 8-11

Purchasing’s Strategic Responsibilities……………............................................ 8-13

Detailed Purchasing Responsibilities…..…...….................................................. 8-15

Purchasing’s Place in the Organization..…...….................................................. 8-17

Typical Purchasing Organization…………………………………………………... 8-21

Purchasing’s Relations with Other Functions ..…………………………………... 8-23

Centralized Versus Decentralized Purchasing ……...….…................................ 8-25

Buyer/Planner Concept …..…………………....................................................... 8-29

Strategic Versus Operational Activities…...………............................................. 8-31

Anatomy of Purchasing Strategy …………………….......................................... 8-33

Step 1- Environmental Scanning ..……….......................................................... 8-35

Step 2- Organizational Structure ....................................................................... 8-37

Step 3 - Inventory Strategy .…........................................................................... 8-39

Step 4 - Supplier Relations ……………….......................................................... 8-41

Step 5 - Technology Enablers.………………….…………………………………. 8-43

Step 6 - Performance/Continuous Improvement ….…………………………….. 8-47

Review, Terms, Discussion Questions, Exercises………................................... 7-49

Terms Check...................................................................................................... 7-51

Performance Check............................................................................................ 7-54

Discussion Questions......................................................................................... 7-57

Case Study………...………………………........................................................... 7-61

Suggested Additional Readings……………………………………………………. 7-65

.. ..

Table of Contents

Page

______________________________________________________________________________________ Instructor Guide Version 2.0 © 2013 APICS xi

Session 9: Sourcing Strategies Sourcing Strategies – Overview……………..………..……................................ 9-3

Session Learning Objectives............................................................................. 9-5

Defining Sourcing……………………………….. ..…………............................... 9-7

Defining Strategic Sourcing…………................................................................ 9-9

Strategic Sourcing Activities ..…...………………............................................... 9-13

Tactical Buying ……………............................................................................... 9-15

Tactical Buying Versus Strategic Sourcing ………...…..................................... 9-17

Sourcing Process Steps ……………………..…………………………………….. 9-19

Make or Buy Decision……………………………...….…..................................... 9-21

Spend Analysis …..………………….................................................................. 9-23

Creating the Bid or Proposal …...………........................................................... 9-25

Supplier Sourcing………………………………………….................................... 9-27

Supplier Categorization…………....................................................................... 9-33

Overview of Pricing.…....................................................................................... 9-35

Negotiation Objectives……………………………………………......................... 9-39

Discounting……………………………………….…………………………………. 9-41

Contracting…………………………………………….…………………………….. 9-43

Design Collaboration………………………………………………………………... 9-45

Advantages of Collaborative Supplier Involvement……………………………… 9-47

Supplier Relationship Management (SRM)………………………………………. 9-49

Benefits of SRM……………………………………………………………………... 9-53

Implementing SRM Strategy……………………………………………………….. 9-55

Review, Terms, Discussion Questions, Exercises………................................. 9-57

Terms Check..................................................................................................... 9-59

Performance Check........................................................................................... 9-64

Discussion Questions........................................................................................ 9-67

Case Study………...……………………........................................................... 9-71

Suggested Additional Readings…………………………………………………. 9-75

.. ..

Principles of Inventory Management

© 2013 APICS Instructor Guide Version 2.0 xii

Session 10: Purchase Order Management and Performance Measurement

Purchase Order Management and Performance Measurement – Overview …. 10-3

Session learning Objectives... …………............................................................. 10-5

Purchasing Management Process ………………………………………………... 10-7

Procurement Database Files …………............................................................. 10-9

Timing of Purchases..…...………………............................................................. 10-11

Purchasing Process Methods............................................................................. 10-13

Purchase Order Flow ………………….………...…............................................. 10-17

Determining PO Release……………………….……………………....…………… 10-19

Material Requirements Planning ………………...….…....................................... 10-21

MRP Purchase Order Actions……….................................................................. 10-23

Purchasing Kanban…...……….......................................................................... 10-25

Vendor Managed Inventory (VMI)…………………………………………............ 10-29

Transportation Mode Decision.………................................................................ 10-31

Receiving and Order Close-out…....................................................................... 10-33

Status Reporting………..…................................................................................ 10-35

Purchasing Performance Measurement .……………………….......................... 10-37

International Sourcing Overview……………….……………………………….….. 10-43

Impact of the Internet on Purchasing ..…………….……………………………… 10-47

Internet-Enabled Purchasing Components.……….……………………….......... 10-49

Implementing e-Procurement……………………………………………………… 10-51

Review, Terms, Discussion Questions, Exercises………................................. 10-55

Terms Check..................................................................................................... 10-57

Performance Check........................................................................................... 10-60

Discussion Questions........................................................................................ 10-63

Case Study………...……………………........................................................... 10-67

Suggested Additional Readings…………………………………………………. 10-71

Session 11: Final Exam

.. ..