Prof. Upendra Kachru
Topic 3
Inventory Models
OperationsManagement (2)
All organizations have inventory Can be a sizable organizational
asset Influences sales (revenue
generation and customer relations)
Influences production/ operations costs
Large amounts reduces ROI Costs of having inventory Frequently the largest single
expenditure Excesses can result in losses
Prof. Upendra Kachru
WHY STUDY INVENTORY?
Inventory is the stock of any item or resource used in an organization.
Prof. Upendra Kachru
WHAT IS INVENTORY?
Working Stock Safety Stock Anticipation Stock Pipeline Stock Decoupling Stock Psychic Stock
Prof. Upendra Kachru
Inventory Categories
Functions ofInventory
Prof. Upendra Kachru
Functions
To protect against variations (fluctuations) in demand and supply
To take advantage of batches and longer production runs
To facilitate intermittent production
To provide flexibility to allow changes in production plans in view of changes in demand etc.
To take advantage of price discounts by bulk purchases
To meet anticipated and current demand
Functions of Inventory
To smooth production requirements from seasonality
Capacity Requirement
without Inventory
Capacity Requirement with
Inventory
Excess Demand from Inventory
J F M A M J J A S O N D
Dem
and
Excess Production to
Inventory
Functions of Inventory
Department 1 Department 2 Department 3 Department 4
Interstage
Inventory D1
Interstage
Inventory D2
Interstage
Inventory D3
To decouple different components of the internal inventory-distribution system.
Prof. Upendra Kachru
INVENTORY FUNCTIONS
Finished Goods
(Production)
In-Process Goods
(Production)
Raw Materials & Supplies
(Purchasing)
Supply
(Marketing)
Demand
Anticipation Stock
Decoupling Stock
To meet anticipated demand
Psychic Stock
Safety Stock
Significance of Inventory
FunctionalArea
Functional Responsibility
Inventory GoalInventoryInclination
Marketing
Sell the ProductMaximize customer service
High
Production Make the Product Efficient lot sizes High
Purchasing
Buy required materials Low cost per unit High
Finance
Provide working capital Efficient use of capital Low
Engineering
Design the product Avoid obsolescence Low
Prof. Upendra Kachru
Prof. Upendra Kachru
Area
Marketing / Sales
Production
Purchasing
Finance
Warehousing
Typical Response
I can’t sell without adequate stocks. I can’t keep our customers if we continue to stockout and there is not sufficient product variety
If I can produce larger lot sizes, I can reduce per unit cost and function efficiency.
I can reduce our per unit cost if I buy large quantities in bulk.
Where am I going to get the funds to pay for the inventory? The levels should be lower.
I am out of space. I can’t fit anything else in the building.
Marketing revenue generation customer relations
Production efficiencycost of operations cost of operations
Financeliquidity return on investment
LogisticsHandling CapacitySpace
Prof. Upendra Kachru
Inventory Objectives
MaximizeCustomer
Service
OperatingEfficiency
MinimizeInventory
Investment
Balancing Objectives1. Provide customer service
2. Support plant efficiency
3. Minimize inventory investment
Prof. Upendra Kachru
INVENTORY PLANNING
AND CONTROL
INPUTS OUTPUTS
CONSTRAINTSMgt. policies
Working capitalSpace
Plant capacity
DECISION RULES1. What to order?2. When to order?3. How much?4. From whom?
OPERATIONS PLANNINGForecastsDemand ratesProduction ratesStock-on-handBackordersLead timesProduct structures
PurchaseOrder / Set-up
HoldingStockout
COSTS
Inventory – PLANNING & CONTROL
Prof. Upendra Kachru
Inventory Costs
Inventory Costs are additive
Prof. Upendra Kachru
Inventory Costs• Holding (or carrying) costs• Ordering Costs/ Setup (or
production change) costs• Shortage or Stock-out Costs
Prof. Upendra Kachru
Stock-out Costs
External Shortage1. Present Profit Loss (potential sales)
2. Backorder Costs3. Future Profit Loss (goodwill erosion)
Internal Shortage1. Lost Production (idle people / machines)
2. Substitute Cost (alternate)3. Overtime / Extra Shift Cost4. Delay Project Completion Date
Average Inventory Investment: The rupee value of a company’s average level of inventory is one of the most common measures of inventory.
Inventory Turnover Ratio: It is a ratio that measures how many times during a year the inventory turns around.
