Concept of inventory, need for inventory, types of inventory, Seasonal, Decoupling, Cyclic, Pipeline, Safety, Implications of Inventory Control Methods Inventory Costs: Concept & Behavior of Ordering cost, Carrying cost & Shortage cost Basic EOQ Model & EOQ with Discount
Concept of inventory, need for inventory, types of inventory, Seasonal, Decoupling, Cyclic, Pipeline, Safety, Implications of Inventory Control Methods Inventory Costs: Concept & Behavior of Ordering cost, Carrying cost & Shortage cost Basic EOQ Model & EOQ with Discount
This topic is related to Material requirement planning, MRP.
Types of material requirement planning
Benefits of MRP. Limitation of MRP, Objective of MRP, MRP Input, MRP Output, Steps of MRP
This ppt is about what is Inventory management and a case study on NANDYALA CEMENT BRICKS(Small scale Industry). And here we used EOQ and ABC analysis techniques.
Warehouse Operations and Inventory Management Thomas Tanel
Companies that make the best use of the basic principles of planning and managing warehouse operations and inventory management have a competitive advantage. Organizations that lack warehouse strategic planning and inventory operational excellence lose profits, market share, cost advantages, and market leadership.
Traditional Supply Chain and Logistics channels are indeed changing. As organizations move from mass production and mass distribution to mass customization, creative approaches are needed in the management of warehousing and inventory. The challenge is always present, because different customers may demand different levels of service. Demand often cannot be forecasted, especially if one must deliver customized products or services exactly where the customer needs them.
Businesses today must understand that they are competing on the basis of time more than on any other factor. The rigors of supply chain management require that you take action to meet your customers’ demand for faster, more frequent, and more reliable deliveries. Your suppliers need to meet increasingly precise inbound schedules. Tomorrow’s customers are more likely to be in another country or continent than they are likely to be from across town, in another state, or in another province.
With a proven inventory management system and an A-B-C Analysis, you can transform your inventory into a proactive force that lowers your inventory investment, reduces carrying costs, boosts confidence in physical supply and distribution service levels, and increases customer and user satisfaction. From a storage and distribution perspective, you, as overseer of the supply management process, should also know how the warehousing layout design criteria and the space and storage schemes affect your material flow, service levels, computerization, and technology options.
Direct Materials Sourcing and Procurement Strategies – Accelerating Savings a...SAP Ariba
As Procurement organizations optimize and automate sourcing and procurement processes to handle Indirect Spend, there is a renewed focus to extend the same automation to Direct Material Spend. With increased globalization, outsourcing and raw material cost inflation, controlling Direct Material spend is key to driving sustainable savings and improve risk mitigation.
Join this session to hear from IDC Manufacturing and key Ariba customers who leverage extensive collaboration and automation to capture more direct & indirect spend and drive sustainable savings and risk mitigation in their supply chains.
This topic is related to Material requirement planning, MRP.
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Benefits of MRP. Limitation of MRP, Objective of MRP, MRP Input, MRP Output, Steps of MRP
This ppt is about what is Inventory management and a case study on NANDYALA CEMENT BRICKS(Small scale Industry). And here we used EOQ and ABC analysis techniques.
Warehouse Operations and Inventory Management Thomas Tanel
Companies that make the best use of the basic principles of planning and managing warehouse operations and inventory management have a competitive advantage. Organizations that lack warehouse strategic planning and inventory operational excellence lose profits, market share, cost advantages, and market leadership.
Traditional Supply Chain and Logistics channels are indeed changing. As organizations move from mass production and mass distribution to mass customization, creative approaches are needed in the management of warehousing and inventory. The challenge is always present, because different customers may demand different levels of service. Demand often cannot be forecasted, especially if one must deliver customized products or services exactly where the customer needs them.
