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1.Explain what is inventory, their types and disadvantages 2.Explain how volume decisions are made 3.Explain how timing decisions are made 4.Understand ABC analysis
Presenter Name
2. Checks price and stock by inputting catalogue number (900/7712) and full post code (NW15LS)
3. Purchases the product
Total stock
Note: these figures don't include what's being held in hospital blood banks up and down the country. NHS blood stock website: http://www.blood.co.uk/StockGraph/stocklevelstandard.aspx
What is Inventory?
Inventory, also called stock , is the stored
Inventory is created to compensate for the differences in timing between supply and demand
Rate of supply from input process
Inventory
Input process
Output process
Inventory
Cycle inventory
Inventory that occurs when one stage in a process cannot supply all the items it produces simultaneously; build up inventory of one item while it processes the others; batch production (bread making).
Cycle Inventory
Unilever purchases chemicals to make liquid detergent. The production line is running at a fixed speed.
Order quantity =Q
Steady and predictable demand (D)
Inventory level
Cycle inventory = Q 2 Q 2
Time
Position of Inventory
Single-stage and two-stage inventory systems
Single-stage inventory system Multi-stage inventory system
Stock*
Sales operation
Central depot
Distribution
Sales operation
Suppliers
Suppliers
Outline of Lecture
1.Explain what is inventory, their types and disadvantages 2.Explain how volume decisions are made
Source: www.fotosearch.com
Stock-holding costs = warehouse and all associated storage costs; obsolescence risk cost; management and stock control; insurance; security staff and security systems
Inventory level
Cycle Q inventory = 2
Time interval between deliveries = Q D Replenishment orders with instantaneous deliveries at a rate of D per period Q
Time
Time
0.1 yr 0.4 yr
EOQ = the quantity of items to order that supposedly minimises the total cost of inventory management; the optimum order quantity
Holding costs
100
50 Order costs Economic order quantity (EOQ) 50 100 150 200 250 Order quantity 300 350 400
Cost s
Original total costs Original holding costs Original order costs Revised order costs Revised EOQ Original EOQ
Order quantity
Outline of Lecture
1.Explain what is inventory, their types and disadvantages 2.Explain how volume decisions are made
Inventory level
Time
Safety stock(s) helps to avoid stock-outs when demand and/or order lead times are uncertain
Re-order level (ROL) Inventory level Distribution of lead-time usage d1 d2 S t1 Re-order points Time t2
Lead-time usage - the amount of inventory that will be used between ordering replenishment and the inventory arriving, usually described by a probability distribution to account for uncertainty in demand and lead time.
Bin 1
Bin 2
Bin 1
Bin 2
Bin 3
Safety inventory
Outline of Lecture
1.Explain what is inventory, their types and disadvantages 2.Explain how volume decisions are made
Class A items the 20% or so of highusage value items which account for around 80% of the total usage value
Class B items the next 30% or so of medium-usage value items which account for around 10% of the total usage value
Class C items the remaining 50% or so of low-usage value items which account for around the last 10% of the total usage value
Reduce variation
Safety stock can also be lowered if variation of lead time, variation of demandsupply, variation of quality are reduced
Just-in-time inventory
Philosophy and technique that seeks to remove inventory holdings; small lot production
Measuring Inventory
Summing up the total value provides give an absolute measurement. However, in industrial practice a relative measurement, inventory turnover, is often used.
Alternatives
Vendor Managed Inventory (VMI):
Summary
1.What is inventory, their types and disadvantages 2. How volume decisions are made 3. How timing decisions are made
4. ABC analysis
Further reading
Hollins, B., and Shinkins, S. (2006) Managing Service Operations Design and Implementation, Sage. (See Chapter 10 Global Supply Chain Management; and Chapter 12 Managing Capacity and Variations in Demand) Slack, N., Chambers, S., and Johnston, R. (2007) Operations Management, FT Prentice Hall. (See Chapter 12 Inventory Planning and Control) Mangan, J., Lalwani, C., and Butcher, T. (2008) Global Logistics and Supply Chain Management, John Wiley & Sons. (See Chapter 6 Inventory Management)