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    Chapter 13 Inventory Management Report

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    Janine Sales
    This document discusses inventory management, which involves ordering, storing, using, and selling a company's raw materials, components, and finished products. It defines inventory and explains that inventory management is important for business operations and supply chain management. It describes different types of inventories and the objectives and functions of inventory control. It also covers topics like the ABC classification system, economic order quantity models, reorder points, safety stock, and operations strategies to improve inventory processes.

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    © All Rights Reserved
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    Chapter 13 Inventory Management Report

    Uploaded by

    Janine Sales
    27 views22 pages
    This document discusses inventory management, which involves ordering, storing, using, and selling a company's raw materials, components, and finished products. It defines inventory and explains that inventory management is important for business operations and supply chain management. It describes different types of inventories and the objectives and functions of inventory control. It also covers topics like the ABC classification system, economic order quantity models, reorder points, safety stock, and operations strategies to improve inventory processes.

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    CHAPTER 13 INVENTORY MANAGEMENT REPORT

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    This document discusses inventory management, which involves ordering, storing, using, and selling a company's raw materials, components, and finished products. It defines inventory and explains that inventory management is important for business operations and supply chain management. It describes different types of inventories and the objectives and functions of inventory control. It also covers topics like the ABC classification system, economic order quantity models, reorder points, safety stock, and operations strategies to improve inventory processes.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    27 views22 pages

    Chapter 13 Inventory Management Report

    Uploaded by

    Janine Sales
    This document discusses inventory management, which involves ordering, storing, using, and selling a company's raw materials, components, and finished products. It defines inventory and explains that inventory management is important for business operations and supply chain management. It describes different types of inventories and the objectives and functions of inventory control. It also covers topics like the ABC classification system, economic order quantity models, reorder points, safety stock, and operations strategies to improve inventory processes.

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    © All Rights Reserved
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    of 22

    CHAPTER 13:

    INVENTORY
    MANAGEMENT
    THE PROCESS OF ORDERING, STORING, USING, AND SELLING A COMPANY'S
    RAW MATERIALS, COMPONENTS, AND FINISHED PRODUCTS.

    Marielle Macapagal, Samantha Nicole Malabanan, Janine Sales


    WHAT IS INVENTORY?
    Inventory is the
    accounting of items,
    component parts and
    raw materials that a
    company either uses in
    production or sells.
    INVENTORY MANAGEMENT
    Inventory management is a core operations
    management activity. Effective inventory
    management is important for the successful
    operation of most businesses and their supply
    chains. Inventory management impacts
    operations, marketing, and finance. Poor
    inventory management hampers operations,
    diminishes customer satisfaction, and
    increases operating costs.
    TYPES OF INVENTORY
    1. Raw Materials
    2. Work-in-process (WIP)
    3. Finished goods (FG)
    4. Tools and supplies
    5. Maintenance and repairs (MRO) inventory
    6. Goods-in-transit to warehouse or customers
    (pipeline inventory)
    INVENTORY FUNCTIONS
    Inventories serve a number of
    functions such as:
    a. Meeting the customer demands.
    b. Reducing Lead Time.
    c. Managing Production
    d. Cost Management
    OBJECTIVES OF
    INVENTORY CONTROL
    To ensure a continuous supply of materials
    and stock.
    To avoid both overstocking and under-
    stocking of inventory.
    To maintain the availability of materials
    whenever and wherever required in enough
    quantity.
    To ensure the quality of goods at reasonable
    prices.
    To maintain a systematic record of inventory.
    ABC CLASSIFICATION SYSTEM
    A-B-C Approach
    Classifying inventory according to
    some measure of importance, and
    allocating control efforts accordingly

    A items (very important)


    10 to 20 percent of the number of
    items in inventory and about 60 to
    70 percent of the annual dollar
    value

    B items (moderately important)


    C items (least important)
    50 to 60 percent of the number of
    items in inventory and about 10 to
    15 percent of the annual dollar
    value
    HOW MUCH TO ORDER: EOQ
    MODELS
    Economic order quantity models identify the optimal order quantity
    by minimizing the sum if annual costs that vary with order size and
    frequency
    The basic economic order quantity model
    The economic production quantity model
    The quantity discount model

    BASIC EOQ MODEL


    The basic EOQ model is used to find a fixed order quantity that will
    minimize total annual inventory costs
    ASSUMPTIONS:
    Only one product is involved
    Annual demand requirements are known
    Demand is even throughout the year
    Lead time does not vary
    Each order is received in a single delivery
    There are no quantity discounts
    TOTAL ANNUAL COST
    TOTAL COST MINIMIZATION:
    DERIVING EOQ
    Using calculus, we take the derivative of the total cost function
    and set the derivative (slope) equal to zero and solve for Q.

    The total cost curve reaches its minimum where the carrying and
    ordering costs are equal
    QUANTITY DISCOUNT MODEL
    Quantity Discount
    Price reduction for larger orders offered to customers to
    induce them to buy in large quantities
    WHEN TO REORDER
    Reorder Point
    When the quantity on hand of an item drops to
    this amount, the item is reordered.
    Determinants of the reorder point
    a. The rate of demand
    b. The lead time
    c. The extent of demand and/or lead time
    variability
    d. The degree of stockout risk acceptable to
    management
    REORDER POINT: UNDER CERTAINTY

    Demand or lead time uncertainty creates the possibility that demand will be
    greater than available supply
    To reduce the likelihood of a stockout, it becomes necessary to carry safety
    stock
    SAFETY STOCK
    Stock that is held in excess of expected demand due to variable demand
    and/or lead time
    SAFETY STOCK
    As the amount of safety
    stock carried increases, the
    risk of stock out decreases.
    This improves customer
    service level
    Service Level
    The probability that
    demand will not exceed
    supply during lead time
    Service level = 100% -
    Stock out Risk
    HOW MUCH SAFETY STOCK
    The amount of safety stock that is appropriate for a given situation
    depends upon:
    a. The average demand rate and average lead time
    b. Demand and lead time variability
    c. The desired service level
    REORDER POINT
    The ROP based on a normal distribution of lead time demand
    REORDER POINT: DEMAND UNCERTAINTY

    Note: If only demand is variable, then


    REORDER POINT: LEAD TIME UNCERTAINTY

    Note: If only lead time is variable, then


    OPERATIONS STRATEGY
    Improving inventory processes can offer significant
    cost reduction and customer satisfaction benefits
    Areas that may lead to improvement:
    Record keeping - Records and data must be
    accurate and up-to-date
    Variation Reduction
    Lead Variation
    Forecast Errors
    Lean Operations
    Supply Chain Management
    REFERENCE/S:
    HTTPS://SLIDEPLAYER.COM/SLID
    E/4167757/?
    FBCLID=IWAR0Y2BFIHOA5J-
    RMLBLDEIUUH4CE4HZPZ8CAC1
    5PE9WRGNMA3KHPV4BTTES

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