inventory flow final
TRANSCRIPT
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Inventory Control
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Inventory System Defined.
Types of Inventory.
Trade off Between Inventory and Servicelevel
Inventory control across the supply chain. Inventory Management in JIT
Inventory Accuracy.
Symptoms of poor Inventory Management.
Inventory Costs.
Independent vs. Dependent Demand
Evaluation of Inventory Management
Topics Covered
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Inventory System
Inventory is the stock of any item orresource used in an organization andcan include: raw materials, finishedproducts, component parts, supplies,and work-in-process
An inventory system is the set ofpolicies and controls that monitor levelsof inventory and determines what levelsshould be maintained, when stockshould be replenished, and how largeorders should be
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Purposes of Inventory
1. To maintain independence ofoperations
2. To meet variation in product demand
3. To allow flexibility in productionscheduling
4. To provide a safeguard for variation inraw material delivery time
5. To take advantage of economicpurchase-order size
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Types-Nature of Materials
Production Inventories.
MRO Inventories.
In-Process Inventories.
Finished-goods Inventories.
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Types-Use of Material
Transaction Inventory.
Speculative Inventory.
Precautionary Inventory
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Functional Classification of Inventory.
Working stock
Safety stock
Anticipation stock.
Decoupling stock
Psychic stock
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Trade off Between Inventory and Servicelevel
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Inventory control across the supplychain.
Always Better Control (ABC)Analysis.
VED Classification.
FSN Analysis.
Barcoding.
Radio Frequencyidentification(RFID).
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Always Better Control (ABC) Analysis
This technique divides inventory intothree categories A, B & C based on theirannual consumption value.
It is also known as Selective InventoryControl Method (SIM)
This method is a means of categorizinginventory items according to the potentialamount to be controlled.
ABC analysis has universal applicationfor fields requiring selective control.
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Advantages of ABC Analysis
Helps to exercise selective control
Gives rewarding results quickly
Helps to point out obsolete stocks easily.
In case of A items careful attention can
be paid at every step such as estimate ofrequirements, purchase, safety stock,receipts, inspections, issues, etc. & closecontrol is maintained.
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In case of C items, recording &follow up, etc. may be dispensedwith or combined.
Helps better planning of inventorycontrol
Provides sound basis for allocationof funds & human resources.
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Disadvantages of ABC Analysis
Proper standardization & codification ofinventory items needed.
Considers only money value of items &neglects the importance of items for the
production process or assembly orfunctioning.
Periodic review becomes difficult if onlyABC analysis is recalled.
When other important factors make itobligatory to concentrate on C itemsmore, the purpose of ABC analysis is
defeated.
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VED Classification
VED: Vital, Essential & Desirable
classification
VED classification is based on the
criticality of the inventories.
Vital items Its shortage may cause
havoc & stop the work in organization.
They are stocked adequately to ensure
smooth operation.
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Essential items - Here, reasonable risk
can be taken. If not available, the plant
does not stop; but the efficiency of
operations is adversely affected due to
expediting expenses. They should be
sufficiently stocked to ensure regular
flow of work.
Desirable items Its non availability
does not stop the work because they can
be easily purchased from the market as
& when needed. They may be stocked
very low or not stocked.
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It is useful in capital intensiveindustries, transport industries, etc.
VED analysis can be better used withABC analysis in the following pattern:
Category V items E items D items
A items Constant control& regular follow
upModerate stocks Nil stocks
B items Moderate stocks Moderate stocks Low stocks
C items High stocks Moderate stocks Very low stocks
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FSN Analysis
FSN: Fast moving, slow moving & non
moving Classification is based on the pattern of
issues from stores & is useful in
controlling obsolescence. Date of receipt or last date of issue,
whichever is later, is taken to determinethe no. of months which have lapsed
since the last transaction.
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The items are usually grouped in periodsof 12 months.
It helps to avoid investments in non
moving or slow items. It is also useful infacilitating timely control.
For analysis, the issues of items in pasttwo or three years are considered.
If there are no issues of an item duringthe period, it is N item.
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Then up to certain limit, say 10-15 issuesin the period, the item is S item
The items exceeding such limit of no. of
issues during the period are F items. The period of consideration & the limiting
number of issues vary from organizationto organization.
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Barcoding
Invented in 1950s, barcodes accelerate the flowof products and information throughoutbusiness.
EPOS system verifies, checks and chargestansaction provides instant reports.
Production application for barcoding
Counting raw Material and finished goods.
Lot tracking. Production reporting Automatic warehouse application picking
and shipping
Identification of production bottlenecks
Package tracking.
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Barcoding provides the followinf benefits.
Faster data entry.
Greater accuracy.
Reduce Labor cost.
Elimination of cost over or understocking.
Faster access to information.
The ability to automate warehouse.
Greater responsiveness to customer andsupplier
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Radio Frequency Identification
An RFID contains a silicon chip thatcarriers an identification no. and anantenna able to transmit the no. to
reading device.
