Professional Documents
Culture Documents
Chapter 9
Inventory Management
Capacity
Management Direct
Supply Network
Management
Inventory Operations
Management
management
Design Develop
Production Deliver
Planning and
Control
Lean
Synchronization
Key operations questions
Input Output
process process
Simultaneous
operations
Different
stages at
different
Random schedules
demand
Coping with
planned
fluctuations
Cope with
transportation
? delays
Holding an Inventory: Disadvantages
Risk of
damage/
Working
loosing
capital
Administr
ative cost
Valuable
Insurance
space
cost
Obsolete
?
Ways of reconciling capacity and demand
Demand
Level capacity Chase demand
management
Ways of reconciling capacity and demand (cont’d)
Cycle inventory:
To cope with operational inability to produce simultaneously
Decoupling inventory:
To allow different stages to operate at different speeds and
different schedules
Anticipation inventory:
To cope with planned fluctuations in supply and demand
Pipeline inventory:
To cope with transportation delays in supply network
A multi-echelon inventory system
Garment
manufacturers
Cloth Regional
manufacturers warehouses
Yarn Retail
producers stores
How much to order?
When to Order?
350
300
200
100
Order costs
50 Economic
order quantity
(EOQ)
50 100 150 200 250 300 350 400
Order quantity
Inventory profiles chart the variation in inventory level
Steady and
predictable
Order demand Slope = demand rate (D)
quantity = Q (D)
Average
Inventory level
=Q
inventory
2
Q Time
D
Frequency of deliveries=D/Q
Holding cost= holding cost/unit* avg. inventory
=Ch*Q/2
2 2𝐶𝑜𝐷
0=Ch/2-CoD/Q Q* (EOQ)=
𝐶ℎ
Economic Order Quantity…important formula’s
EOQ=223.60 units
Inventory Classifications: ABC
A way of categorising inventory items by cost and usage:
100
Percentage of value of items
90
80
70
60
50
40 Class A Class B Class C
30 items items items
20
10
10 20 30 40 50 60 70 80 90 100
Percentage of types of items
Inventory Classifications: FSN
A way of categorising inventory items by its rate of sale:
• No moving inventory
• Cassettes in supermarket
Inventory Classifications: VED
A way of categorising inventory items by its importance:
• Vital
• e.g. car engines or gearboxes
• Essential
• e.g. Steering wheel
• Desirable
• e.g. Floor mats
Exam Hint