Chapter 20

14
e
Operations and
Supply Chain
Management
CHASE | SHANKAR | JACOBS
201
INVENTORY
MANAGEMENT
Chapter Twenty
McGraw-Hill/Irwin
Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

202
LO201: Explain how inventory is

used and understand what it costs
LO202: Analyze how different
inventory control systems work
Copyright 2014 by McGraw Hill Education (India) Private Limited. All rights
reserved.
Learning Objectives
LO203: Analyze inventory using the

Pareto principle
203
Inventory can be visualized as stacks of money

sitting on forklifts, on shelves, and in trucks and
planes while in transit.
For many businesses, inventory is the largest asset
on the balance sheet at any given time.
Inventory can be difficult to convert back into
cash.
It is a good idea to try to get your inventory down
as far as possible.
reserved.
Inventory
The average cost of inventory in the United States is 30

to 35 percent of its value.
204
reserved.
Supply Chain
Inventory Models
205
Single-period model
Used when we are making a one-time purchase of
an item
Fixed-order quantity model
Used when we want to maintain an item in-stock,
and when we restock, a certain number of units
must be ordered
reserved.
Inventory Models
Fixedtime period model

Item is ordered at certain intervals of time
206
Inventory: the stock of any item or resource used

in an organization
Includes raw materials, finished products, component
parts, supplies, and work-in-process
Manufacturing inventory: refers to items that
contribute to or become part of a firms product
Inventory system: the set of policies and controls

that monitor levels of inventory
reserved.
Definitions
Determines what levels should be maintained, when

stock should be replenished, and how large orders
should be
207
To maintain
independence of
operations
To meet variation
in product demand
To provide a
safeguard for
variation in raw
material delivery
time
To allow flexibility
in production
scheduling
To take advantage
of economic
purchase order
size
reserved.
Purposes of Inventory
208
Holding (or carrying)

costs
Costs for storage, handling,
insurance, and so on
Ordering costs
Costs of placing an order
Setup (or production

change) costs
Costs for arranging specific
equipment setups, and so
on
Costs
Shortage costs
Costs of running out
reserved.
Inventory Costs
209
Independent demand the

demands for various items are
unrelated to each other
For example, a workstation may
produce many parts that are
unrelated but meet some external
demand requirement
Dependent demand the

need for any one item is a
direct result of the need for
some other item
reserved.
Demand Types
Usually a higher-level item of which it

is part
2010
reserved.
Inventory Control-System
Design Matrix
2011
Single-period inventory
model
One-time purchasing decision
(e.g., vendor selling T-shirts at
a football game)
Seeks to balance the costs of
inventory overstock and under
stock
Multi-period inventory models
reserved.
Inventory Systems
Comparison
Fixed-order quantity models

Event triggered (e.g., running out of
stock)
Fixed-time period models
Time triggered (e.g., monthly sales
call by sales representative)
2012
Consider the problem of

deciding how many
newspapers to put in a hotel
lobby
Too few papers and some
customers will not be
able to purchase a paper,
and profits associated
with these potential sales
are lost.
Too many papers and the

price paid for papers that
were not sold during the
day will be wasted,
lowering profit.
reserved.
Single Period
Inventory Model
2013
Consider how much risk we are willing to take of running

out of inventory.
Assume a mean of 90 papers and a standard deviation of
10 papers.
Assume we want an 80 percent chance of not running
out.
Assume that the probability distribution associated of
sales is normal, stocking 90 papers yields a 50 percent
chance of stocking out.
reserved.
Solving the
Newspaper Problem
2014
From Appendix E, we see that

we need approximately 0.85
standard deviation of extra
papers to be 80 percent sure of
not stocking out.
Using Excel, =NORMSINV(0.8) =
0.84162
reserved.
Solving the
Newspaper Problem
2015
Where:
Co = cost per unit of demand over stocking level
Cu = cost per unit of demand under stocking level
P = probability that a given unit will be sold
We should increase the size of the