Inventory Metrics
Prof. Upendra Kachru
Inventory turnover = annual cost of goods sold/average inventory investment
Days of Inventory: This measure is an indication of approximately how many days of sales can be supplied solely from inventory.
Inventory Metrics
Prof. Upendra Kachru
Days of inventory = avg. inventory investment/ (annual cost of gods sold/days per year)
Days of inventory = days per year/ inventory turnover rate
The inventory of a medium sized business organization would comprise thousands of items, each item with different usage, price, lead time and specifications. There could be different procurement and technical problems associated with different items.
In order to escape this quagmire many selective inventory management techniques are used.
Inventory Control by Classification Systems
Prof. Upendra Kachru
The ABC classification is based on focusing efforts where the payoff is highest; i.e. high-value, high-usage items must be tracked carefully and continuously.
Typically only 20 percent of all the items account for 80 percent of the total rupee usage, while the remaining 80 percent of the items typically account for remaining 20 percent of the rupee value.
The large value items constitute only 20 percent, the ABC analysis makes the task relatively easier.
Prof. Upendra Kachru
Vilfredo Pareto’s 80-20 rule.
TYPICAL ABC INVENTORY ANALYSIS
A = HIGH VALUE ITEMSB = MEDIUM VALUE ITEMSC = LOW VALUE ITEMS
Prof. Upendra Kachru
0
20
40
60
80
100
120
0 20 40 60 80 100
CBA
PE
RC
EN
T O
F T
OTA
L D
OL
LA
R U
SA
GE
PERCENT OF TOTAL ITEMS
Prof. Upendra Kachru
TYPICAL ABC INVENTORY ANALYSIS
40
20
0
20
40
60
80
60
A
BCP
ER
CE
NT
OF
R
UP
EE
VA
LU
EP
ER
CE
NT
OF
IT
EM
S
RELATIVE ANALYSIS OF ABC CLASSIFICATIONS
Prof. Upendra Kachru
Item Degree of
Control
Type of Records Lot Sizes Frequency of
Review
Size of Safety
Stocks
A Tight Accurate / Complete Low Continuous Small
B Moderate Good Medium Occasional Moderate
C Loose Simple Large Infrequent Large
1. Difficult Procurement Items
2. Short Shelf Life
3. Large Storage Space Requirements
4. Item’s Operational Criticality
5. Likelihood of Theft
6. Difficult Forecast Items
Prof. Upendra Kachru
ABC EXCEPTIONS
Other Classification Systems
Prof. Upendra Kachru
Title Basis Main Uses
ABC (Level of Usage) Value of consumptionraw material components and work-in progress inventories
HML (High, medium, low usage)
Unit price of the material Mainly to control purchase.
FSND (Fast, Slow moving, Non moving, Dead )
Consumption pattern of the component
Control obsolescence.
SDE (Scarce, difficult, easy to obtain items)
Problems faced in procurement
Lead time analysis and purchasing strategies
GOLF (Government, Ordinary, Local, Foreign)
Source of the material Procurement strategies
VED (Vital, Essential, (Desirable)
Criticality of the component
To determine the stocking levels of spare parts.
SOS (Seasonal, Off-seasonal)
Nature of suppliersSeasonal items like agriculture products
XYZ ( Value of Stock) Value of items in storageTo review the inventories and their use scheduled intervals.
Inventory systems are predicated on whether demand is derived from an end item or is related to the item itself.
There are two types of models that are used in the case of independent demand:
◦ Single Period Models, and◦ Multiple Period Models.
Prof. Upendra Kachru
INVENTORY MODELS
E(1)
Independent Demand
Dependent Demand
subassemblies, raw materials, etc)
Finishedproduct
Component parts
SINGLE PERIOD MODELS
Prof. Upendra Kachru
Prof. Upendra Kachru
Single-Period Inventory Models are a special case of periodic inventory systems.
One time purchasing decision (Example: vendor selling food at Siababa temple)
Seeks to balance the costs of inventory overstock and under stock
It is used for a wide variety of service and manufacturing applications
Single-Period Inventory
Model
After prayers at the Siababa temple on Thursdays, people go to a vendor to eat food. The vendor has collected data over a few months that show, on an average, 100 meals were sold with a standard deviation of 10 meals.
If our vendor wants to be 90 percent sure of not running out of food each Thursday, how many meals should he prepare?
Prof. Upendra Kachru
Problem and Solution
If we assume that the distribution is normal and the vendor prepared food for exactly 100 persons, the risk of food running out would be 50 percent. The demand would be expected to be less than 100 meals 50 percent of the time, and greater than 100 the other 50 percent.
