Inventory management3
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Inventory management3 Inventory management3 Presentation Transcript

  • Managing Facilitating Goods Factory Wholesaler Distributor Retailer Customer Replenishment order Replenishment order Replenishment order Customer order Production Delay Wholesaler Inventory Shipping Delay Shipping Delay Distributor Inventory Retailer Inventory Item Withdrawn
  • Learning Objectives
    • Discuss the role of information technology in managing inventories.
    • Describe the functions and costs of an inventory system.
    • Determine the order quantity.
    • Determine the reorder point and safety stock for inventory systems with uncertain demand.
    • Design a continuous or periodic review inventory-control system.
    • Conduct an ABC analysis of inventory items.
    • Determine the order quantity for the single-period inventory case.
    • Describe the rationale behind the retail discounting model.
  • Role of Inventory in Services
    • Decoupling inventories
    • Seasonal inventories
    • Speculative inventories
    • Cyclical inventories
    • In-transit inventories
    • Safety stocks
  • Considerations in Inventory Systems
    • Type of customer demand
    • Planning time horizon
    • Replenishment lead time
    • Constraints and relevant costs
  • Relevant Inventory Costs
    • Ordering costs
    • Receiving and inspections costs
    • Holding or carrying costs
    • Shortage costs
  • Inventory Management Questions
    • What should be the order quantity (Q) ?
    • When should an order be placed, called a reorder point (ROP )?
    • How much safety stock (SS) should be maintained?
  • Inventory Models
    • Economic Order Quantity (EOQ)
    • Special Inventory Models With Quantity Discounts Planned Shortages
    • Demand Uncertainty - Safety Stocks
    • Inventory Control Systems Continuous-Review (Q,r) Periodic-Review (order-up-to)
    • Single Period Inventory Model
  • Inventory Levels For EOQ Model 0 Units on Hand Q Q D Time
  • Annual Costs For EOQ Model
  • EOQ Formula
    • Notation D = demand in units per year H = holding cost in dollars/unit/year S = cost of placing an order in dollars Q = order quantity in units
    • Total Annual Cost for Purchase Lots
    • EOQ
  • Annual Costs for Quantity Discount Model 0 100 200 300 400 500 600 700 22,000 21000 20000 2000 1000 C = $20.00 C = $19.50 C = $18.75 Order quantity, Q Annual Cost, $
  • Inventory Levels For Planned Shortages Model Q Q-K 0 -K T1 T2 TIME T
  • Formulas for Special Models
    • Quantity Discount Total Cost Model
    • Model with Planned Shortages
  • Values for Q* and K* as A Function of Backorder Cost B Q* K* Inventory Levels undefined Q* 0 0 0 0
  • Demand During Lead Time Example + + + = u=3 u=3 u=3 u=3 ROP s s Four Days Lead Time Demand During Lead time
  • Safety Stock (SS)
    • Demand During Lead Time (LT) has Normal Distribution with - -
    • SS with r% service level
    • Reorder Point
  • Continuous Review System (Q,r) Average lead time usage, d L Reorder point, ROP Safety stock, SS Inventory on hand Order quantity, EOQ EOQ EOQ d 1 d 2 d 3 Amount used during first lead time First lead time, LT 1 Order 1 placed LT 2 LT 3 Order 2 placed Order 3 placed Shipment 1 received Shipment 2 received Shipment 3 received Time
  • Periodic Review System (order-up-to) RP RP RP Review period First order quantity, Q1 d 1 Q 2 Q 3 d 2 d 3 Target inventory level, TIL Amount used during first lead time Safety stock, SS First lead time, LT 1 LT 2 LT 3 Order 1 placed Order 2 placed Order 3 placed Shipment 1 received Shipment 2 received Shipment 3 received Time Inventory on Hand
  • Inventory Control Systems
    • Continuous Review System
    • Periodic Review System
  • ABC Classification of Inventory Items A B C
  • Inventory Items Listed in Descending Order of Dollar Volume Monthly Percent of Unit cost Sales Dollar Dollar Percent of Inventory Item ($) (units) Volume ($) Volume SKUs Class Computers 3000 50 150,000 74 20 A Entertainment center 2500 30 75,000 Television sets 400 60 24,000 Refrigerators 1000 15 15,000 16 30 B Monitors 200 50 10,000 Stereos 150 60 9,000 Cameras 200 40 8,000 Software 50 100 5,000 10 50 C Computer disks 5 1000 5,000 CDs 20 200 4,000 Totals 305,000 100 100
  • Single Period Inventory Model Newsvendor Problem Example
    • D = newspapers demanded
    • p(D) = probability of demand
    • Q = newspapers stocked
    • P = selling price of newspaper, $10
    • C = cost of newspaper, $4
    • S = salvage value of newspaper, $2
    • C u = unit contribution: P-C = $6
    • C o = unit loss: C-S = $2
  • Single Period Inventory Model Expected Value Analysis Stock Q p(D) D 6 7 8 9 10 .028 2 4 2 0 -2 -4 .055 3 12 10 8 6 4 .083 4 20 18 16 14 12 .111 5 28 26 24 22 20 .139 6 36 34 32 30 28 .167 7 36 42 40 38 36 .139 8 36 42 48 46 44 .111 9 36 42 48 54 52 .083 10 36 42 48 54 60 .055 11 36 42 48 54 60 .028 12 36 42 48 54 60 Expected Profit $31.54 $34.43 $35.77 $35.99 $35.33
  • Single Period Inventory Model Incremental Analysis E (revenue on last sale) E (loss on last sale) P ( revenue) (unit revenue) P (loss) (unit loss) (Critical Fractile) where: C u = unit contribution from newspaper sale ( opportunity cost of under estimating demand) C o = unit loss from not selling newspaper (cost of over estimating demand) D = demand Q = newspaper stocked
  • Critical fractile for the newsvendor problem P(D<Q) (C o applies) P(D>Q) (C u applies ) 0.722
  • Retail Discounting Model
    • S = current selling price
    • D = discount price
    • P = profit margin on cost (% markup as decimal)
    • Y = average number of years to sell entire stock of “dogs” at current price (total years to clear stock divided by 2)
    • N = inventory turns (number of times stock turns in one year)
    Loss per item = Gain from revenue S – D = D(PNY)
  • Topics for Discussion
    • Discuss the functions of inventory for different organizations in the supply chain.
    • How would one find values for inventory costs?
    • How can information technology create a competitive advantage through inventory management?
    • How valid are the assumptions for the EOQ model?
    • How is a service level determined for inventory items?
    • What inventory model would apply to service capacity such as seats on an aircraft?
  • Interactive Exercise
    • The class engages in an estimation of the cost of a 12-ounce serving of Coke in various situations (e.g., supermarket, convenience store, fast-food restaurant, sit-down restaurant, and ballpark). What explains the differences?