Learning Goals – Inventory Management
- Identify the advantages, disadvantages, and costs of holding inventory.
- Define the different types of inventory and the roles they play in supply chains.
- Explain the tactics for reducing inventories in supply chains.
- Use ABC analysis to determine the items deserving most attention and tightest inventory control.
- Calculate the economic order quantity and apply it to various situations.
- Determine the order quantity and reorder point for a continuous review inventory control system.
- Determine the review interval and target inventory level for a periodic review inventory control system
9 INVENTORY MANAGEMENT
Ford’s Smart Inventory Management System (SIMS)
Pressures for Small Inventories
Pressures for Large Inventories
Managerial Practice 9.1 Inventory Management at Netflix
Types of Inventory
Accounting Inventories: Heads of accounts under which accounting entries are made for inventory purchases and issues.
Raw materials are the basic material items needed for the production of components or for doing a service.
Work-in-process (WIP) consists of items, such as components or sub-assemblies, needed to produce a final product in manufacturing.
Finished goods (FG) in manufacturing plants, warehouses, and retail outlets are the items sold
to the customers.
Inventories are classified as independent demand items (items demanded by customers) and
dependent demand items (items required to produce finished goods bought by customers).,
Inventory Reduction Tactics
Reduce lot size.
Safety Stock Inventory
Safety stock can be reduced by reducing uncertainty about demand information. supply lead times and quantities, and quality problems. This reduction is achieved through
1. Improving e demand forecast methods. Supply chain design to increase collaboration with customers to get information for changes in demand levels.
2. Cutting down the lead times of purchased or produced items to reduce demand uncertainty over the long lead times. This is achieved by flexible production facilities which allow small batch sizes.. Local suppliers may be able to supply small lots with shorter lead times.
3. Reduce supply uncertainties by partnerships on long term contract basis and sharing of production plans. The mechanisms to increase collaboration with suppliers help. Collaboratively reduce
unexpected scrap or rework by improving manufacturing processes to six sigma levels. Promote preventive maintenance of equipment to minimize unexpected downtime.
4. Create equipment and labor buffers and develop cross-trained workers to cater to increased demands instead of carrying safety inventories. Potential overtime is a buffer of this nature.
Managing Uncertainty in the Supply Chain: Safety Inventory – Review Notes on Chopra and Meindl’s BooK
The primary lever is to match increased demand for a product with increase in production.
1. Produce multiple products with different demand cycles so that a peak in the demand for one product compensates for the seasonal low for another and thus increase in demand is satisfied by increase in production for that item.
Secondary levers can be used to influence and even out customer demand by providing off-season promotional campaigns or by offering seasonal pricing plans
Inventory in production and transport pipelines is a function of demand during the lead time. Hence the primary way is to reduce the lead time and throughput time of the process. The line or lean manufacturing process give less pipeline inventories.
The other ways that can help managers cut lead times:
1. Find suppliers and carriers who offer lower lead times. Improved materials handling within the plant also will help. Improving the information system could reduce information transmission, processing, action and confirmation between supply chain tiers.
2. Reduce lot size in those cases where the lead time depends on the lot size.
ABC Analysis based Inventory Planning
This method is the equivalent of creating a Pareto chart and focusing on important factors except that it is applied to inventory rather than to process error causes.
Economic Order Quantity
Calculating the EOQ
Managerial Insights from the EOQ
The simple formula that will come is
EOQ = SQRT of (2DS/H)
Continuous Review System
Selecting the Reorder Point when Demand and Lead Time Are Constant
Selecting the Reorder Point when Demand Is Variable and Lead Time Is Constant
Selecting the Reorder Point when Both Demand and Lead Time Are Variable
Systems Based on the Q System
Calculating Total Q System Costs
Advantages of the Q System
When the inventory position of a SKU reaches a predetermined minimum level, called the reorder point level (R), a fixed quantity Q (EOQ) of the SKU is ordered.
Periodic Review System
Selecting the Time Between Reviews
Selecting the Target Inventory Level when Demand Is Variable and Lead Time Is Constant
Selecting the Target Inventory Level when Demand and Lead Time Are Variable
Systems Based on the P System
Calculating Total P System Costs
Advantages of the P System
Learning Goals in Review
Video Case Inventory Management at Crayola
Experiential Learning 9.1 Swift Electronic Supply, Inc.
Case Parts Emporium 369
SUPPLEMENT C Special Inventory Models
Learning Goals in Review
PART III: MANAGING SUPPLY CHAINS – Krajewski 12 Edition Chapters
Top Global Companies for Supply Chain Excellence – Supply Chain Strategies and Initiatives