To be 90 percent sure of not falling short, he needs to prepare more food.
From the “standard normal distribution“, we can find out that he needs to have additional food to cover 1.282 standard deviations.
In order to ensure that he is 90 percent sure having sufficient food:The number extra food required would be 1.282 x 100 = 128.2, or 129 meals.
In order to ensure that he is 90 percent sure having sufficient food:The number extra food required would be 1.282 x 100 = 128.2, or 129 meals.
z
f(z)F(0.9)= ŷ+1.282σ
z*
If Co = Cost per unit of demand overage, Cu = Cost per unit of demand underage, The probability that the unit will be sold is ‘P’;
Prof. Upendra Kachru
Single-Period Inventory Model
The expected marginal cost equation can be represented as:
P * Co < (1-P) * CuSolving for P, we obtainP < [Cu / (Co +Cu)]
Here (1-P) is the probability of the service/ product not being sold.
A newspaper vendor is faced with the problem of deciding how many newspapers to order daily so as to maximize the daily profit.
Daily demand (d) for newspapers is a random variable.
No reordering is possible during a day, ◦ If the newsvendor orders fewer papers than customers
demand he or she will lose the opportunity to sell some papers.
If supply exceeds demand, the vendor will be stuck with papers which cannot be sold.
Prof. Upendra Kachru
The Classical Newsvendor’s Problem
Based on observations over several weeks, the vendor has established the following probability distribution of daily demand:
The vendor purchases daily papers at Rs.2 and sells them at Rs. 5 apiece. Leftover papers are valueless and are discarded (i.e. no salvage value).
Prof. Upendra Kachru
Demand Data
Demandd
ProbabilityP(d)
Cumulative Prob.F(d) = P(D d)
35 or less36373839404142434445
46 or more
0.000.050.070.080.150.150.200.150.100.030.020.00
0.000.050.120.200.350.500.700.850.950.981.001.00
The vendor identifies two penalty costs which he/she will incur, regardless of his/her decision:
Cost of Overage
CO = Purchase Price - Salvage Value = c - s
For each paper overstocked the newsvendor incurs a penalty cost of:
CO = Rs. 2.00 – Rs.0.00 = Rs. 2.00
Cost of Underage
CU = Selling Price - Purchase Price = p - c
For each paper understocked the newsvendor incurs a penalty (opportunity) cost of:
CU = Rs. 5.00 – Rs. 2.00 = Rs. 3.00
Prof. Upendra Kachru
Assume that there is already a policy in place to order a certain number of papers daily, say 38.
Consider the decisions:
D1 : Continue the present policy: Stock 38 papers.
D2 : Order one more paper: Stock 39 papers.
The possible events are:
E1 : The 39th paper sells (i.e. demand 39 = demand > 38).
E2 : The 39th paper does not sell (i.e. demand 39 = demand 38).
Prof. Upendra Kachru
To Stock orNot to Stock!
Item 39 will not sell on a given day only if demand on that day is for 38 or fewer items:
Prof. Upendra Kachru
P(D 38) = F(38) = 0.20.
The probability that an item will not sell is the cumulative probability associated with the previous item. Item 39 will sell on a given day only if demand on that day is for 39 or more items:
P(D 39) = 1 - P(D 38) = 1 - F(38) = 1 - 0.2 = 0.80.
The expected payoff is:Rs. 3(0.8) + (- Rs. 2)(0.2) = Rs. 2.
This implies an increase in profit of Rs. 2.00 as compared to the alternative decision which has a payoff of Rs. 0.00. He should stock the 39th paper.
This implies an increase in profit of Rs. 2.00 as compared to the alternative decision which has a payoff of Rs. 0.00. He should stock the 39th paper.
Inventory Management Game
Prof. Upendra Kachru
Product Price Sell Don’t Sell (Overage)
Stockout (Underage)
Burger 18.00 7.00 9.00 11.00
Pizza 23.00 12.00 23.00 17.00
Patties 8.00 4.00 4.00 6.00
Samosa 6.00 2.00 6.00 3.00
Sandwich 10.00 5.00 5.00 7.00
Pastry 7.00 3.00 3.50 5.00
Hotdog 11.00 4.00 11.00 6.00
MULTI PERIOD INVENTORY MODELS
Prof. Upendra Kachru
◦ Fixed-Order Quantity Models: Event triggered (Example: running out of stock)
◦ Fixed-Time Period Models: Time triggered (Example: Monthly sales call by sales representative)
Prof. Upendra Kachru
Multi-Period Inventory Models
Prof. Upendra Kachru
Time T1 T2
Inve
nto
ry L
eve
l
‘Q
’
Fixed order Quantity and Fixed-Time Period Differences
Feature Fixed-order quantity Model Fixed-Time Period Model
Order quantity The same amount ordered each time
Quantity varies each time order is placed
When to place order Reorder point when inventory position dips to a predetermined level
Reorder when the review period arrives
Record keeping Each time a withdrawal or addition is made
Counted only at review period.
