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http://slidepdf.com/reader/full/heizer121 1/31

© 2008 Prentice Hall, Inc. 11 – 1

OperationsManagement Chapter 12 –Chapter 12 –Inventory Management Inventory Management

PowerPoint presentation to accompanyPowerPoint presentation to accompany

Heizer/RenderHeizer/Render

Principles o Operations Management! "ePrinciples o Operations Management! "e

Operations Management! #eOperations Management! #e

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$earning O%&ectives$earning O%&ectives

'hen yo( complete this chapter yo('hen yo( complete this chapter yo(sho(ld %e a%le to)sho(ld %e a%le to)

1*1* Cond(ct an +,C analysisCond(ct an +,C analysis

2*2* -.plain and (se cycle co(nting -.plain and (se cycle co(nting

** -.plain and (se the -O0 model or-.plain and (se the -O0 model or

independent inventory demand independent inventory demand ** Comp(te a reorder point and saetyComp(te a reorder point and saety

stoc stoc

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$earning O%&ectives$earning O%&ectives

'hen yo( complete this chapter yo('hen yo( complete this chapter yo(sho(ld %e a%le to)sho(ld %e a%le to)

3*3* +pply the prod(ction order 4(antity +pply the prod(ction order 4(antitymodel model

5*5* -.plain and (se the 4(antity-.plain and (se the 4(antitydisco(nt model disco(nt model

"*"* 6nderstand service levels and6nderstand service levels and pro%a%ilistic inventory models pro%a%ilistic inventory models

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Inventory Inventory

One o the most e.pensive assetsOne o the most e.pensive assetso many companies representing aso many companies representing as

m(ch as 378 o total investedm(ch as 378 o total investedcapital capital

Operations managers m(st %alanceOperations managers m(st %alance

inventory investment and c(stomerinventory investment and c(stomerserviceservice

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9(nctions o Inventory 9(nctions o Inventory

1*1* :o deco(ple or separate vario(s:o deco(ple or separate vario(s parts o the prod(ction process parts o the prod(ction process

2*2* :o deco(ple the irm rom:o deco(ple the irm roml(ct(ations in demand andl(ct(ations in demand and

provide a stoc o goods that will provide a stoc o goods that will provide a selection or c(stomers provide a selection or c(stomers

** :o tae advantage o 4(antity:o tae advantage o 4(antitydisco(ntsdisco(nts

** :o hedge against inlation:o hedge against inlation

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:ypes o Inventory :ypes o Inventory

Raw material Raw material

P(rchased %(t not processed P(rchased %(t not processed

'or;in;process'or;in;process

6ndergone some change %(t not completed 6ndergone some change %(t not completed

+ (nction o cycle time or a prod(ct + (nction o cycle time or a prod(ct

Maintenance/repair/operating <MRO=Maintenance/repair/operating <MRO=

>ecessary to eep machinery and processes>ecessary to eep machinery and processes prod(ctive prod(ctive

9inished goods9inished goods

Completed prod(ct awaiting shipment Completed prod(ct awaiting shipment

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http://slidepdf.com/reader/full/heizer121 7/31© 2008 Prentice Hall, Inc. 11 – 7

Inventory Management Inventory Management

How inventory items can %eHow inventory items can %eclassiied classiied

How acc(rate inventory recordsHow acc(rate inventory recordscan %e maintained can %e maintained

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+,C +nalysis +,C +nalysis

?ivides inventory into three classes?ivides inventory into three classes%ased on ann(al dollar vol(me%ased on ann(al dollar vol(me

Class + ; high ann(al dollar vol(meClass + ; high ann(al dollar vol(me

Class , ; medi(m ann(al dollarClass , ; medi(m ann(al dollarvol(mevol(me

Class C ; low ann(al dollar vol(meClass C ; low ann(al dollar vol(me

6sed to esta%lish policies that oc(s6sed to esta%lish policies that oc(son the ew critical parts and not theon the ew critical parts and not themany trivial onesmany trivial ones

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ItemItem@toc@toc

>(m%er >(m%er

Percent oPercent o>(m%er o>(m%er o

ItemsItems@toced @toced

+nn(al +nn(alAol(meAol(me<(nits=<(nits= . .

