Bài giảng Operations Management - Chapter 12: Inventory Management

Operations ManagementInventory ManagementChapter 121OutlineGLOBAL COMPANY PROFILE: AMAZON.COMFUNCTIONS OF INVENTORYTypes of InventoryINVENTORY MANAGEMENTABC AnalysisRecord AccuracyCycle CountingControl of Service Inventories 2Outline - ContinuedINVENTORY MODELSIndependent versus Dependent DemandHolding, Ordering, and Setup CostsINVENTORY MODELS FOR INDEPENDENT DEMANDBasic Economic Order Quantity (EOQ) ModelMinimizing CostsReorder PointsProduction Order Quantity ModelQuantity Discount Models3Outline - ContinuedPROBABILISTIC MODELS WITH CONSTANT LEAD TIMEFIXED PERIOD (P) SYSTEMS4Learning ObjectivesWhen you complete this chapter, you should be able to :Identify or Define:ABC analysisRecord accuracyCycle countingIndependent and dependent demandHolding, Ordering, and Setup CostsDescribe or Explain:The functions of inventory and basic inventory models5AMAZON.comJeff Bezos, in 1995, started AMAZON.com as a “virtual” retailer – no inventory, no warehouses, no overhead; just a bunch of computers.Growth forced AMAZON.com to excel in inventory management!AMAZON is now a worldwide leader in warehouse management and automation.6Order Fulfillment at AMAZONYou order items;, computer assigns your order to distribution center [closest facility that has the product(s)]Lights indicate products ordered to workers who retrieve product and reset light.Items placed in crate with items from other orders, and crate is placed on conveyor. Bar code on item is scanned 15 times – virtually eliminating error.7Order Fulfillment at AMAZON- ContinuedCrates arrive at central point where items are boxed and labeled with new bar code.Gift wrapping done by hand (30 packages per hour)Box is packed, taped, weighed and labeled before leaving warehouse in a truck.Order appears on your doorstep within a week8Stock of materialsStored capacityExamples© 1995 Corel Corp.© 1984-1994 T/Maker Co.© 1984-1994 T/Maker Co.© 1995 Corel Corp.What is Inventory?9The Functions of InventoryTo ”decouple” or separate various parts of the production processTo provide a stock of goods that will provide a “selection” for customersTo take advantage of quantity discountsTo hedge against inflation and upward price changes10Types of InventoryRaw materialWork-in-progressMaintenance/repair/operating supplyFinished goods11The Material Flow Cycle12Higher costsItem cost (if purchased)Ordering (or setup) costCosts of forms, clerks’ wages etc.Holding (or carrying) costBuilding lease, insurance, taxes etc.Difficult to controlHides production problemsDisadvantages of Inventory13InventoryProcess stageDemand TypeNumber & ValueOtherRaw Material WIP Finished GoodsIndependent DependentA Items B Items C ItemsMaintenance Operating© 1984-1994 T/Maker Co.Inventory Classifications14Run time: Job is at machine and being worked onSetup time: Job is at the work station, and the work station is being "setup."Queue time: Job is where it should be, but is not being processed because other work precedes it.Move time: The time a job spends in transitWait time: When one process is finished, but the job is waiting to be moved to the next work area.Other: "Just-in-case" inventory.The Material Flow CycleOtherWaitTimeMoveTimeQueueTimeSetupTimeRunTimeInputCycle TimeOutput15Divides on-hand inventory into 3 classesA class, B class, C classBasis is usually annual $ volume$ volume = Annual demand x Unit costPolicies based on ABC analysisDevelop class A suppliers moreGive tighter physical control of A itemsForecast A items more carefullyABC Analysis16% of Inventory ItemsClassifying Items as ABC020406080100050100% Annual $ UsageABCClass% $ Vol% ItemsA8015B1530C 55517Physically counting a sample of total inventory on a regular basisUsed often with ABC classificationA items counted most often (e.g., daily)Cycle Counting18Advantages of Cycle CountingEliminates shutdown and interruption of production necessary for annual physical inventoriesEliminates annual inventory adjustmentsProvides trained personnel to audit the accuracy of inventoryAllows the cause of errors to be identified and remedial action to be takenMaintains accurate inventory records19Techniques for Controlling Service Inventory Include:Good personnel selection, training, and disciplineTight control of incoming shipmentsEffective control of all goods leaving the facility20Independent versus Dependent DemandIndependent demand - demand for item is independent of demand for any other itemDependent demand - demand for item is dependent upon the demand for some other item21Inventory CostsHolding costs - associated with holding or “carrying” inventory over timeOrdering costs - associated with costs of placing order and receiving goodsSetup costs - cost to prepare a machine or process for manufacturing an order22Holding (Carrying) CostsObsolescenceInsuranceExtra staffingInterestPilferageDamageWarehousingEtc.23Inventory Holding Costs(Approximate Ranges)CategoryHousing costs (building rent, depreciation, operating cost, taxes, insurance)Material handling costs (equipment, lease or depreciation, power, operating cost)Labor cost from extra handlingInvestment costs (borrowing costs, taxes, and insurance on inventory)Pilferage, scrap, and obsolescenceOverall carrying costCost as a % of Inventory Value6%(3 - 10%)3%(1 - 3.5%)3%(3 - 5%)11%(6 - 24%)3% (2 - 5%)26% 24Ordering CostsSuppliesFormsOrder processingClerical supportEtc.25Setup CostsClean-up costsRe-tooling costsAdjustment costsEtc.26Fixed order-quantity modelsEconomic order quantityProduction order quantityQuantity discountProbabilistic modelsFixed order-period modelsHelp answer the inventory planning questions!