Businesses today must understand that they are competing on the basis of time more than on any other factor. The rigors of supply chain management require that you take action to meet your customers’ demand for faster, more frequent, and more reliable deliveries. Your suppliers need to meet increasingly precise inbound schedules. Tomorrow’s customers are more likely to be in another country or continent than they are likely to be from across town, in another state, or in another province.
With a proven inventory management system and an A-B-C Analysis, you can transform your inventory into a proactive force that lowers your inventory investment, reduces carrying costs, boosts confidence in physical supply and distribution service levels, and increases customer and user satisfaction. From a storage and distribution perspective, you, as overseer of the supply management process, should also know how the warehousing layout design criteria and the space and storage schemes affect your material flow, service levels, computerization, and technology options.
Direct Materials Sourcing and Procurement Strategies – Accelerating Savings a...SAP Ariba
As Procurement organizations optimize and automate sourcing and procurement processes to handle Indirect Spend, there is a renewed focus to extend the same automation to Direct Material Spend. With increased globalization, outsourcing and raw material cost inflation, controlling Direct Material spend is key to driving sustainable savings and improve risk mitigation.
Join this session to hear from IDC Manufacturing and key Ariba customers who leverage extensive collaboration and automation to capture more direct & indirect spend and drive sustainable savings and risk mitigation in their supply chains.
As Procurement organizations optimize and automate sourcing and procurement processes to handle Indirect Spend, there is a renewed focus to extend the same automation to Direct Material Spend. With increased globalization, outsourcing and raw material cost inflation, controlling Direct Material spend is key to driving sustainable savings and improve risk mitigation.
Join this session to hear from Ardent Partners and key Ariba customers who leverage extensive collaboration and automation to capture more direct & indirect spend and drive sustainable savings and risk mitigation in their supply chains.
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• Thought put Time
• Order Cycle Time
• Customer Satisfaction
• Quality
• Specifying Materials
• Maintenance Repair and Operating (MRO) Supplies
• Tooling
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• Industry Example
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• Core Competencies
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Defination : Inventories constitute an important component of a firms working capital .The various features of inventory are inventory as current asssets ,level of liquidity and liquidity lags .
Purpose : The purpose of holding inventoryis to achieve efficiency through cost reduction, increased sales volume ,to avail quantity discounts ,reduce risk of production stoppages ,reducing ordering costs and time .
Inventory Management techniques : 2 types :
1. Economic order quantity : it is the order quantity that minimisesthe total cost associated with inventory management .
2. 2. ABC system : A – items of high value but small in number
B – items of moderate value and size require reasonable attention
C - items of smaller value
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As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
[Note: This is a partial preview. To download this presentation, visit:
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Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
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1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
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1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
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Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
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1. Purchasing and Supply Chain Management
by W.C. Benton
Chapter Five
Inventory Management
2. Learning Objectives
1. To learn the relationship between the purchasing
function and inventory control.
2. To learn the primary reasons for holding inventory.
3. To identify the necessary requirements for
effective inventory management.
4. To learn about ABC analysis.
5-2
3. Learning Objectives
5. To identify the cost components of the classical
EOQ model.
6. To learn the basic assumptions of the EOQ model.
7. To learn about quantity discounts.
8. To learn about service levels.
9. To identify the differences between fixed-order-
quantity and variable-order inventory systems.
5-3
4. Purchasing Raw Materials
and Component Parts
• The purchasing function is taking on increasing
importance in today’s industrial economy.
• Since materials constitute the largest single
percentage of their purchasing dollars, profit
oriented firms have turned to professionally
operated purchasing departments to make sure they
are getting full value for their outlays on materials
• The purchasing professional must be able to make
profitable buying decisions under these conditions.
The purchasing professional person must make
profitable inventory management decisions.
5-4
5. Inventory Management
• Inventory is the life blood of any business. Most
firms store thousands of different items.
• The type of business a firm is in will usually
determine how much of the firm’s assets are
invested in inventories.
• Hospitals carry beds, surgical instruments, food,
pharmaceuticals, and other miscellaneous items.