6nit6nitCost Cost BB

+nn(al +nn(al?ollar?ollar

Aol(meAol(me

Percent oPercent o +nn(al +nn(al?ollar?ollar

Aol(meAol(me ClassClass

172D5 172D5 20%20% 1,0001,000 $ 90.00$ 90.00 $ 90,000$ 90,000 38.8%38.8% + +

11325 11325 500500 154.00154.00 77,00077,000 33.2%33.2% + +

12"57 12"57 1,5501,550 17.0017.00 26,35026,350 11.3%11.3% ,,

17D5" 17D5" 30%30% 350350 42.8642.86 15,00115,001 6.4%6.4% ,,

17377 17377 1,0001,000 12.5012.50 12,50012,500 5.4%5.4% ,,

72%72%

23%23%

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ItemItem@toc@toc

>(m%er >(m%er

Percent oPercent o>(m%er o>(m%er o

ItemsItems@toced @toced

+nn(al +nn(alAol(meAol(me<(nits=<(nits= . .

6nit6nitCost Cost BB

+nn(al +nn(al?ollar?ollar

Aol(meAol(me

Percent oPercent o +nn(al +nn(al?ollar?ollar

Aol(meAol(me ClassClass

123"2 123"2 600600 $ 14.17$ 14.17 $ 8,502$ 8,502 3.7%3.7% C C

17"3 17"3 2,0002,000 .60.60 1,2001,200 .5%.5% C C

7175 7175 50%50% 100100 8.508.50 850850 .4%.4% C C

717" 717" 1,2001,200 .42.42 504504 .2%.2% C C

173"2 173"2 250250 .60.60 150150 .1%.1% C C

8,5508,550 $232,057$232,057 100.0%100.0%

5%5%

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Cycle Co(nting Cycle Co(nting

Items are co(nted and records (pdatedItems are co(nted and records (pdatedon a periodic %asison a periodic %asis

Oten (sed with +,C analysisOten (sed with +,C analysis

to determine cycleto determine cycle Has several advantagesHas several advantages

-liminates sh(tdowns and interr(ptions-liminates sh(tdowns and interr(ptions

-liminates ann(al inventory ad&(stment -liminates ann(al inventory ad&(stment

:rained personnel a(dit inventory acc(racy :rained personnel a(dit inventory acc(racy

+llows ca(ses o errors to %e identiied and +llows ca(ses o errors to %e identiied andcorrected corrected

Maintains acc(rate inventory recordsMaintains acc(rate inventory records

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Cycle Co(nting -.ampleCycle Co(nting -.ample

3!777 items in inventory! 377 + items! 1!"37 , items! 2!"37 C3!777 items in inventory! 377 + items! 1!"37 , items! 2!"37 Citemsitems

Policy is to co(nt + items every month <27 woring days=! ,Policy is to co(nt + items every month <27 woring days=! ,items every 4(arter <57 days=! and C items every si. monthsitems every 4(arter <57 days=! and C items every si. months<127 days=<127 days=

ItemItemClassClass 0(antity 0(antity Cycle Co(nting Policy Cycle Co(nting Policy

>(m%er o Items>(m%er o ItemsCo(nted per ?ay Co(nted per ?ay

+ + 500500 -ach month-ach month 500/20 = 25/500/20 = 25/day day

,, 1,7501,750 -ach 4(arter -ach 4(arter 1,750/60 = 29/1,750/60 = 29/day day

C C 2,7502,750 -very 5 months-very 5 months 2,750/120 = 23/2,750/120 = 23/day day

77/77/day day

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Independent Aers(sIndependent Aers(s

?ependent ?emand ?ependent ?emand Independent demand ; theIndependent demand ; the

demand or item is independentdemand or item is independento the demand or any othero the demand or any otheritem in inventory item in inventory

