Operations Management - Inventory Management
Operations Management - Inventory Management
MARIEL SOROLLA
DIANNE TAMAYO
ALEXIS TINAAN
JULIA VARGAS
GROUP 5 ANGELLICA
VELASQUEZ
INVENTORY
STOCK OR STORE OF
GOODS
INVENTORY MODELS
INDEPENDENT- DEPENDENT-
DEMAND ITEMS DEMAND ITEMS
Overall Objective:
To achieve satisfactory levels of customer
service while keeping inventory costs within
reasonable bounds.
THE NATURE AND IMPORTANCE OF
INVENTORIES
Inadequate control of inventory can result in under - and
overstocking of items.
UNDER-STOCKING OVERSTOCKING
2.Inventory Turnover
- ratio of annual cost of goods sold to average
inventory investment. Indicates how many times a year
the inventory is sold. Generally, the higher the ratio the
better. However, the desirable number of turns depends
on the industry and what the profit margins are.
THE NATURE AND IMPORTANCE OF
INVENTORIES
PERFORMANCE MEASURES TO JUDGE
EFFECTIVENESS OF INVENTORY MANAGEMENT
PERIODIC SYSTEM
Lead time
-time interval between ordering and receiving the order.
The greater the range of variability, the greater need for
additional stock to reduce risk of shortage between
deliveries.
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT
INVENTORY COSTS
1. Purchase
2. Holding/Carrying
3. Ordering
4. Shortage
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT
PURCHASE COST
amount paid to supplier to buy the
inventory
HOLDING/CARRYING COST
-cost of having items in the storage
ORDERING COST
-costs of ordering and receiving inventory
-includes: preparing invoices, inspecting
goods, moving goods to temporary storage
-expressed as a fixed dollar amount per
order
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT
ORDERING COST
If a firm produces own inventory instead of
ordering it from a supplier, the firm incurs
machine setup costs which are analogous to
ordering costs. Setup costs are costs involved in
preparing equipment for a job.
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT
SHORTAGE COST
-result of demand exceeding supply of inventory
on hand (D > S)
SHORTAGE COST
-shortage in item carried for internal use (item
used to supply an assembly line) would lead to
cost of lost production
CLASSIFICATION SYSTEM
An important aspect of inventory management is that items
that held in inventory are not equal of importance in terms of
dollar invested, profit potential, sales or usage volume, or
stockout penalties.
A-B-C approach
Classifying inventory according to some
measure of importance, and allocating control
efforts accordingly
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT
Three classes of items used:
A items (very important)
10 to 20 percent of the number of items in inventory and
about 60 to 70 percent of the annual dollar value
B items (moderately important)
C items (least important)
50 to 60 percent of the number of items in inventory but
only about 10 to 15 percent of the annual dollar value
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT
STEPS IN CONDUCTING A-B-C ANALYSIS
1.For each item, multiply annual volume by unit price to get
the annual dollar value.
2.Arrange annual dollar values in descending order.
3.The few (10 to 15 percent) with the highest annual dollar
value are A items. The most (about 50 percent with the
lowest annual dollar values are C items. Those in between
(about 35 percent) are B items.
EXAMPLE
A manager has
obtained a list of
unit costs and
estimated annual
demands for
inventory items and
now wants to
categorize the items
on an A-B-C basis.
EXAMPLE
1. For each item, multiply
annual volume by unit
price to get the annual
dollar value.
ANNUAL DEMAND
X UNIT COST
ANNUAL DOLLAR VALUE
EXAMPLE
1. For each item, multiply
annual volume by unit
price to get the annual
dollar value.
ANNUAL DEMAND
X UNIT COST
ANNUAL DOLLAR VALUE
EXAMPLE
2. Arrange annual dollar values in descending order.
EXAMPLE
3. The few (10 to 15 percent) with the highest annual dollar value are A items.
The most (about 50 percent with the lowest annual dollar values are C items.
Those in between (about 35 percent) are B items.
EXAMPLE
3. The few (10 to 15 percent) with the highest annual dollar value are A items.
The most (about 50 percent with the lowest annual dollar values are C items.
Those in between (about 35 percent) are B items.
EXAMPLE
A items are counted frequently, B items are counted less frequently, and C
items are counted the least frequently.
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT
CYCLE COUNTING
• Some companies use certain events to trigger cycle counting,
whereas others do it on a periodic (scheduled) basis.