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InventoryInventoryManagementManagement

CHAPTERCHAPTER

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1. Describe the traditional inventory

management model.

2. Discuss JIT inventory management.

3. Explain the theory o constraints! and tell

ho" it can be used to manage inventory.

ObjectivesObjectives

ObjectivesObjectives

After studying thisAfter studying this

chapter, you shouldchapter, you should

be able to:be able to:

After studying thisAfter studying this

chapter, you shouldchapter, you should

be able to:be able to:

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Inventory #ostsInventory #osts

Inventory #ostsInventory #osts

1. Ordering costsare the costs o

placing and receiving an order.

2. Setup costsare the costs opreparing e$uipment and acilities

so they can be used to produce a

particular product or component.

3. Carrying costsare the costs o

carrying inventory.

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1. To balance ordering or setup costs and carrying costs.

2. To satisy customer demand.

3. To avoid shutting do"n manuacturing acilities

because o machine ailure! deective parts!unavailable parts! or late delivery o parts.

%. To buer against unreliable production processes.

&. To ta'e advantage o discounts.

(. To hedge against uture price increases.

Traditional )easons or #arrying InventoryTraditional )easons or #arrying Inventory

Traditional )easons or #arrying InventoryTraditional )easons or #arrying Inventory

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The Appropriate Inventory Policy

The Appropriate Inventory Policy

*o" much should be ordered or

produced+

,hen should the order be placed or

the setup be perormed+

T"o -asic uestions /ust be 0ddressed

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Total Costs = Ordering costs Carrying costs

TC = P!"# C#"2

The Traditional Inventory $odelThe Traditional Inventory $odel

The Traditional Inventory $odelThe Traditional Inventory $odel

,here T# The total ordering or setup and carrying costs

4 The cost o placing and receiving an order or thecost o setting up a production run

The number o units ordered each time an order is

placed

D The 'no"n annual demand

# The cost o carrying one unit o stoc' or one year

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The Traditional Inventory $odelThe Traditional Inventory $odelThe Traditional Inventory $odelThe Traditional Inventory $odel

Economic order

$uantity E5 24D6#

D 17!777 units 1!777 units

4 82& per order

# 82 per unit

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The Traditional Inventory $odelThe Traditional Inventory $odelThe Traditional Inventory $odelThe Traditional Inventory $odel

E5 82 x 82& x 17!77762

E5 2&7!777

E5 5'' (nits

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)eorder point )ate o usage x ead time

Example: The producer uses 50 parts per dayand that the lead time is 4 days.

)eorder point % x &7= !!units

T"us# an order s"ould $e placed %"en inventorydrops to !! units&

)eorder 4oint)eorder 4oint)eorder 4oint)eorder 4oint

!e*and is Certain!e*and is Certain

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!e*and is Certain!e*and is Certain

&77

%77

377

277

177

Inventory +(nits,

E5

)54

2 % ( : 17 12 1% 1( 1: 27

!ays

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a.ety toc/a.ety toc/

I the rerigerator part "as used at a rate o (7

parts a day instead o &7! the irm "ould use 277

parts ater three and one;third days. The saetystoc' is determined as ollo"sective is to eli*inate 9aste ?y prod(cing aprod(ct only 9hen it is needed and only in the

:(antities de*anded ?y c(sto*ers@

Plant layo(t is *anaged as a cell(lar syste* that*eans *achines are gro(ped in se*icircle@ Theyare arranged to per.or* a variety o. operationsin se:(ence@

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JIT /anuacturing ayoutJIT /anuacturing ayoutJIT /anuacturing ayoutJIT /anuacturing ayout

,elding

Brinder

Cell A

athe

4roduct

0

Ainished

4roduct

Cell

,elding

Brinder

athe

4roduct

-

Ainished

4roduct

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'IT And Inventory Management

JIT reduces the costs o ac$uiring inventory to

insigniicant levels byystem+,hat is the anban >ystem+,hat is the anban >ystem+,hat is the anban >ystem+

0 !ard "ystemis used to monitor "or';in;process

0 "ithdra"al anban

0 production anban

0 vendor anban

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,ithdra"al anban,ithdra"al anban,ithdra"al anban,ithdra"al anban