• Manufacturing firms carry office supplies, raw
materials, component parts, finished products, and
many other industry-related items.
5-5
6. Dependent Versus
Independent Demand
• In order to manage the various types of inventory, attributes of the
items first must be analyzed in terms of cost, lead time, past usage,
and the nature of demand.
• The nature of demand is perhaps the most important attribute. The
nature of demand can be either independent or dependent.
• Independent demand is unrelated to the demand for other items.
In other words, an independent item must be forecasted
independently.
• Dependent demand is directly derived from demand for another
inventoried item demand
5-6
7. Dependent Versus
Independent Demand
• In order to manage the various types of inventory, attributes
of the items first must be analyzed in terms of cost, lead time,
past usage, and the nature of demand.
• The nature of demand is perhaps the most important
attribute. The nature of demand can be either independent or
dependent.
• Independent demand is unrelated to the demand for other
items. In other words, an independent item must be
forecasted independently. Dependent demand is directly
derived from demand for another inventoried item demand.
5-7
8. Inventory Management Overview
• Management of inventories is a major interest of purchasing
managers.
• In many industries, the investment in inventories comprises a
substantial share of the firm’s assets.
• If the productivity of the inventory asset can be enhanced, the
improvement will go directly to the bottom line.
• How does the purchasing professional know how much
inventory to carry?
• How does the purchasing professional know when to place a
replenishment order?
• Specifically, what guidelines should be used for making
purchasing decisions?
5-8
9. Inventory Decisions
• In the area of inventory management, the
purchasing professional should make explicit
decisions regarding the following:
1. What to stock. The purchasing professional, at the very minimum,
must meet the requirements and needs of the manufacturer on
distribution operation.
2. How much to invest. The purchasing professional must first review
the level of capital support for inventory. This decision is usually made
at the vice president level.
3. How much service to offer. What level of protection against stockouts
is acceptable for the competitive environment? It is impossible to
achieve a service level of 100 percent
5-9
10. Inventory Decisions
• As can be seen, none of these decisions is
independent of the other. Moreover, combining
these decisions is complex and may be closely
correlated with the industry and the type of firm
within the industry.
• In the case of a manufacturing firm, you must
consider whether the production process is make to
order, make to stock, or some hybrid of the two.
5-10
11. Production Processing Strategy
• In this section, the production processing
strategy is divided into two categories:
1. continuous systems
2. intermittent systems
5-11
12. Production-Inventory Taxonomy
• The taxonomy is based on continuous systems producing
standardized products through an assembly line, while
intermittent systems are used to produce non standardized
products through a job shop.
• Another subcategory (not shown in the taxonomy) associated
with continuous systems is pure inventory systems.
• Pure inventory systems are distribution stocking points, such
as warehouses or distributors.
• The purchasing manager must have a clear understanding of
the role of inventory in the materials management system.
5-12
13. ABC Classification of
Inventory Items
• The inventory items that are the most important for a specific
industry or firm should be items that account for the greatest
dollar value.
• To determine the usage value of an item, multiply the unit cost by
annual sales volume. If a particular item costs $100 and 150 are
sold in one year, then its usage value is $100 × 150, or $15,000.
• With only these two data points (sales and costs), you can not only
rank all of your inventory items by importance, but also take the
first step toward controlling independent demand and distribution
inventories.
5-13
14. ABC Classification of
Inventory Items
• If you analyze what sells the most and what cost the
most, a predictable pattern will emerge with most
distribution inventories.
1. Certain items are demanded by a great many customers.
2. Most items are only demanded by certain customers.
3. Some items are demanded by few customers.
5-14
15. • The following procedure is one
way of implementing an ABC
analysis.
1. Calculate the annual dollar
value for each item.
2. List all items in descending
order.
3. Develop a cumulative
percentage of the items that
reflect roughly 60–80 percent
of the total cost.
4. Determine the percentage of
the items that represent
roughly 60–80 percent of the
total cost. These are
considered A items.