Size of inventory Less than fixed-time period model Larger than fixed-order quantity model
Time to maintain Higher due to perpetual record keeping
Type of items Higher-priced, critical, or important items.
Prof. Upendra Kachru
Fixed Order Quantity ModelsEconomic Order Quantity (EOQ) models, due to simplicity and versatility, are fixed order quantity models used for material planning.
When independent demand is the most important issue, the EOQ model provides a solution to the problem.
Prof. Upendra Kachru
The Inventory Cycle
Profile of Inventory Level Over Time
Quantityon hand
Q
Receive order
Placeorder
Placeorder
Lead time
Reorderpoint
Receive order
Receive order
Usage rate
Time
The inventory cycle determines when an order should be placed and how much should be ordered so as to minimize average annual variable costs.
Prof. Upendra Kachru
Prof. Upendra KachruProf. Upendra Kachru 41
The basic assumptions in the EOQ Model are as follows: The rate of demand for the item is deterministic
and is a constant ‘D’ units per annum independent of time.
Lead time is zero or constant and it is independent of both demand as well as the quantity ordered.
Price per unit of product is constant Inventory holding cost is based on average
inventory Ordering or setup costs are constant
The EOQ Model
Prof. Upendra Kachru
COST MINIMIZATION GOAL
42
Ordering Costs
HoldingCosts
Order Quantity (Q)
COST
Annual Cost ofItems (DC)
Total Cost
QOPT
By adding the item, holding, and ordering costs together, we determine the total cost curve, which in turn is used to find the Qopt inventory order point that minimizes total costs
By adding the item, holding, and ordering costs together, we determine the total cost curve, which in turn is used to find the Qopt inventory order point that minimizes total costs average inventory level:
The holding cost per unit:
The setup cost per unit:
The production cost per unit:
2
Q
D
HQ
D
rvQ
22
Q
A
P
Prof. Upendra Kachru
BASIC FIXED-ORDER QUANTITY (EOQ) MODEL FORMULA
Total Annual =Cost
AnnualPurchase
Cost
AnnualOrdering
Cost
AnnualHolding
Cost+ +
TC=Total annual costD =DemandP =Cost per unitQ =Order quantityA =Cost of placing an order or setup costR =Reorder pointL =Lead timeH = v*r =Annual holding and storage cost per unit of inventory
TC=Total annual costD =DemandP =Cost per unitQ =Order quantityA =Cost of placing an order or setup costR =Reorder pointL =Lead timeH = v*r =Annual holding and storage cost per unit of inventory
TC = P*D + D*A / Q + Q*v*r / 2
Prof. Upendra Kachru
The EOQ
Cost Holding Annual
Cost) Setupor der Demand)(Or 2(Annual
H
2DA =
rv
2DA = QOPT
Reorder point, R = d L_
d = average daily demand (constant)
L = Lead time (constant)
_
We also need a reorder point to tell us when to place an order
We also need a reorder point to tell us when to place an order
Prof. Upendra Kachru
A company, for one of its class ‘A’ items, placed 8 orders each for a lot of 150 numbers, in a year. Given that the ordering cost is Rs. 5,400.00, the inventory holding cost is 40 percent, and the cost per unit is Rs. 40.00. Find out if the company is making a loss in not using the EOQ Model for order quantity policies.
What are your recommendations for ordering the item in the future? And what should be the reorder level, if the lead time to deliver the item is 6 months?
‘D’ = Annual demand = 8*150 = 1200 units
‘v’ = Unit purchase cost = Rs. 40.00
‘A’ = Ordering Cost = Rs. 5400.00
‘r’ = Holding Cost = 40%
EOQ Model Problem
Prof. Upendra Kachru
Using the Economic Order Equation:
QEOQ = √ (2*A*D /r*v) = 900 units.
