Inventory management system
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  • 1. Inventory Management System Job Thomas #8, MBA (PT)
  • 2. Word meaningInventory = stock at a particular location classification of inventory • raw materials, • work-in-progress, • finished goods and • MRO (Maintenance, Repairs and Operating supplies)
  • 3. Overview of development CARDEX (bin card) system MM (material management) module in ERP WMS (warehouses management system) in ERP RF tags IDs
  • 4. Inventory decision rule
  • 5. Q,R policyFixed quantity, variable time Q Q T1 T2
  • 6. S,T policyVariable quantity, Fixed time Q3 Q1 Q2
  • 7. S,R policyVariable quantity, variable time
  • 8. INVENTORY CLASSIFICATIONS ABC Classifications High, Medium and Low (HML) Classifications Vital, essential and Desirable (VED) Classifications Scare, Difficult and Easy to obtain (SDE) Classifications Fast moving. Slow moving and Non- moving (FSN) Classification Multi-criteria classification
  • 9. ABC Classification 100 C 80 B Total Value ($) N $ A 10% 70% 60 B 20% 20% C 70% 10% 40 A 20 0 100 200 300 400 500 600 0 700 800 900 1000 Number of items (N)Classification based on relative importance
  • 10. Risk of inventory in ABC classification
  • 11. Controlling based on ABC inventory classificationControl A B COrdering Very careful Normal Simplecontrol and accurateType of Very Good None orinventory accurate simplecontrolCycle 6-12 times 3-4 times 1-2 timescounting per year per year per yearfrequencyPriority High priority Normal Low prioritycontrol priority
  • 12. High, Medium and Low (HML) classification The items of the inventory are to be listed in the descending order of the unit value. The HML analysis is useful for keeping control over consumption at departmental levels, for deciding the frequency of physical verification, and for controlling purchases
  • 13. Vital, Essential and Desirable (VED) Classifications. based on criticality of the items and its effect on other production For V items, a large stock of inventory is generally maintained, while for D items, minimum stock is enough
  • 14. Scarce, Difficult and Easy to obtain (SDE) availability of items vital to lead time analysis of procurement
  • 15. Fast-moving. Slow moving and Non-moving (FSN) Classification classification is based on the pattern of issues from stores In and out date of items are evaluated. The items are usually grouped in periods of 12 months
  • 16. Multi-criteria ClassificationItem Value Lead Criticality Substitut Total (w1=0.2) time (w3=0.4) able (w=1.0) (w2=0.2) (w4=0.2)101 A B C C B (100) (50) (10) (10) (36)102 B A B B A (50) (100) (50) (50) (60)103 B B A C A (50) (50) (100) (10) (62)104 C C B A B (10) (10) (50) (100) (44)105 C A C C C (10) (100) (10) (10) (28)
  • 17. INVENTORY MODELS Deterministic models • Economic Order Quantity (EOQ) model • Sensitivity analysis • A price-break Model Probabilistic Inventory models • Single-period inventory models • A fixed order quantity model • A fixed time period model
  • 18. Inventory fluctuations as a function of timeIDEALACTUAL
  • 19. Economic Order Quantity (EOQ) model
  • 20. Economic Order Quantity (EOQ) model
  • 21. Economic Order Quantity (EOQ) modelEconomic order quantity= (2 x setup cost x demand rate/ carrying cost)^0.5 Limitation of the economic order quantity model is that the demands remain constant throughout the year. It is also necessary that the inventory be delivered in full when the inventory levels reach zero
  • 22. Re-order points and lead time
  • 23. Safety stock in inventory management
  • 24. Sensitivity analysis
  • 25. Production inventory model
  • 26. Backorder inventory models
  • 27. Price-break Model
  • 28. EOQ Model with Price Breaks Incremental units: discount is applied to the additional units beyond the breakpoint All units: discount is applied to all units beyond the certain level of order
  • 29. EOQ Model with Price BreaksTotal annualcost $3.2 /unit $2.9 /unit $2.8 /unit Feasible cost Order quantity
  • 30. Single period inventory model Order seasonal The Newsboy Problem:
  • 31. Fixed order quantity model Item must have a reasonable stable usage Lead time should not have radical variation Supplier should be able to accept irregularly timed and unscheduled orders
  • 32. Fixed time period model
  • 33. VENDOR MANAGED INVENTORY (VMI) the vendor (the Manufacturer) manages the inventory of the distributor. manufacturer has access to the distributor’s inventory data used for generating purchase orders The manufacturer reviews this information and decides when it is appropriate to generate a Purchase Order symbiotic relationship
  • 34. INVENTORY ON WHEELS freight on board (FOB) Rule of ownership • FOB shipping point. If the shipment is designated as freight on board (FOB) shipping point, ownership transfers to the buyer as soon as the shipment departs the seller. • FOB destination. If the shipment is designated as freight on board (FOB) destination, ownership transfers to the buyer as soon as the shipment arrives at the buyer.
  • 35. Thank you for your kind attention