?ependent demand ; the?ependent demand ; the

demand or item is dependentdemand or item is dependent(pon the demand or some(pon the demand or someother item in the inventory other item in the inventory

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Holding! Ordering! andHolding! Ordering! and

@et(p Costs@et(p Costs Holding costs ; the costs o holdingHolding costs ; the costs o holding

or EcarryingF inventory over timeor EcarryingF inventory over time

Ordering costs ; the costs oOrdering costs ; the costs o placing an order and receiving placing an order and receivinggoodsgoods

@et(p costs ; cost to prepare a@et(p costs ; cost to prepare amachine or process ormachine or process orman(act(ring an order man(act(ring an order

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Inventory Models orInventory Models or

Independent ?emand Independent ?emand

,asic economic order 4(antity ,asic economic order 4(antity

Prod(ction order 4(antity Prod(ction order 4(antity 0(antity disco(nt model 0(antity disco(nt model

>eed to determine when and how>eed to determine when and how

m(ch to order m(ch to order

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,asic -O0 Model ,asic -O0 Model

1*1* ?emand is nown! constant! and?emand is nown! constant! and

independent independent 2*2* $ead time is nown and constant $ead time is nown and constant

** Receipt o inventory is instantaneo(s andReceipt o inventory is instantaneo(s andcompletecomplete

** 0(antity disco(nts are not possi%le0(antity disco(nts are not possi%le

3*3* Only varia%le costs are set(p and holding Only varia%le costs are set(p and holding

5*5* @toco(ts can %e completely avoided @toco(ts can %e completely avoided

Important ass(mptionsImportant ass(mptions

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12;1"

Inventory 6sage Over :imeInventory 6sage Over :ime

:ime

I n v e n t o r y $ e v

e l

+verage

Inventory

<0G/2=

7

Minim(minventory

Order 4(antity

B 0 <ma.im(m

inventory level= 6sage

Rate

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12;1D

-O0 Model -O0 Model

How M(ch to Order How M(ch to Order

Order 4(antity

+nn(al Cost

H o l d i n

g C o s t C ( r v

e

: o t a l

C o s t C (

r v e

Order <@et(p= Cost C(rve

Optimal

Order 0(antity <0G=

Minim( m total

cost

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Ro%(st Model Ro%(st Model

:he -O0 model is ro%(st :he -O0 model is ro%(st

It wors even i all parametersIt wors even i all parametersand ass(mptions are not met and ass(mptions are not met

:he total cost c(rve is relatively:he total cost c(rve is relatively

lat in the area o the -O0 lat in the area o the -O0

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© 2008 Prentice Hall, Inc. 11 – 2012;27

-O0 Model -O0 Model 'hen :o Order 'hen :o Order

Reorder

Point

<ROP=

:ime

Inventory $evel

+verage

Inventory

<0G/2=

$ead :ime

Optimal

Order

0(antity <0G=

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Reorder PointsReorder Points

-O0 answers the Ehow m(chF 4(estion-O0 answers the Ehow m(chF 4(estion

:he reorder point <ROP= tells when to:he reorder point <ROP= tells when to

order order

ROPROP == $ead time or a$ead time or anew order in daysnew order in days

?emand?emand per day per day

== d . $d . $

d Bd B??

>(m%er o woring days in a year >(m%er o woring days in a year

:h R d P i t <ROP=:h R d P i t <ROP=

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© 2008 Prentice Hall, Inc. 11 – 2212;22

:he Reorder Point <ROP=:he Reorder Point <ROP=C(rveC(rve

0G

ROP

<6nits

=

@lope B (nits/day B

d

$ead time B

$

:ime

<days=

I n v e n t o r y l e v

e l

< ( n i t s =

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Prod(ction Order 0(antityProd(ction Order 0(antity

Model Model 6sed when inventory %(ilds (p6sed when inventory %(ilds (p

over a period o time ater anover a period o time ater anorder is placed order is placed

6sed when (nits are prod(ced6sed when (nits are prod(cedand sold sim(ltaneo(sly and sold sim(ltaneo(sly

