1. 1. Inventory and Inventory management 2. Lead time 3. Reserve stock and safety stock 4. Reorder level 5. Economic order quantity 6. Trade off between total costs of inventory and order quantity 7. Customer Service levels 8. Average inventoryvbnovvkhbifyt 9. Selective Inventory Control 10. Pareto’s rule

27. ROL LEAD TIME CONSUMPTION Q Lead Time Lead Time Lead Time INVENTORY CYCLE TIME INVENTORY CYCLE TIME INVENTORY CYCLE TIME INV D Q - MODEL Q = EOQ = √2AD/h ROL = LEAD TIME CONSUMPTION

30. ROL LEAD TIME CONSUMPTION Q Lead Time Lead Time Lead Time INVENTORY CYCLE TIME INVENTORY CYCLE TIME INVENTORY CYCLE TIME INV D Q - MODEL Q = EOQ + (ROL – ACTUAL) = √2AD/h + (ROL – ACTUAL) ROL = LEAD TIME CONSUMPTION ACTUAL INV LEVEL

31. ROL LEAD TIME CONSUMPTION Q Lead Time Lead Time Lead Time INVENTORY CYCLE TIME INVENTORY CYCLE TIME INVENTORY CYCLE TIME INV D SAFETY STOCK 1 Q - MODEL SAFETY STOCK 2 Fixed Order Quantity Approach (condition of uncertainty) When demand and lead time vary

32. Fixed Order Interval Approach Decisions about review period T & S Optional replenishment Approach Decisions about review period, S and s

33. Lead Time Lead Time Lead Time INVENTORY CYCLE TIME INVENTORY CYCLE TIME INVENTORY CYCLE TIME INV D P - MODEL ‘ S’ MAX STOCK I 2 INVENTORY LEVEL I 1 INVENTORY LEVEL ‘ s’ MIN STOCK (S – I 1 ) =

40. 07/07/11 I 50 ROP 50 OQ 200 D 5 I 80 ROP 75 OQ 200 D 14 I 250 ROP 200 OQ 400 WHOLESALER A WHOLESALER B REACTIVE INVENTORY ENVIRONMENT DISTRIBUTION CENTER

43. 07/07/11 Then a common day’s supply, DS, for distribution center inventories is, A + ∑I DS = -------------- ∑ D 500 + ∑ 50 + 100 + 75 DS = -------------------------- ∑ 10 + 50 + 15 = 9.67days. Now amount of inventory allocated to distribution center 1 is [9.67 – 50/10]X10 = 4.67X10 = 46.7 units, say 47 units. Similarly we can find allocations for distribution centers 2 & 3

51. SUB ASSEMBLY II SUB ASSEMBLY II SUB ASSEMBLY I C2 C5 B2 A5 D5 C3 D1 D2 D3 D4 A1 A2 B1 C1 C4 A3 A4 MAJOR ASSEMBLY

56. Customers orders inventory transactions Forecasts Engineering changes Inventory status file [finished items, WIP, planned orders Master production schedule [which product to produce, in what quantity & when] Bill of materials file [product structure and routing] MRP I SYSTEM PLANNED SCHEDULES AND VARIOUS OTHER REPORTS

61. Orders [production plan] Bill of materials Inventory records Material requirement planning [MRP] Capacity requirement planning [CRP] Realistic? Execute capacity plans Execute materials plan yes No

71. DRP & MRP LINK DISTRIBUTION CENTER I LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 55, ORDER QUANTITY 500 WEEKS Order to Central Supply Facility Arrival From Central Supply Facility DETAILS 0 1 2 3 4 5 6 7 8 WEEKLY REQ - 50 50 60 70 80 70 60 50 STOCK 352 302 252 192 122 542 472 412 362 WHEN & HOW MUCH? 500 500

72. DISTRIBUTION CENTER II LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 40, ORDER QUANTITY 150 WEEKS Order to Central Supply Facility Arrival from Central Supply Facility DETAILS 0 1 2 3 4 5 6 7 8 WEEKLY REQ - 20 25 15 20 30 25 15 30 STOCK 140 120 95 80 60 180 135 145 110 WHEN & HOW MUCH? 150 150

73. DISTRIBUTION CENTER III LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 115, ORDER QUANTITY 800 WEEKS Order to Central Supply Facility Arrival from Central Supply Facility DETAILS 0 1 2 3 4 5 6 7 8 WEEKLY REQ - 115 115 120 120 125 125 125 120 STOCK 1020 905 790 670 550 425 300 175 855 WHEN & HOW MUCH? 800 800

74. TO MRP SCHEDULE LEAD TIME IS 3 WEEKS, SAFETY STOCK IS 287, ORDER QUANTITY 2200 CENTRAL SUPPLY FACILITY From I & II From III FROM PRODUCTION WEEKS DETAILS 0 1 2 3 4 5 6 7 8 WEEKLY REQ - - - 650 - - 800 - - STOCK 1250 1250 1250 600 600 600 2000 2000 2000 WHEN & HOW MUCH? 2200 2200