Capacity & Inventory Management
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Transcript of Capacity & Inventory Management
Capacity and Inventory Management
Capacity Management
• Capacity = Maximum Output Rate (how many products can be produced or how much service can be provided when system is running at full tilt)
• What is the capacity of:– Theatre– Coffee Shop– Mechanic Shop– Factory– Human Brain
Factors Impacting Capacity
Manual and
Automated
Skilled and
Unskilled
Technology and
Infrastructure
Consistent and
Variant
Regulations and
Policies
Capacity Forecast
Modifying Capacity
Selecting the right capacity
• Essentially a Decision Making Problem
• Can be objective or subjective
• Find optimal solution using multiple capacity variables and constraints
• Use decision trees
30%
70%
60%
Inventory Management
• Why is Inventory required?
• What will happen if we have too little inventory?
• What will happen if we have too much inventory?
• When can we say that we have optimum inventory?
Inventory is required as a cover for all kinds of variations and
uncertainties in the production process and supply chain
Inventory allows economies of scale to kick in
Inventory Types
Inventory Costs
EOQ Model – Wilson Model• Underlying assumptions
– The ordering cost is constant.– The rate of demand is known, and spread evenly throughout the
year.– The lead time is fixed.– The purchase price of the item is constant i.e. no discount is
available– The replenishment is made instantaneously, the whole batch is
delivered at once.– Only one product is involved.– EOQ is the quantity to order, so that ordering cost + carrying
cost finds its minimum. (A common misunderstanding is that the formula tries to find when these are equal.)
EOQ Model – Author Ken Homa
Microsoft PowerPoint 97-2003 Presentation
Reorder Point/ Level
ABC Analysis
Class A 70 – 80% expenditure Usually small in number
Class B 10-15% expenditure Medium to large in number
Class C 5-10% expenditure Maybe large in number
Classify all items in inventory into ABC classes or categories as per Pareto principle