inventory so long as the probability
of selling the last unit added is equal
to or greater than the ratio
reserved.
Single-Period
Inventory Models
2016
Mean demand is 5
Standard deviation of demand is 3
Room rate is $80 (this is the cost if
overbookings are less than cancelations - Cu)
Penalty for overbooking is $200 (this is the cost
if overbookings are more than cancelations Co)
For the Excel template visit
www.mhhe.com/sie-chase14e
reserved.
Example 20.1
Excel: Overbo
oking
2017
From Appendix E, we see that our

desired level falls about 0.55
standard deviations below the mean
(z = -0.55)
Using Excel,
=NORMSINV(0.2857)
= 0.56599
reserved.
Example 20.1
2018
and we have zero noshows, we incur the

penalty of $200 one
person must be
compensated for
having no room.
If we overbook by 1
and we have three noshows, we have lost
sales of $80.
Total cost of a policy of

overbooking by 9
rooms is the weighted
average of the events
(number of no-shows)
and the outcome of
those events.
reserved.
Example 20.1 Overbooking

Table
If we overbook by 1
2019
Overbooking of airline flights
Ordering of clothing and other fashion items
reserved.
Single Period Model

Applications
One-time order for events e.g., t-shirts for a

concert
2020
Fixed-order quantity models

- Also called the economic
order quantity, EOQ, and Qmodel
- Event triggered
Fixedtime period models

- Also called the periodic system,
periodic review system, fixedorder interval system, and P-mode
- Time triggered
reserved.
Multi-Period Models
2021
Fixed-Order Quantity
Inventory remaining must
be continually monitored
Has a smaller average
inventory
Favors more expensive
items
Is more appropriate for
important items
Requires more time to
maintain but is usually
more automated
Is more expensive to
implement
Fixed-Time Period
Counting takes place only at
the end of the review period
Has a larger average
inventory
Favors less expensive items
Is sufficient for lessimportant items
Requires less time to
maintain
Is less expensive to
implement
reserved.
Multi-Period Models
Comparison
2022
reserved.
Multi-Period Models
Comparison
2023
reserved.
Multi-Period Models
Process
2024
Demand for the product is constant and

uniform throughout the period.
Lead time (time from ordering to receipt) is
constant.
Price per unit of product is constant.
Inventory holding cost is based on average
inventory.
reserved.
Fixed-Order Quantity Models

Assumptions
Ordering or setup costs are constant.

All demands for the product will be satisfied.
2025
Always order Q units when

inventory reaches reorder
point (R).
Inventory is consumed at
a constant rate, with a
new order placed when
the reorder point (R) is
reached once again.
Inventory arrives after

lead time (L). Inventory
is raised to maximum
level (Q).
reserved.
Fixed-Order Quantity
Model
2026
The optimal order

quantity (Qopt) occurs
where total costs are at
their minimum
reserved.
Economic Order
Quantity (EOQ)
2027
reserved.
Example 20.2
Annual
demand (D) =
1,000 units
Average daily demand
= =
2.74 units
Ordering cost (S) = $5

per order
Holding cost (H) =
$1.25 per unit per year
Lead time (L) = 5 days
Cost per unit (C) =
$12.50
Excel: Economi
c Order Quanti
ty
2028
Safety stock refers to the amount of inventory

carried in addition to expected demand.
Safety stock can be determined based on many different criteria.
A common approach is to simply keep a certain
number of weeks of supply.
A better approach is to use probability.
reserved.
Establishing Safety
Stock Levels
Assume demand is normally distributed.

Assume we know mean and standard deviation.
To determine probability, we plot a normal distribution for expected demand
and note where the amount we have lies on the curve.
2029
Demand is variable,
but follows a known
distribution/
After the reorder is placed,

demand during the lead time
may be higher than expected,
consuming some (or all) of the
safety stock/
reserved.
Fixed-Order Quantity Model

with Safety Stock
2030
daily demand
Average
() = 60
Annual demand (D) =

60(365) = 21,900
Standard deviation of
demand during lead time
(D) = 7
Ordering cost (S) = $10