Item Fo.GGGGGGGGGGGGGGGGGGG GGGGGGGGGGGGG

Item FameGGGGGGGGGGGGGGGGG GGGGGGGGGGGGG

#omputer TypeGGGGGGGGGGGGG GGGGGGGGGGGGG

-ox #apacityGGGGGGGGGGGGGGG GGGGGGGGGGGGG

-ox TypeGGGGGGGGGGGGGGGGGG GGGGGGGGGGGGG

156%'T'%

Circ(it oard

T0654% PC

&

C

4rocessing 4rocess

C Asse*?ly

>ubse$uent 4rocess

inal Asse*?ly

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4roduction anban4roduction anban4roduction anban4roduction anban

Item Fo.GGGGGGGGGGGGGGGGGGG GGGGGGGGGGGGG


#omputer TypeGGGGGGGGGGGGG

-ox #apacityGGGGGGGGGGGGGGG

-ox TypeGGGGGGGGGGGGGGGGGG

156%'T'%

Circ(it oard

T0654% PC

&

C

4rocess

C Asse*?ly

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Hendor anbanHendor anbanHendor anbanHendor anban

Item Fo.GGGGGGGGGGGGGGGGGGG


-ox #apacityGGGGGGGGGGGGGGG

-ox TypeGGGGGGGGGGGGGGGGGG

Time to Deliver

Fame o >upplier

156%'T'&

Co*p(ter Casing

&

C

Fame o )eceiving #o.

lectro PC

)eceiving Bate

%5

&;3' A@$@ 12;3' P@$@ 2;3' P@$@

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7ot 9ith P-Ban?an

Prod(ction

Ordering Post

+6, ignal

C! Asse*?ly

0e*ove

+4, P-Ban?an

Attach to Post

+5, Attach

-Ban?an+1, 0e*ove

-Ban?an

Attach to

Post

ithdra9al Post

+2, +3,

+%,

inal Asse*?ly

+1,

anban 4rocessanban 4rocessanban 4rocessanban 4rocess

#- >tores#- >tores

,ithdra"al,ithdra"al

>tore>tore

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JITs imitationsJITs imitationsJITs imitationsJITs imitations

Time is re$uired to build sound relationships

"ith suppliers.

>harp reductions in inventory buers may

cause a regimented "or'lo" and high levels

o stress among production "or'ers.

The absence o inventory to buer production

interruptions.

#urrent sales are placed at ris' to achieve

assurance o uture sales.

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'IT And Inventory Management!isco(nts and Price Increases; IT P(rchasing

Ders(s olding Inventories

#areul vendor selection

ong;term contracts "ith vendors

Prices are stipulated .usually producing

a signi,icant savings/

0uality is stipulated

T"e num$er o, orders placed are reduced

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Throughput

Inventory 5perating expenses

Three $eas(res o. OrganiEational Per.or*ance

Theory o. ConstraintsTheory o. Constraints

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ive teps to I*prove Per.or*ance

1. Identiy the organi?ations constraints.

2. Exploit the binding constraints.

3. >ubordinate everything else to the

decisions made in >tep 2.

%. Elevate the binding constraints.&. )epeat the process.

Theory o. ConstraintsTheory o. Constraints

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$aterials

4rocess 04rocess 0

4rocess -4rocess -

DrummerDrummer

4rocess4rocess

Ti*e (..er

inished ystemDrum;-uer;)ope >ystemDrum;-uer;)ope >ystemDrum;-uer;)ope >ystem

4rocess #4rocess #

Ainal 4rocessAinal 4rocess0ope

Initial 4rocessInitial 4rocess

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Drum;-uer;)ope >ystemDrum;-uer;)ope >ystemDrum;-uer;)ope >ystemDrum;-uer;)ope >ystem

/aterial or 12 4arts per Day4art < ( and 4art < (

D)@//E)D)@//E)

DrillingDrilling

4rocess4rocess

BrindingBrinding

4rocess4rocess

4olishing4olishing

4rocess4rocess

0ope Ti*e

12 @nits

4art

( @nits 4art per Day

( @nits 4art per Day

Con.er

Co*pany

Con.er

Co*pany

(..er

12 @nits

4art

Ainished Boods

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The EndThe EndThe EndThe End#hapter Fineteen#hapter Fineteen

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ch19

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