Minimum Total Annual Cost (TC) = √ 2*A*D*r*v = Rs. 14,400.00
The Total annual Cost under the present system = Rs. 45,000.00
The loss to the company = Rs. 45,000 – Rs. 14,400 = Rs. 30,600.00
Reorder Level = Ro = L*D = (6/12)* 1200 = 600 units
The company should place orders for economic lot sizes of 900 units in each order.
It should have a reorder level at 600 units.
TC= = √ 2*5400*1200*0.40*40
QEOQ = √ (2*5400*1200)/(0.40*40)
= Rs. (1200*5400/150 + 0.40*40*150/2) = Rs. (43,800 + 1200)
Total Costs with Purchasing Cost
Co
st
EOQ
TC with Purchasing Cost
TC without Purchasing Cost
Purchasing Cost
0 Quantity
Adding Purchasing costdoesn’t change EOQ
Prof. Upendra Kachru
Total Cost with Constant Carrying Costs
OC
EOQ Quantity
Tota
l Co
st
TCa
TCc
TCbDecreasing Price
CC a,b,c
Prof. Upendra Kachru
ProblemNovelty Ltd carries a wide assortment of items for its customers. One item, Gaylook, is very popular. Desirous of keeping its inventory under control, a decision is taken to order only the optimal economic quantity, for this item, each time. You have the following information. Make your recommendations:
◦ Annual demand : 1,60,000 units◦ Price per unit : Rs.20◦ Carrying cost : Re.1 per unit or 5 per cent◦ Cost per order : Rs. 50
Determine the optimal economic quantity.
Prof. Upendra Kachru
Prof. Upendra Kachru
Order per year
Size Average inventory
Carrying cost (Re.1)
Ordering cost (Rs.50
per order)
Total cost per year
1 1,60,000 80,000 80,000 50 80,000
10 16,000 8,000 8,000 500 8,500
40 8,000 4,000 4,000 1,000 5,000
80 4,000 2,000 2,000 2,000 4,000
100 2,000 2,000 1,000 4,000 5,000
1,600 800 800 5,000 5,800
Solution
The optimum economic quantity (lot size) for this item is 4,000 numbers.
What-if
Show that changing the order quantity by a small amount has very little effect on the cost.
Prof. Upendra Kachru
Prof. Upendra Kachru
Quantity Discounts
Quantity discounts, which are price incentives to purchase large quantities, create pressure to maintain a large inventory.
For any per-unit price level, P, the total cost is:
Total annual cost = Annual holding cost + Annual ordering or setup cost + Annual cost of materials
C = (H) + (A) + PDQ2
DQ
Total cost curves with purchased materials added
Quantity Discounts
EOQs and price break quantities
C for P = Rs.4.00C for P = Rs.3.50C for P = Rs.3.00
PD forP = Rs.4.00 PD for
P = Rs.3.50 PD forP = Rs.3.00
EOQ 4.00
EOQ 3.50
EOQ 3.00
First price break
Second price break
Tota
l cos
t (R
upee
s)
Tota
l cos
t (R
upee
s)
Purchase quantity (Q)0 100 200 300
Purchase quantity (Q)0 100 200 300
First price break
Second price break
Prof. Upendra Kachru
Step 1. Beginning with the lowest price, calculate the EOQ for each price level until a feasible EOQ is found. It is feasible if it lies in the range corresponding to its
price. Step 2. If the first feasible EOQ found is for the
lowest price level, this quantity is the best lot size. Otherwise, calculate the total cost for the first feasible
EOQ and for the larger price break quantity at each lower price level. The quantity with the lowest total cost is optimal.
Finding Q with Quantity Discounts
Prof. Upendra Kachru
Annual demand (D) = 936 unitsOrdering cost (A) = Rs. 45
Holding cost (H) = rv = 25% of unit price
Order Quantity Price per Unit
0 – 299 Rs. 60.00300 – 499 Rs. 58.80500 or more Rs. 57.00
A supplier for Apollo Hospital has introduced quantity discounts to encourage larger order quantities of a special catheter. The price schedule is:
Problem
Prof. Upendra Kachru
EOQ 57.00 =2DS
H2(936)(45)0.25(57.00)
= = 77 units
EOQ 58.80 =2DS
H2(936)(45)0.25(58.80)
= = 76 units
EOQ 60.00 =2DS
H2(936)(45)0.25(60.00)
= = 75 units
This quantity is feasible because it lies in the range corresponding to its price.