per order
Holding cost (H) = $0.50

per unit per year
Lead time (L) = 6 days

Policy place a new

order for 936 units
whenever stock
falls to 388 units on
hand. This results in
a 95% probability of
not stocking out
during the lead
time.
For 95%
probabilit
y, z =
1.64.
reserved.
Example 20.4
Excel: Reorder
Point
2031
q
= quantity to be ordered
T = number of days between reviews
L = lead time in days
= forecast average daily demand
Z = number of standard deviations required for
specific service level
T+L= standard deviation of demand during the
review and lead time
I = current inventory level (including items on
order)
reserved.
Fixed-Time Period
Model
2032
Time periods
are equal,
but ending
inventory
varies.
reserved.
Fixed-Time Period
Model
Reorder quantity varies,

depending upon ending
inventory level. Beginning
inventory is always the
same.
2033
reserved.
Example 20.5
Daily
demand () of 10
units
Daily standard deviation
() of 3 units
Review period (T) of 30
days
Lead time (L) of 14 days
98 percent of demand
should be met from
items in stock
150 units in inventory (I)
Excel: Fixed Ti
me Period Model
2034
Average inventory
expected
amount of
inventory over
time
Inventory turns
number of times
inventory is cycled
through over time
a measure of
how efficiently
reserved.
Inventory Control and Supply

Chain Management
2035
Price varies with the order size.

To find the lowest-cost, calculate the order
quantity for each price and see if the quantity
is feasible.
Sort prices from lowest to highest and calculate the order
quantity for each price until a feasible order quantity is
found.
reserved.
Inventory Models with Price

Breaks
If the first feasible order quantity is the lowest price, this is

best; otherwise, calculate the total cost for the first
feasible quantity and calculate total cost at each price
lower than the first feasible order quantity.
2036
reserved.
Inventory Models with Price

Breaks
2037
Annual demand (D ) =
10,000
Ordering cost (S ) =
$20 per order
Interest/carrying cost (i
) = 20%
Cost per unit (C )

1499 $5.00
500999 $4.50
reserved.
Example 20.8
1000 or more $3.90

2038
reserved.
Example 20.8
2039
reserved.
ABC Classification
2040
Inventory accuracy
refers to how well the
inventory records
agree with physical
count
Cycle counting a
physical inventorytaking technique in
which inventory is
counted on a frequent
basis rather than once
or twice a year
reserved.
Inventory
Management
2041

Chapter 20

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Chapter 20

Загружено:

Авторское право:

Доступные форматы

14

Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

LO201: Explain how inventory is

LO203: Analyze inventory using the

Inventory can be visualized as stacks of money

The average cost of inventory in the United States is 30

Fixedtime period model

Inventory: the stock of any item or resource used

Inventory system: the set of policies and controls

Determines what levels should be maintained, when

Holding (or carrying)

Setup (or production

Independent demand the

Dependent demand the

Usually a higher-level item of which it

Multi-period inventory models

Fixed-order quantity models

Consider the problem of

Too many papers and the

Consider how much risk we are willing to take of running

From Appendix E, we see that

We should increase the size of the

to or greater than the ratio

From Appendix E, we see that our

and we have zero noshows, we incur the

Total cost of a policy of

Example 20.1 Overbooking

Overbooking of airline flights

Ordering of clothing and other fashion items

Single Period Model

One-time order for events e.g., t-shirts for a

Fixed-order quantity models

Fixedtime period models

Demand for the product is constant and

Fixed-Order Quantity Models

Ordering or setup costs are constant.

Always order Q units when

Inventory arrives after

The optimal order

Ordering cost (S) = $5

Safety stock refers to the amount of inventory

A better approach is to use probability.

Assume demand is normally distributed.

After the reorder is placed,

Fixed-Order Quantity Model

Annual demand (D) =

Ordering cost (S) = $10

Holding cost (H) = $0.50

Lead time (L) = 6 days

Policy place a new

Reorder quantity varies,

Inventory Control and Supply

Price varies with the order size.

Inventory Models with Price

If the first feasible order quantity is the lowest price, this is

Inventory Models with Price

Cost per unit (C )

1000 or more $3.90

Вам также может понравиться