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Transcript of Inventory Concepts
M Sc. Luis Jesús Pérez Rivera
"A quantity of a commodity in the control of an enterprise, held for some time to satisfy some future demand."
Work in process (WIP)
Types of inventory:
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.
Customer response at shortage
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.
: the demand of several items are not related
: the demand of an item is a consequence of the demand of a higher level item.
10 ferraris california?
: future demand of an item is known with CERTAINTY.
: the opposite of
, it's often a more realistic assumption but harder to deal with.
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:
What about customer satisfaction (service level)?
inventory turnover benchmark
Where should the data come from?
Is the per-item cost paid to the supplier. Let
be the unit cost and
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
Any other relevant
Cost of capital
Obsolescence / Spoilage
Miscellaneous (damage, security, tax, theft, insurance, etc.)
The holding cost is denoted by
and is measured in $/time unit. It may be obtained as a fraction
of the unit cost of the product (
). That is:
Typical annual values of
are 25% to 40%, but
can be as high as 60%
By time unit
During the course we'll see a variety of models, policies and approaches to various aspects of different inventory systems.
Imagine the complexity of a multi-item system with thousands of items on it!
Pareto Analysis: separate "important" from "nonimportant".
Pareto principle was applied to inventory systems the first time by Dickie (1951).
He called it ABC Analysis.
The ABC curve ranks the inventory items in descending order according to a one given criteria, such as:
- Sales ($)
- Cost of sales
- Sales (units)
With the ranking done items are classified as A, B or C according to it.
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
No fixed convention to which items are A, B or C
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!