copy of inventory control

8/8/2019 Copy of Inventory Control

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Inventory Management andcontrol


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Definitions Inventory-A physical resource that a firm

holds in stock with the intent of selling it or

transforming it into a more valuable state.

Inventory System- A set of policies and

controls that monitors levels of inventory anddetermines what levels should be maintained,when stock should be replenished, and howlarge orders should be


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Zero Inventory? Reducing amounts ofraw materials and

purchased parts and subassemblies by

having suppliers deliver them directly.

Reducing the amount ofworks-in processby using just-in-time production.

Reducing the amount offinished goods byshipping to markets as soon as possible.


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Inventory Positions in the

Supply Chain

Raw

Materials

Works

in

Process

Finished

Goods

Finished

Goods

in Field


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Reasons for Inventories Improve customer service

Economies of purchasing

Economies of production

Transportation savings

Hedge against future

Unplanned shocks (labor strikes, naturaldisasters, surges in demand, etc.)

To maintain independence of supply chain


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Inventory and Value Remember this?

Quality

Speed

Flexibility

Cost


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Nature of Inventory: Adding

Value through Inventory Quality - inventory can be a buffer against poor

quality; conversely, low inventory levels may force

high quality Speed - locationofinventory has gigantic effecton

speed

Flexibility - location, level of anticipatory inventoryboth have effects

Cost - direct: purchasing, delivery, manufacturing

indirect: holding, stockout.

HR systems may promote this-3 year postings


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How to Measure Inventory The Dilemma: closely monitor and control

inventories to keep them as low as possible

while providing acceptable customer service. Average Aggregate Inventory Value:

how much of the companys total assetsare invested in inventory?

Ford:6.825 billion

Sears: 4.039 billion


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Inventory Costs Procurement costs

Carrying costs Out-of-stock costs


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Procurement Costs Order processing

Shipping Handling

Purchasing cost: c(x)= $100 + $5x

Mfg. cost: c(x)=$1,000 + $10x


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Carrying Costs Capital (opportunity) costs

Inventory risk costs Space costs

Inventory service costs


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Design of Inventory Mgmt.

Systems: Micro Issues Order Quantity

Economic Order Quantity Order Timing

Reorder Point


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Objectives of Inventory

Control 1) Maximize the level of customer

service by avoiding understocking.

2) Promote efficiency in production andpurchasing by minimizing the cost ofproviding an adequate level of customer

service.


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Balance in Inventory Levels When should the company replenish its

inventory, or when should the companyplace an order or manufacture a newlot?

How much should the company order or

produce? Next: Economic Order Quantity


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Models for Inventory Management:

EOQ EOQ minimizes the sum of holding and setup

costs

Q = 2DCo/ChD = annual demand

Co = ordering/setup costs

Ch = cost of holding one unit of inventory


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Seatide EOQ = 2DCo/Ch

D = annual demand = 6,000

Co = ordering/setup costs = $60

Ch = cost of holding one unit of inventory

$3.00 x 24% = .72

2 x 6,000 x 60

.72

720,000.72 1,000


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HoldingCosts

OrderingCosts

Marginal Analysis

Units

$


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Types of Inventory Systems By Degree of Control required

often use grouping method, such as ABC


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Classifying Inventory Items ABCClassification (Pareto Principle)

A Items: very tight control, complete and

accurate records, frequent review

B Items: less tightly controlled, goodrecords, regular review

C Items: simplest controls possible, minimalrecords, large inventories, periodic reviewand reorder


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Does ABC Classification Make

Sense for an Assembler? i.e. Gateway Computers


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determine requirements by forecastingdemand for the next production run orpurchase

establish current on-hand quantities

add appropriate safety stock based ondesired stock availability levels anduncertainty demand levels

determine how much new production orpurchase needed (total needed - on-hand)

Anticipatory Inventory

Control


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determine requirements by forecastingdemand for the next production run orpurchase

establish current on-hand quantities

add appropriate safety stock based ondesired stock availability levels anduncertainty demand levels

determine how much new production orpurchase needed (total needed - on-hand)

Anticipatory Inventory

Control

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