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Advantages of RFID
Line of sight.
Range
Bulk Read
Selectivity.
Durability.
Read/Write.
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Limitation
Cost.
Moisture.
Metal Radio.
Electrical Interference.
Accuracy.
Overcompensation. Security.
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JIT(Just In Time)
Akshay S Bhave
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Defination
Just-in-time (JIT) is defined in the APICSdictionary as a philosophy ofmanufacturing based on plannedelimination of all waste and on continuous
improvement of productivity Its a long-term approach to process
improvement. It uses timeliness as a leverto lower costs, improve quality and
improve responsiveness. In simpler words, JIT delivers the right
items at right time in the right amounts
JIT di i l OM
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JIT versus a traditional OMphilosophy
TraditionalGoal: maximize production by minimizing disruptionsManagement Assumption: we can sell what we makeManufacturing Objectives:
Spread resources evenly: line balancing
Decouple operations: line pacing and extensive scheduling Dependable and efficient operations: automation and forecasting
JITGoal: Produce salable goods as quickly and efficiently as possible
Management Assumption: we make what we can sellManufacturing Objectives:
Clean up the workplace (5Ss) Flow manufacturing: GT/CM and cross training Level production with visual control: JIT, kanban, SPC Manpower reduction
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Key elements of JIT
1. Stabilize and level the inventory withuniform plant loading
2. Reduce or eliminate setup times3. Reduce lot sizes4. Reduce lead times5. Preventive maintenance6. Flexible work force
7. Require supplier quality assurance andimplement a zero defects qualityprogram
8. Small lot (single unit) conveyance
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Role of Inventory Reduction
Inventory = Lead Time (less is better)
Inventory hides problems
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5S
Seiri: Proper arrangement (sort through and sortout, identify what you need, discard what you donot need)
Seiton: Orderliness (assign a separate location forall essential items)
Seiso: Cleanliness (keep the workplace spotlessat all times)
Seiketsu: Cleanup (maintain equipment and tools) Shitsuke: Discipline (stick to the rules
scrupulously)
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Inventory Flow
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When to use
JIT is a suitable production system when:
have steady production of clearly definedstandard products
a reasonable number of units made
a high value product
have flexible working practices and a disciplinedworkforce
short setup times on machines
quality can be assured, e.g. zero defects eitherthough good working practices or though a costpenalty
Availabilit of nearb su liers and bu ers
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Benefits better quality products quality the responsibility of every worker, not just quality
control inspectors
reduced scrap and rework reduced cycle times
lower setup times smoother production flow
less inventory, of raw materials, work-in-progress andfinished goods
cost savings higher productivity higher worker participation more skilled workforce, able and wiling to switch roles reduced space requirements
improved relationships with suppliers
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Push Production Systems
make to stock
production decisions are based on
forecasts of demand
appropriate when uncertainty aboutdemand is low
generally not compatible with JIT
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Pull Production Systems
Make to order
work is triggered by order fromexternal customer, or internalcustomer (e.g. last station in
line) generally compatible with JIT
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Push & Pull Supply Chains
Just as individual firms can implementpush or pull operations, entire supply
chains can be Push
Pull
Push-Pull Hybrid
Some components are push, others pull
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INVENTORY ACCURACY
Meaning
Causes of Inventory inaccuracy
Auditing inventory records Periodic (annual) inventory
Cycle counting
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Inventory Models
Mathematical equation or formula that helps afirm in determining the economic order quantity,and the frequency of ordering, to keep goods orservices flowing to the customer withoutinterruption or delay.
Types of models
Deterministic modelStochastic Inventory Models
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EOQ model
Monetary unit lot size
Non instantaneous Receipt Model Periodic review system/Periodic order
quantity model
Continuous Review model
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INVENTORY ACCURACY
Meaning
Causes of Inventory inaccuracy
Importance of inventory accuracy Auditing inventory records
Periodic (annual) inventory
Cycle counting
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Evaluation of inventory performance.
Financial evaluation
Inventory turnover ratio
Methods of evaluating inventory
FIFO
LIFO
Average cost
Standard cost
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Symptoms of poor Inventory Management
Increasing number of backorders
Increasing cancelled orders
Increasing numbers of returns High customer turnover rate
Large number of obsolete items
Periodic lack of storage space
W R d I L l
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Ways to Reduce Inventory Levels
Lead-time analysis
Delivery-time analysis
Eliminate low turnover items
Eliminate obsolete items
Analysis of package size
Analysis of discount structure
vendors/suppliers
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Examine returned goodsprocedures
Measurement of fill rate by stock-keeping unit (SKU)
Analysis of customer demand
Improve forecasting
Improve Electronic data interchangewith
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Inventory Costs
Holding (or carrying) costs Costs for storage, handling,
insurance, etc Setup (or production change) costs
Costs for arranging specificequipment setups, etc
Ordering costs Costs of someone placing an order,
etc Shortage costs
Costs of canceling an order, etc