© 1984-1994 T/Maker Co.Inventory Models27Known and constant demandKnown and constant lead timeInstantaneous receipt of materialNo quantity discountsOnly order (setup) cost and holding costNo stockoutsEOQ Assumptions28Inventory Usage Over TimeTimeInventory LevelAverageInventory (Q*/2)0Minimum inventoryOrder quantity = Q (maximum inventory level)Usage Rate29EOQ ModelHow Much to Order?Order quantityAnnual CostHolding Cost CurveTotal Cost CurveOrder (Setup) Cost CurveOptimal Order Quantity (Q*)Minimum total cost30More units must be stored if more are orderedPurchase OrderDescriptionQty.Microwave1Order quantityPurchase OrderDescriptionQty.Microwave1000Order quantityWhy Holding Costs Increase31Cost is spread over more unitsExample: You need 1000 microwave ovens Purchase OrderDescriptionQty.Microwave1Purchase OrderDescriptionQty.Microwave1Purchase OrderDescriptionQty.Microwave1Purchase OrderDescriptionQty.Microwave11 Order (Postage $ 0.33)1000 Orders (Postage $330)Order quantityPurchase OrderDescriptionQty.Microwave1000Why Order Costs Decrease32Deriving an EOQDevelop an expression for setup or ordering costsDevelop an expression for holding costSet setup cost equal to holding costSolve the resulting equation for the best order quantity33EOQ ModelWhen To OrderReorder Point (ROP)TimeInventory LevelAverageInventory (Q*/2)Lead TimeOptimal Order Quantity(Q*)34Optimal Order QuantityExpected Number of OrdersExpected Time Between OrdersWorking Days/YearWorking Days/Year==××======×Q*DSHNDQ*TNdDROPdL2D = Demand per yearS = Setup (order) cost per orderH = Holding (carrying) cost d = Demand per dayL = Lead time in daysEOQ Model Equations35The Reorder Point (ROP) CurveQ*ROP (Units)Slope = units/day = dLead time = LTime (days)Inventory level (units)36Answers how much to order and when to orderAllows partial receipt of materialOther EOQ assumptions applySuited for production environmentMaterial produced, used immediatelyProvides production lot sizeLower holding cost than EOQ modelProduction Order Quantity Model37EOQ POQ ModelWhen To OrderTimeInventory LevelBoth production and usage take placeUsage only takes placeMaximum inventory level38EOQ POQ ModelWhen To OrderReorder Point (ROP)TimeInventory LevelAverageInventoryLead TimeOptimal Order Quantity(Q*)39Reasons for Variability in ProductionMost variability is caused by waste or by poor management. Specific causes include:employees, machines, and suppliers produce units that do not conform to standards, are late or are not the proper quantityinaccurate engineering drawings or specificationsproduction personnel try to produce before drawings or specifications are completecustomer demands are unknown40POQ Model Inventory LevelsInventory LevelTimeSupply BeginsSupply EndsProduction portion of cycleDemand portion of cycle with no supply41POQ Model Inventory LevelsTimeInventory LevelProduction Portion of CycleMax. Inventory Q·(1- d/p)Q*Supply BeginsSupply EndsInventory level with no demandDemand portion of cycle with no supply42D = Demand per yearS = Setup costH = Holding cost d = Demand per dayp = Production per dayPOQ Model EquationsOptimal Order QuantitySetup CostHolding Cost==-=*=*=QH*dpQDQSp*1(0.5 * H * Q -dp1)-dp1()2*D*S()Maximum inventory level43Answers how much to order & when to orderAllows quantity discountsReduced price when item is purchased in larger quantitiesOther EOQ assumptions applyTrade-off is between lower price & increased holding costQuantity Discount Model44Quantity Discount ScheduleDiscount NumberDiscount QuantityDiscount (%)Discount Price (P)10 to 999No discount$5.0021,000 to 1,9994$4.8032,000 and over5$4.7545Quantity Discount – How Much to Order46Answer how much & when to order Allow demand to varyFollows normal distributionOther EOQ assumptions applyConsider service level & safety stockService level = 1 - Probability of stockoutHigher service level means more safety stockMore safety stock means higher ROPProbabilistic Models47Probabilistic ModelsWhen to Order?Reorder Point (ROP)Optimal Order QuantityXSafety Stock (SS)TimeInventory LevelLead TimeSSROPService LevelP(Stockout)Place orderReceive orderFrequency48Answers how much to orderOrders placed at fixed intervalsInventory brought up to target amountAmount ordered variesNo continuous inventory countPossibility of stockout between intervalsUseful when vendors visit routinelyExample: P&G representative calls every 2 weeksFixed Period Model49Inventory Level in a Fixed Period SystemVarious amounts (Qi) are ordered at regular time intervals (p) based on the quantity necessary to bring inventory up to target maximumpppQ1Q2Q3Q4Target maximumTimeOn-Hand Inventory50TimeInventory LevelTarget maximumPeriodPeriodPeriodFixed Period ModelWhen to Order?51