Chapter 16 Inventory Management IDS 605 Busing.
21
PRO B 1 Forecasted Demand Production Employees Month (Units) (Units) Required Jan 80000 80000 40 Feb 90000 90000 45 M ar 90000 90000 45 Apr 80000 80000 40 M ay 80000 80000 40 Jun 70000 70000 35 Jul 60000 60000 30 A ug 50000 50000 25
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Transcript of Chapter 16 Inventory Management IDS 605 Busing.
PROB 1 Forecasted Demand Production Employees
Month (Units) (Units) RequiredJan 80000 80000 40Feb 90000 90000 45Mar 90000 90000 45Apr 80000 80000 40May 80000 80000 40Jun 70000 70000 35Jul 60000 60000 30Aug 50000 50000 25
PROB 1&2 Forecasted Demand Production Employees Employees Employees
Month (Units) (Units) Required Hired FiredJan 80000 80000 40 Feb 90000 90000 45 5Mar 90000 90000 45 Apr 80000 80000 40 5May 80000 80000 40Jun 70000 70000 35 5Jul 60000 60000 30 5Aug 50000 50000 25 5
TOTAL 5 20
COST 2,500.00$ 20,000.00$
PROB 7 Forecasted Planned Beginning Ending AverageSales Production Inventory Inventory Inventory
Month (Units) (Units) (Units) (Units) (Units)
Aug 3000 2000 3000 2000 2500Sep 1500 2000 2000 2500 2250Oct 1000 2000 2500 3500 3000Nov 1000 2000 3500 4500 4000Dec 1000 2000 4500 5500 5000Jan 1000 2000 5500 6500 6000Feb 800 2000 6500 7700 7100Mar 1500 2000 7700 8200 7950Apr 2000 2000 8200 8200 8200May 4000 2000 8200 6200 7200Jun 6000 2000 6200 2200 4200Jul 4000 2000 2200 200 1200
TOTAL 58600
PROB 7 Forecasted Planned Beginning Ending AverageSales Production Inventory Inventory Inventory
Month (Units) (Units) (Units) (Units) (Units)
Aug 3000 2000 3000 2000 2500Sep 1500 2000 2000 2500 2250Oct 1000 2000 2500 3500 3000Nov 1000 2000 3500 4500 4000Dec 1000 2000 4500 5500 5000Jan 1000 2000 5500 6500 6000Feb 800 2000 6500 7700 7100Mar 1500 2000 7700 8200 7950Apr 2000 2000 8200 8200 8200May 4000 2000 8200 6200 7200Jun 6000 2000 6200 2200 4200Jul 4000 2000 2200 200 1200
TOTAL 586001,758,000.00$
Chapter 16Chapter 16Inventory ManagementInventory Management
IDS 605IDS 605BusingBusing
Purposes of InventoryPurposes of Inventory
Meet expected demand Absorb demand fluctuations Protect against unexpected
increases in demand Decouple stages in the
production process Take advantage of quantity
discounts Hedge against possible price
increases Protect against disruption in
delivery from suppliers
Transparency 16.1
Types of InventoryTypes of Inventory
Raw materials Work-in-process (WIP) Finished goods Replacement parts Supplies Transportation
Transparency 16.2
Dependent andDependent andIndependent DemandIndependent Demand
Dependent Demand = usually generated by a company’s own production process
Independent Demand = usually from outside sources such as customers
Transparency 16.3
Types of Inventory SystemsTypes of Inventory Systems Perpetual (Continuous Review)
» Inventory level continuously monitored
» Transactions recorded as they occur
» Maintain specific level of inventory
Periodic» Inventory counted only at
regular intervals» Inventory depends upon
demand
Transparency 16.4
ABC Classification of Inventory ABC Classification of Inventory ItemsItems
Transparency 16.5 (Exhibit 16.2)
123456789
10
5,000200
2,000800
1,0001,2001,3002,5003,500
500
$ 30450
102010
5421
20
$ 150,00090,00020,00016,00010,000
6,0005,2005,0003,5001,000
306,700
48.9129.34
6.525.223.261.961.691.631.14
.33
AABBBCCCCC
Cumulative Annual Unit Annual Dollar % Annual % AnnualItem Demand Cost Usage Dollar Usage Dollar Usage Classification
48.9178.2584.7789.9993.2595.2196.9098.5399.67
100.00
Aggregate Performance Aggregate Performance MeasuresMeasures
-Average inventory investment
-Turnover ratio
- Days of inventory
Annual cost of goods soldAverage inventory investment
Days per yearTurnover ratio
Transparency 16.6
Costs of InventoryCosts of Inventory Inventory Ordering
Costs» Fixed
– Staffing– Office and equipment
» Variable– Shipping– Order placing– Setup cost– Lost materials– Receiving and inspection
Inventory Holding Costs» Fixed
– Warehouse-capital– Property taxes– Warehouse-operating– Personnel
» Variable– Cost of capital– Insurance– Losses– Inventory taxes– Rental costs
Transparency 16.7
EOQ Model AssumptionsEOQ Model Assumptions
1. Constant known demand rate
2. Cost per unit fixed3. Instantaneous
replenishment4. Ordering and carrying
cost known and independent
Transparency 16.8
Basic EOQ Inventory PatternBasic EOQ Inventory Pattern
Transparency 16.10 (Exhibit 16.4)
Total Annual Variable CostsTotal Annual Variable Costs
Transparency 16.9 (Exhibit 16.3)
EOQ ModelEOQ ModelD = Annual Demand rateCo = Variable ordering costCh = Variable holding cost
Q C DQC
Q DCC
Q DCC
h o
o
h
o
h
*
*
*
*
( )
2
2
2
2
Transparency 16.11
EOQ ModelEOQ ModelD = Annual Demand rateCo = Variable ordering costCh = Variable holding cost
D = 1,000 units/yearCo = $50 per order Ch = $5 per unit per year
EOQDCC
o
h
2
EOQ 2 1 000 50
5( , )( )
20 000 141 42, .Transparency 16.11
Total Annual Variable CostTotal Annual Variable Cost (Slide 1 of 2) (Slide 1 of 2)
Annual variable ordering cost = Co
Annual variable holding cost = Ch
Total annual variable cost = Ch + Co
D
Q
Q
QQD
2
2
Transparency 16.12a
Total Annual Variable CostTotal Annual Variable Cost (Slide 2 of 2) (Slide 2 of 2)
D = 1,000 Co = $50 Ch = $5EOQ = 141.42Total annual variable costs
141.42 1,000 2 141.42
140 1,000 2 140
145 1,000 2 145
200 1,000 2 200
EOQ:
140:
145:
200:
(5)
(5)
(5)
(5)
+
+
+
+
(50) = $707.11
(50) = $707.14
(50) = $707.33
(50) = $750.00
Transparency 16.12b
Quantity Produced During Quantity Produced During Replenishment Period vs. Maximum Replenishment Period vs. Maximum
InventoryInventory
Transparency 16.13 (Exhibit 16.7)
Finite Replenishment Rate ModelFinite Replenishment Rate ModelD = annual demand rate Co = Variable ordering costCh = variable holding cost d = dally demand ratep = daily production rate
EPQDC
C d po
h
21( / )
Total annual variable costs
Q d p C DQCh o2
1( / )
D = 1,000; Co = $50; Ch = $5; d = 4; p = 10
EPQ
2 1000 505 1 4 10
182 57( )( )( / )
.
Transparency 16.14
