balance score card
Transcript of balance score card
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Inventory Control&
Balanced Score Cardfor Store Operations
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To Integrate the food distribution system by integrating the procurement and distribution system
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Inventory & inventory system
• Inventory is the set of items that an organization holds for later use by the organization. An inventory system is a set of policies that monitors and controls inventory. It determines how much of each item should be kept, when low items should be replenished, and how many items should be ordered or made when replenishment is needed.
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Basic types of inventory
• independent demand,
• dependent demand, and
• supplies.
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Independent Demand
• Independent demand items are those items that we sell to customers.
• Dependent demand items are those items whose demand is determined by other items. Demand for a car translates into demand for four tires, one engine, one transmission, and so on. The items used in the production of that car (the independent demand item) are the dependent demand items.
• Supplies are items such as copier paper, cleaning materials, and pens that are not used directly in the production of independent demand items
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WHY INVENTORIES ARE NEEDED
• To maintain independence of operations• To meet variations in demand• To allow production schedule flexibility• To provide a safeguard for variations in raw
materials deliveries• To take advantage of economic purchase
order size
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INVENTORY COSTS YOU
• Holding or carrying costs• Ordering costs• Shortage and/or wrong inventory costs
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• INVENTORY MODELS– Independent versus Dependent Demand– Holding, Ordering, and Setup Costs
• INVENTORY MODELS FOR INDEPENDENT DEMAND– Basic Economic Order Quantity (EOQ) Model– Minimizing Costs– Reorder Points– Production Order Quantity Model– Quantity Discount Models
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CAN YOU ….Identify or Define:– Record accuracy– Cycle counting– Independent and dependent demand– Holding, Ordering, and Setup Costs
Describe or Explain:– The functions of inventory and basic
inventory models
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• Stock of materials• Stored capacity• Examples
What is Inventory?
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The Functions of Inventory
• To provide a stock of goods that will provide a “selection” for customers
• To take advantage of quantity discounts• To hedge against inflation and upward price
changes
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Types of Inventory
• Raw material• Work-in-progress• Maintenance/repair/operating supply• Finished goods
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• Higher costs– Item cost (if purchased)– Ordering (or setup) cost
• Costs of forms, clerks’ wages etc.
– Holding (or carrying) cost• Building lease, insurance, taxes etc.
• Difficult to control• Hides production problems
Disadvantages of Inventory
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• Physically counting a sample of total inventory on a regular basis
Cycle Counting
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Advantages of Cycle Counting
• Eliminates annual inventory adjustments• Provides trained personnel to audit the
accuracy of inventory• Allows the cause of errors to be identified
and remedial action to be taken• Maintains accurate inventory records
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Techniques for Controlling Service Inventory Include:
• Good personnel selection, training, and discipline
• Tight control of incoming shipments• Effective control of all goods leaving the
facility
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Independent versus Dependent Demand
• Independent demand - demand for item is independent of demand for any other item
• Dependent demand - demand for item is dependent upon the demand for some other item
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Inventory Costs
• Holding costs - associated with holding or “carrying” inventory over time
• Ordering costs - associated with costs of placing order and receiving goods
• Setup costs - cost to prepare a machine or process for manufacturing an order
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Holding (Carrying) Costs• Obsolescence• Insurance• Extra staffing• Interest• Pilferage• Damage• Warehousing• Etc.
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Ordering Costs
• Supplies• Forms• Order processing• Clerical support• Etc.
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Setup Costs
• Clean-up costs• Re-tooling costs• Adjustment costs• Etc.
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• Fixed order-quantity models– Economic order quantity– Production order quantity– Quantity discount
• Probabilistic models
• Fixed order-period models
Inventory Models
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• Known and constant demand• Known and constant lead time• Instantaneous receipt of material• No quantity discounts• Only order (setup) cost and holding cost• No stockouts
EOQ Assumptions
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Inventory Usage Over Time
Time
Inve
ntor
y Le
vel
AverageInventory
(Q*/2)
0
Minimum inventory
Order quantity = Q (maximum inventory level)
Usage Rate
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EOQ ModelHow Much to Order?