5-15
16. Independent Demand
• In this section, we are concerned with the control
of end items. The inventory management concepts
covered in this section are also applicable to
retailing and distribution.
There are five primary functions of inventories:
1. Pipeline inventory. The supply pipelines of the entire
system require a considerable investment in inventory. If
the system’s volume is 1,000 units per week and it takes
one day to transport from the supplier to the plant, there
are 1/7 × 1,000, or about 143, units in transit on the
average.
5-16
17. Independent Demand
2. Cycle stocks. When units are transported from one
location point to another, how many units do we
transport at one time? For example, say we place
an order once each three weeks following a review
of sales and projected needs.
1. Once the order is received, there is a two-day order
processing delay at the suppliers plus three days for
transit and receipt. Assume that the average unit
sales volume is five units per week or 15 units in the
three-week order period.
1. Thus, the buyer must have no less than 15 units of
cycle stock on hand when an order is placed, for an
average cycle stock level of 15/2 = 7.5 units.
5-17
18. Independent Demand
3. Seasonal inventories. If demand follows a seasonal
pattern, inventories can be accumulated during low
sales periods and depleted during high usage periods to
avoid problems associated with adjusting capacity.
4. Safety stocks. Safety stocks are designed to absorb
random demand uncertainties.
5. Decoupling. Stocks of inventories at major stocking
points throughout the system make it possible to carry
on each activity independently. That is, the presence of
inventories allows for each work center to begin at the
same starting time.
5-18
19. Costs in an Inventory System
• The objective of an inventory
system is the minimization of
total operating costs. The
unavoidable costs of operating
pure inventory systems are
ordering costs, stockout costs,
and holding costs.
• To illustrate the cost behavior of
a fixed-order-size system, let’s
look at the simple classical
economic lot size model (EOQ).
The EOQ derives the optimal lot
size for purchasing by minimizing
the cost components involved
(ordering costs and holding cost).
5-19
21. The EOQ Model
• Once the most economical order quantity is known,
several other measures can be taken:
1. The expected number of orders during the year, NO = A/Q
1. The expected time between orders, TBO = 1/NO = Q/A
1. The reorder point, R = (A/12) * L, where L is expressed in
months. If L is expressed in weeks, R = (A/52) * L.
5-21
22. The EOQ Model
• The minimum total cost per year is obtained by
substituting Q* for Q in equation (1). The classical
EOQ model assumes the following:
1. Constant demand.
2. Constant lead time.
3. Constant unit price.
4. Fixed order cost per order.
5. Fixed holding cost per unit.
6. Instantaneous replenishment.
7. No stockouts allowed.
8. No demand uncertainty.
9. Quantity discounts are not available
5-22
23. Quantity Discounts
• From time to time, buying firms receive discounted
price schedules from their suppliers.
• This usually means that the price per unit is lower if
larger orders are purchased. It may or may not be to
the buyer’s advantage to accept the quantity discount.
• The buyer must be careful not to compromise the
economies of his or her firm’s cost structure.
5-23
24. Quantity Discounts
• The classical EOQ model assumes that the per-unit
material price is fixed. The quantity discount condition
invalidates the total cost curve.
• Quantity discounts induce a discontinuous total cost
curve.
• Assuming the discount applies to all units (and not just
in incremental units beyond the discount point), the
minimum total cost point will be either at the point of
discontinuity or at the traditional EOQ point compared
with the original price.
5-24
25. Quantity Discounts
• A five-step method can easily be used for determining the
minimum cost order quantity:
1. Calculate the economic order quantity using the minimum unit prices. If this
quantity falls within the range for which the vendor offers the discount price, it
is a valid economic order quantity and will result in the minimum cost for the
particular item.
1. If the EOQ calculated in step 1 is not valid (i.e., is less than the break quantity),
find the total annual cost for each price break quantity.