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Prod(ction Order 0(antityProd(ction Order 0(antity

Model Model 0 B0 B >(m%er o pieces per order >(m%er o pieces per order p B p B ?aily prod(ction rate?aily prod(ction rate

H BH B Holding cost per (nit per year Holding cost per (nit per year d Bd B ?aily demand/(sage rate?aily demand/(sage rate

t Bt B $ength o the prod(ction r(n in days$ength o the prod(ction r(n in days

= (= ( +verage inventory level +verage inventory level )) . . +nn(al inventory +nn(al inventory

holding cost holding cost Holding costHolding cost

per (nit per year per (nit per year

= (= (Ma.im(m inventory level Ma.im(m inventory level )/2)/2 +nn(al inventory +nn(al inventorylevel level

= –= –Ma.im(mMa.im(minventory level inventory level

:otal prod(ced d(ring:otal prod(ced d(ringthe prod(ction r(nthe prod(ction r(n

:otal (sed d(ring:otal (sed d(ringthe prod(ction r(nthe prod(ction r(n

== pt – dt pt – dt

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0(antity ?isco(nt Models0(antity ?isco(nt Models

Red(ced prices are oten availa%le whenRed(ced prices are oten availa%le whenlarger 4(antities are p(rchased larger 4(antities are p(rchased

:rade;o is %etween red(ced prod(ct cost:rade;o is %etween red(ced prod(ct costand increased holding cost and increased holding cost

:otal cost B @et(p cost Holding cost Prod(ct cost :otal cost B @et(p cost Holding cost Prod(ct cost

:C B @ H P?:C B @ H P???

0 0 0 0

22

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0(antity ?isco(nt – How0(antity ?isco(nt – HowM(ch to Order M(ch to Order

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Pro%a%ilistic Models andPro%a%ilistic Models and

@aety @toc @aety @toc 6sed when demand is not constant or6sed when demand is not constant or

certaincertain

6se saety stoc to achieve a desired6se saety stoc to achieve a desiredservice level and avoid stoco(tsservice level and avoid stoco(ts

ROPROP == d . $d . $ ++ ssss

+nn(al stoco(t costs B the s(m o the (nits short +nn(al stoco(t costs B the s(m o the (nits short . the pro%a%ility . the stoco(t cost/(nit . the pro%a%ility . the stoco(t cost/(nit

. the n(m%er o orders per year . the n(m%er o orders per year

P % %ili ti M d lP % %ili ti M d l

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Pro%a%ilistic ModelsPro%a%ilistic Models'hen to Order 'hen to Order

Reorder

Point

<ROP=

Optimal

Order

0(antity

J

@aety @toc <@@=

:ime

Inventory $evel

$ead :ime

@@ ROP

@ervice$evel P<@toco(t=

Place

order Receive

order

9re4(ency

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9i.ed;Period @ystems9i.ed;Period @ystems

Inventory is only co(nted at eachInventory is only co(nted at eachreview period review period

May %e sched(led at convenient timesMay %e sched(led at convenient times

+ppropriate in ro(tine sit(ations +ppropriate in ro(tine sit(ations

May res(lt in stoco(ts %etweenMay res(lt in stoco(ts %etween

periods periods May re4(ire increased saety stoc May re4(ire increased saety stoc

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:ime

Inventory $evel :arget ma.im(m

Period Period Period

9i.ed Period Model 9i.ed Period Model 'hen to Order 'hen to Order

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Inventory $evel in a 9i.edInventory $evel in a 9i.edPeriod @ystemPeriod @ystem

Aario(s amo(nts <0 i = are ordered at reg(lar time

intervals <p= %ased on the 4(antity necessary to%ring inventory (p to target ma.im(m

p p p p p p

0 0 11 0 0

2 2

0 0

0 0

:arget

ma.im(m

:ime:ime

O n ; H

a n d

O n ; H

a n d

I n v e n

t o r y

I n v e n

t o r y

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heizer12(1)