This document discusses capacity and inventory management. It covers topics like capacity management, factors that impact capacity, capacity forecasting, modifying capacity, selecting capacity. It also discusses inventory management, reasons for inventory, inventory types, costs, EOQ model, reorder point/level, and ABC analysis for classifying inventory items. The key aspects of managing both capacity and inventory effectively are identified.

1. Capacity and Inventory
Management

2. Capacity Management
• Capacity = Maximum Output Rate (how many
products can be produced or how much service
can be provided when system is running at full
tilt)
• What is the capacity of:
– Theatre
– Coffee Shop
– Mechanic Shop
– Factory
– Human Brain

3. Factors Impacting Capacity
s and
Regulation Manual an
d
Policies Automate
d
y and
Technolog e
tur
Infrastruc
t and Skilled and
Consisten
Variant Unskilled

4. Capacity Forecast

5. Modifying Capacity

6. Selecting the right capacity
• Essentially a Decision
Making Problem
• Can be objective or
subjective
• Find optimal solution
using multiple 60%
30%
capacity variables and
constraints
70%
• Use decision trees

7. Inventory Management
• Why is Inventory required?
• What will happen if we have too little inventory?
• What will happen if we have too much
inventory?
• When can we say that we have optimum
inventory?

8. Inventory is required as a cover for
all kinds of variations and
uncertainties in the production
process and supply chain
Inventory allows economies of
scale to kick in

9. Inventory Types

10. Inventory Costs

11. EOQ Model – Wilson Model
• Underlying assumptions
– The ordering cost is constant.
– The rate of demand is known, and spread evenly throughout the
year.
– The lead time is fixed.
– The purchase price of the item is constant i.e. no discount is
available
– The replenishment is made instantaneously, the whole batch is
delivered at once.
– Only one product is involved.
– EOQ is the quantity to order, so that ordering cost + carrying
cost finds its minimum. (A common misunderstanding is that
the formula tries to find when these are equal.)

12. EOQ Model – Author Ken Homa
Microsoft
PowerPoint 97-2003 Presentation

13. Reorder Point/ Level

14. ABC Analysis
Classify all items in inventory into ABC classes or categories as per
Pareto principle
Class A 70 – 80% expenditure Usually small in number
Class B 10-15% expenditure Medium to large in number
Class C 5-10% expenditure Maybe large in number