1. Calculate an EOQ for each unit price.
1. Calculate the total annual cost for each valid EOQ determined in step 3.
1. The minimum cost order quantity is that associated with the lowest cost in
either step 2 or step 4.
5-25
27. Safety Stock
• When there is uncertainty in demand, safety stock must be
considered. Safety stocks are extra inventory held to protect
against randomness in demand or lead time.
• Safety stock is needed to cover the demand during the
replenishment lead time in case actual demand is greater than
expected demand.
---------------------------------------------------------------------------
• The safety stock adjusted reorder point is
• ROP = (Expected demand during lead time) + (Safety stock)
• = DDLT + Z√(Lead time expressed as some multiple of forecast
interval) * (Standard deviation of demand)
• = DDLT + Z√L * σd
5-27
29. Dependent Demand Systems
• Order-point (statistical inventory control) techniques are
based on the assumption of uniform requirements per unit
time. If this assumption of the demands is unrealistic, these
techniques can lead to inappropriate inventory decisions.
• For components of assembled products, the demands are not
usually constant per unit time, and depletion is anything but
gradual. Inventory depletion for component parts tends to
occur in discrete “lumps”
5-29
30. Dependent Demand Systems
• Customer demand is fairly uniform but, because of
the build schedules, the requirements for the
components are “lumpy.”
• The build schedule shows periods of zero
requirements before a requirement of 50
component parts is encountered.
• This requirement sequence, very common to
component parts, is not handled well with traditional
non-time-phased order-point techniques.
5-30
31. Dependent Demand Systems
• MRP systems utilize substantially better information
on future requirements than is possible by the
traditional non-time-phased order-point system.
• MRP systems are helpful for companies with
assembled products that have component
requirements dependent on the final product.
• The system provides information to better
determine the quantity and timing of component
parts and purchase orders than is possible with the
non-time-phased order-point system.
5-31
32. The Material Requirements Concept
• The MRP concept provides the basis for projecting future
inventories in a manufacturing operation.
• MRP can help improve the traditional non-time-phased order-
point system because it allows the operating manager to plan
requirements (raw material, component parts) to meet the
final assembly schedule.
• That is, MRP provides a plan for component and subassembly
availability that allows certain end products to be scheduled
for final assembly in the future.
5-32
33. The General Lot-Sizing Problem
• The general lot-sizing problem for time-phased requirements
for a component part involves converting the requirements
over the planning horizon (the number of periods into the
future for which there are requirements) into planned orders
by batching the requirements into lots.
5-33
34. Quantity Discounts
for the Variable Demand Case
• It has been shown in the previous section that MRP
provides time-phased requirements to determine
planned orders using lot-sizing procedures.
• The general lot-sizing problem is to batch requirements
to minimize the sum of ordering and carrying cost each
time an order is to be placed.
• Up until now, conditions for quantity discounts have
not been discussed.
5-34
35. Quantity Discounts
for the Variable Demand Case
• The safety stock should be set to achieve a prespecified service
level. Setting safety stock so as to achieve a prespecified service
level enables fair comparison of the alternative lot-sizing
procedures. The service level, S, is defined as
• S = (The number of units required that were in inventory)/(The
number of units required)
• If a discount is available, there is a price differential (lower price)
for ordering an increased number of units. In this chapter, the
discount applies to all units provided an amount at least as big as
the discount quantity is purchased.
• In situations where discounts are not available, the price per unit is
constant regardless of the number of units ordered.
5-35
37. Illustration of Various
Variable-demand Lot-sizing Models
• There has been a significant amount of attention given to the
variable-demand order size lot-sizing problem.
• Both developmental and comparative literature will be discussed in
this section.
• Among the better-known lot-sizing methods for the single item,
nondiscount, time-phased, certain-demand models are
(1) lot for lot,
(2) economic order quantity,
(3) periodic order quantity,
(4) least unit cost,
(5) McLaren’s order moment,
(6) Silver-Meal, and
(7) the Wagner-Whitin dynamic programming algorithm.
5-37