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Inventory Concepts

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Luis Jesús Pérez Rivera

on 27 March 2017

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Transcript of Inventory Concepts

Inventory Concepts
M Sc. Luis Jesús Pérez Rivera
Inventory
"A quantity of a commodity in the control of an enterprise, held for some time to satisfy some future demand."
Raw
Material
Work in process (WIP)
Finished
Goods
Types of inventory:
Inventory purpose
Maintain flexibility between operations
Absorb demand variability
Allow flexibility during production scheduling
Absorb lead time variability
Take advantage of discounts based on the ordered quantity.
Inventory costs
Ordering Cost
Customer response at shortage
1. Backorder
the customer is willing to wait for an item. Penalties: production stoppage, expedition, possible late delivery, bad reputation, record keeping

2. Lost sales.
Mayor penalty is the lost profit and loss of goodwill.

the different inventory types needed to meet customer wants and needs.
planning
coordinating
controlling
acquisition,
storage,
handling,
movement,
distribution,
possible sale
involves
the
of
Inventory Management
I
ndependent &
D
ependent Demand
I
: the demand of several items are not related
D
: the demand of an item is a consequence of the demand of a higher level item.
(1)
(1)
(1)
(1)
(4)
10 ferraris california?
D
eterministic &
S
tochastic Demand
D
: future demand of an item is known with CERTAINTY.
S
: the opposite of
D
, it's often a more realistic assumption but harder to deal with.
Inventory Policies
What to order?
When to order?
How much to order?
Periodic review system
Continuous review system
eg. S,T model
eg. Q,r model
They're all classics!
:)
There are 3 key decision variables:
Performance measures
What about customer satisfaction (service level)?

Excercise:
inventory turnover benchmark
Where should the data come from?

Purchasing cost
Inventory Costs
1. Purchasing
2. Ordering
3. Holding
4. Shortage
Is the per-item cost paid to the supplier. Let
c

be the unit cost and
Q
be number of units purchased (lot size). Then the total purchasing cost is:
A fixed cost, usually independent of the lot size purchased. Includes all costs associated with placing or receiving an order. Denoted by
A

Buyer time
Transportation
Receiving
Any other relevant
Holding Cost
Includes:

Cost of capital
Obsolescence / Spoilage
Handling
Occupancy
Miscellaneous (damage, security, tax, theft, insurance, etc.)
Holding Cost
The holding cost is denoted by
h
and is measured in $/time unit. It may be obtained as a fraction
i
of the unit cost of the product (
c
). That is:
Example:
Typical annual values of
i
are 25% to 40%, but
i
can be as high as 60%
|
Shortage Costs
Fixed
($)
By time unit
(eg. $/day)
Usually
Control Decisions
During the course we'll see a variety of models, policies and approaches to various aspects of different inventory systems.

Imagine the complexity of a multi-item system with thousands of items on it!
Control Decisions
Pareto Analysis: separate "important" from "nonimportant".

Pareto principle was applied to inventory systems the first time by Dickie (1951).

He called it ABC Analysis.
|
ABC Analysis
The ABC curve ranks the inventory items in descending order according to a one given criteria, such as:

- Sales ($)
- Cost of sales
- Profit
- Sales (units)

ABC Analysis
With the ranking done items are classified as A, B or C according to it.


ABC Analysis
The objective of an ABC analysis is being able to establish a control system with the proper control level given the importance of each class.


A: Very important

Important
less important
Some observations
No fixed convention to which items are A, B or C
70/20/10 ?
Eye balling the curve: A until it starts bending, B until it stops doing it.
The steeper the curve more separation power it has: fewer items will be very important
Be logical and use your common sense!


backorder
lost sales
Full transcript