Not feasible
Not feasible
Feasible
Step 1: Start with lowest price level:
= Rs. 56,999
Step 2: The first feasible EOQ of 75 does not correspond to the lowest price level. Hence, we must compare its total cost with the price break quantities (300 and 500 units) at the lower price levels (Rs.58.80 and Rs.57.00):
C = (rv) + (A) + PDQ2
DQ
C75 = [(0.25)(Rs. 60.00)] + (Rs. 45) + Rs. 60.00(936)752
93675
C75 = Rs. 57,284
C300 = [(0.25)(Rs. 58.80)] + (Rs. 45) + Rs. 58.80(936)300
2936300
= Rs. 57,382
C500 = [(0.25)(Rs.57.00)] + (Rs.45) + Rs. 57.00(936)500
2936500
The best purchase quantity is 500 units, which qualifies for the deepest discount.
Prof. Upendra Kachru
© 2007 Pearson Education
Decision Point:If the price per unit for the range of 300 to 499 units is reduced to Rs. 58.00, the best decision is to order 300 catheters.
Prof. Upendra Kachru
This shows that the decision is sensitive to the price schedule. A reduction of slightly more than 1 percent is enough to make the difference in this example.
Annual Demand 936Ordering Cost Rs. 45.00Holding Cost 25%
Price EOQ Inventory Cost Order Cost Purchase Cost Total Cost
Rs. 60.00 75 Rs. 562.50 Rs. 562.50 Rs. 56,160 Rs. 57,284
Rs. 58.00 300 Rs. 2175 Rs. 140.40 Rs. 54,288 Rs. 56,603
Rs. 57.00 500 Rs. 3563 Rs. 84.24 Rs. 53,352 Rs. 56,999
Lower unit cost Higher holding costs
Lower ordering costs Larger inventory investment
Fewer stockouts Older stock
Price increase hedge Slow inventory turnover
QUANTITY DISCOUNTS
Advantages Disadvantages
In many retail merchandising systems, a fixed-time period system is used. Sales people make routine visits to customers and take orders. Inventory, therefore, is counted only at particular times.
Fixed-time period models generate order quantities that vary from period to period, depending on the usage rates.
Fixed-Time Period Models
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Fixed Period Model
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IT L)(dQ
L = Lead Time
usage period Averaged T = Time between orders
I = Existing Inventory
Q = Order Size
IT LddQ
A T d Quantity Order Average
Total Annual Cost = Purchase Cost + Ordering Cost + Holding Cost
Q/2)(H A/Q)DDPCT (
Prof. Upendra Kachru
Prof. Upendra Kachru
Order Quantity = Average demand over the vulnerable period + safety stock - Inventory currently on hand
LT zILTQ )(dWhere
z = Number of standard deviations for a specified service probability
σT + L= Standard deviation of demand over the review and lead time
Accounting for Safety Stock:
SS IT L)(dQ
Fewer orders are placed
Purchase discounts more likely
Lower shipping and freight costs
Prof. Upendra Kachru
Fixed Time Period System - Advantages
Consumes capital Requires storage space Incurs taxes Requires insurance Can become lost, stolen,
damaged, outdated, or obsolete
Must be counted, sorted, verified, stored, retrieved, moved, issued, and protected
Prof. Upendra Kachru
Ever - increasing storage space needs
Slow-moving materials Disposition of scrap, obsolete, &
surplus materials Transaction recording errors Misplaced materials
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Classical Inventory Prblems
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RAW MATERIALS INVENTORY PROFILE
Excess StockSurplus / Idle
Working Stock
Safety Stock
Outputs
Inputs
Nonproductive
Productive
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IN-PROCESS INVENTORY PROFILE
In-ProcessInventory
Unreleased Orders
Orders in TransitOrders in Temporary Storage
Orders Waiting to be Worked
Orders Being Inspected
Orders Being Worked
Backlog
Nonproductive
Productive
Outputs
Inputs
Finished Goods
1. Standardize Stock Items
2. Reduce Lead Times
3. Reduce Cycle Times
4. Use Fewer Suppliers
5. Inform Suppliers of Expected Demand
6. Contract for Minimum Annual Purchases
7. Buy on Consignment
8. Consider Transportation Costs
9. Order Economical Quantities
10. Control Access to Storage Areas
11. Obtain Better Forecasts
Prof. Upendra Kachru
Inventory System Improvement
12. Dispose of Excess Stock
13. Improve Record Accuracy (cycle count)
14. Improve Capacity Planning
15. Minimize Setup Times
16. Simplify Product Structures
17. Multishift operations
18. Continuous Improvement
Prof. Upendra Kachru
Inventory System Improvement
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