Order quantity
Annual Cost
Holding Cost CurveTotal Cost Curve
Order (Setup) Cost Curve
Optimal Order Quantity (Q*)
Minimum total cost
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• More units must be stored if more are ordered
Purchase OrderDescription Qty.Microwave 1
Order quantity
Purchase OrderDescription Qty.Microwave 1000
Order quantity
Why Holding Costs Increase
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Deriving an EOQ
1. Develop an expression for setup or ordering costs
2. Develop an expression for holding cost3. Set setup cost equal to holding cost4. Solve the resulting equation for the best
order quantity
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EOQ ModelWhen To Order
Reorder Point (ROP)
Time
Inventory Level
AverageInventory
(Q*/2)
Lead Time
Optimal Order
Quantity(Q*)
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Optimal Order Quantity
Expected Number of Orders
Expected Time Between Orders Working Days /Year
Working Days /Year
= = × ×
= =
= =
=
= ×
Q*D SH
ND
Q*
TN
dD
ROP d L
2
D = Demand per yearS = Setup (order) cost per orderH = Holding (carrying) cost d = Demand per dayL = Lead time in days
EOQ Model Equations
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The Reorder Point (ROP) CurveQ*
ROP (Units)
Slope = units/day = d
Lead time = LTime (days)
Inve
ntor
y le
vel (
units
)
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• Answers how much to order and when to order
• Allows partial receipt of material– Other EOQ assumptions apply
• Suited for production environment– Material produced, used immediately– Provides production lot size
• Lower holding cost than EOQ model
Production Order Quantity Model
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• Answers how much to order & when to order
• Allows quantity discounts– Reduced price when item is purchased in
larger quantities– Other EOQ assumptions apply
• Trade-off is between lower price & increased holding cost
Quantity Discount Model
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• Answer how much & when to order • Allow demand to vary
– Follows normal distribution– Other EOQ assumptions apply
• Consider service level & safety stock– Service level = 1 - Probability of stockout– Higher service level means more safety stock
• More safety stock means higher ROP
Probabilistic Models
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Probabilistic ModelsWhen to Order?
Reorder Point (ROP)
Optimal Order
Quantity X
Safety Stock (SS)
Time
Inventory Level
Lead Time
SSROP
Service Level P(Stockout)
Place order
Receive order
Frequency
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• Answers how much to order• Orders placed at fixed intervals– Inventory brought up to target amount– Amount ordered varies
• No continuous inventory count– Possibility of stockout between intervals
• Useful when vendors visit routinely– Example: P&G representative calls every 2
weeks
Fixed Period Model
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The Balanced Scorecard
The scorecard measures an organization’sperformance from four perspectives:
1. Financial
2. Customer
3. Internal business processes
4. Learning and growth
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Perspectives of Performance
1. Financial
2. Customer
3. Internal business process
4. Learning and growth
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Aligning the BalancedScorecard to Strategy
Different strategies call for different scorecards.
What are some of the financialperspective measures?
Operating income
Revenue growth
Cost reduction is some areas
Return on investment
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Aligning the BalancedScorecard to Strategy
What are some of the customerperspective measures?
Market share
Customer satisfaction
Customer retention percentage
Time taken to fulfill customers requests
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Aligning the BalancedScorecard to Strategy
What are some of the internal businessperspective measures?
Innovation Process:
Manufacturing capabilities
Number of new products or services
New product development time
Number of new patents
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Aligning the BalancedScorecard to Strategy
Operations Process:
Yield
Defect rates
Time taken to deliver product to customers
Percentage of on-time delivery
Setup time
Manufacturing downtime
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Aligning the BalancedScorecard to Strategy
Post-sales service:
Time taken to replace or repairdefective products
Hours of customer training forusing the product
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Aligning the BalancedScorecard to Strategy
What are some of the learning and growthperspective measures?
Employee education and skill level
Employee satisfaction scores
Employee turnover rates
Information system availability
Percentage of processes with advanced controls
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Pitfalls When Implementinga Balanced Scorecard
What pitfalls should be avoided whenimplementing a balanced scorecard?
1. Don’t assume the cause-and-effectlinkages to be precise.
2. Don’t seek improvements acrossall measures all the time.
3. Don’t use only objective measureson the scorecard.
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Pitfalls When Implementinga Balanced Scorecard
4. Don’t fail to consider both costs and benefitsof initiatives such as spending on informationtechnology and research and development.
5. Don’t ignore nonfinancial measures whenevaluating managers and employees.
6. Don’t use too many measures.
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Financial perspective – includes measures such as operating income, return on capital employed and economic value addedCustomer perspective – includes measures such as customer satisfaction, customer retention and market share in target segmentsBusiness process perspective – includes measures such as cost, throughput and quality. These are for business processes such as procurement, production and order fulfillment.Learning & growth perspective – includes measures such as employee satisfaction, employee retention, skill sets, etc.
Objectives – major objectives to be achieved for example , profitable growthMeasures – the observable parameters that will be used to measure progress towards reaching the objective. For example, the objective of profitable growth might be measured by growth in net marginTargets – the specific target values for the measures, for example, +2% growth in net marginInitiatives – action programs to be initiated in order to meet the objective
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Theses can be organized for each perspective in a table as below:
Objectives Measures Targets Initiatives
Financial
Customer
Process
Learning