INDEPENDENT -

DEPENDENT DEMAND
INVENTORY

Sekolah Tinggi Manajemen PPM

OUTLINE
Purpose of Inventories
Inventory Cost Structures
Independent versus Dependent Demand
Independent Demand: EOQ, Q-System, P-
System
Dependent Demand: MRP

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A MATERIAL-FLOW PROCESS

Productive Process

Work in
process

Work in

Customer
Work in Finished
process process goods
Work in
process

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A Water Tank Analogy for Inventory

Inventory Level

Supply Rate

Inventory Level

Demand Rate

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REASONS TO CARRY INVENTORIES

To protect against uncertainties

To allow economic production and
purchase
To cover anticipated changes in demand
or supply
To provide for transit

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 Influenced By Market
INDEPENDENT Condition Outside
DEMAND the Control Of
Operations

Related to Demand
DEPENDENT for Another Item, Not
DEMAND Independently
Determined by the
Market

Schroeder/Operations Management
Inventory Cost Structures
Item cost
Ordering (or setup) cost
Carrying (or holding) cost:
Cost of capital
Cost of storage
Cost of obsolescence, deterioration, and loss
Stock out cost

Schroeder/Operations Management
Total Cost of Inventory

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Economic Order Quantity (EOQ)
Assumptions

Demand rate is constant, recurring, and known.

Lead time is constant and known.
No stock outs allowed.
Material is ordered or produced in a lot or batch
and the lot is received all at once.
Unit cost is constant (no quantity discounts).
Carrying cost depends linearly on the average level
of inventory.
Ordering (setup) cost per order is fixed.
The item is a single product.
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 Continuous Review System
Assumption of constant demand is
relaxed.
Monitoring of on hand stock position in a
continuous system
Q system (another name for continuous
review system)

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Q System

R = Reorder Point
Q = Order Quantity
L = Lead time
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 Periodic Review System

All assumption of EOQ (except that

demand is constant and no stockout)
remains in effect.
Also known as P System or Fixed-order-
Interval System

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P System

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Using P and Q System in Practice

Use P system when orders must be placed

at specified intervals.
Use P systems when multiple items are
ordered from the same supplier (joint-
replenishment).
Use P system for inexpensive items.

Schroeder/Operations Management
ABC Inventory Management

Based on Pareto concept (80/20 rule)

Classification of items as A, B, or C
Example (See Table 15.4)

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 Annual Usage of Items by Dollar Value
Percentage
Annual of Total
Usage in Dollar
Item Units Unit Cost Dollar Usage Usage
1 5,000 $ 1.50 $ 7,500 2.9%
2 1,500 8.00 12,000 4.7%
3 10,000 10.50 105,000 41.2%
4 6,000 2.00 12,000 4.7%
5 7,500 0.50 3,750 1.5%
6 6,000 13.60 81,600 32.0%
7 5,000 0.75 3,750 1.5%
8 4,500 1.25 5,625 2.2%
9 7,000 2.50 17,500 6.9%
10 3,000 2.00 6,000 2.4%
Total $ 254,725 100.0%
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 ABC Chart
45.0% 120.0%
40.0% A B C 100.0%

Cumulative % Usage
35.0%
Percent Usage

30.0% 80.0%
25.0%
60.0%
20.0%
15.0% 40.0%
10.0%
20.0%
5.0%
0.0% 0.0%
3 6 9 2 4 1 10 8 5 7

Item No.

Percentage of Total Dollar Usage Cumulative Percentage

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MRP versus Order-Point Systems
Attribute MRP Order Point
Demand Dependent Independent

Order philosophy Requirements Replenishment

Forecast Based on master schedule Based on past demand

Control concept Control all items ABC

Objectives Meet manufacturing needs Meet customer needs

Lot sizing Discrete EOQ

Demand pattern Lumpy but predictable Random

Types of inventory Work in process and raw Finished goods and spare
materials parts
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BOM (Table Example)

Top

Short Rail Leg

Long Rail

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BOM (Product Structure)
Table
(End Item)

Leg Assembly Top

(1) (1)

Short Rails Long Rails Legs

(2) (2) (4)

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MRP Elements

Bill of Materials (BOM)

Master Scheduling
Inventory Records
Capacity Planning
Purchasing
Shop Floor Control

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Elements of Success in MRP

Implementation planning
Adequate computer support
Accurate data
Management support
User knowledge

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