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49 Cards in this Set
- Front
- Back
Managerial Issues on Inventory
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-inventory is no longer viewed as an asset
-product life cycles are becoming shorter, increasing the likelihood of product obsolescence -inventory concealing other problems -the high costs of of inventory storage -JIT philosophy |
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Definition of Inventory
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the stock of any item or resource used in an organization, includes raw materials (dependent), finished goods (independent), and work-in-process
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Inventory Management System
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the set of policies and controls that monitors levels of inventory and determines:
-what levels should be maintained -when stock should be replenished -how large orders should be (headed toward orders of small volume) |
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Raw Materials
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vendor-supplied items that have not had any labor added by the firm receiving the items
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Finished Goods
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completed products that are still in the possession of the firm that manufactured them
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WIP
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items that have been partially processed but are still incomplete
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Reason for Maintaining Inventory
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1. To protect against uncertainty--shortages of raw materials, WIP variations, changes in depand for finished products
2. To support a strategic plan--as a cyclic demand buffer for a level-output strategy 3. To take advantage of economies of scale--large quantity purchases reduce the average total unit costs related to fixed ordering, setup costs, and transportation costs |
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Inventory Costs
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Holding or carry costs
--storage costs (facility, insurance, taxes, utilities) --capital costs (opportunity costs) --obsolescence/shrinkage costs (depreciated value) setup or ordering costs shortage/stockout costs purchase costs transportation costs |
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Independent Demand
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the demand that pertains to the requirements for end products (the pull of an external market demand)
ex: houses and cars purchased by individuals |
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Dependent Demand
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the requirements for components that are directly dependent on the demand for the end products in which they are used
ex: shingles for houses under construction; tires for car manufacturures |
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Fixed-order Quantity (FOQ)
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a system where the order quantity remains constant but the time between orders varies
-preferred for important or expensive items because average inventory is lower -provides a quicker response to stockouts -is more expensive to maintain due to inventory record-keeping costs ex: always purchasing a dozen eggs when there are only 2 eggs left in the fridge |
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Fixed-time Period (FOP)
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a system where the time period between orders remains constant but the order quantity varies
-has larger average inventory to prevent stockouts -useful when purchasing multiple items from one vendor to save on costs ex: always refilling the gas tank of a delivery truck at the end of each day |
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FOQ Model Assumptions
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-demand for the product is known, constant, and uniform throughout the period
-lead time (L), which is the time from ordering to receipt, is constant -price per unit of product is constant (no quantity discounts) -ordering or setup costs are constant -all demands for the product are known with certainty no back orders or stockouts -there is no interaction with other products |
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EOQ
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the optimal quantity to order taking into consideration both the cost to carry inventory and the cost to order he item
-minimizes total inventory cost |
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Current Trends in Inventory Management
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-inventory is a liability, not an asset
-average amount of inventory relative to annual sales is decreasing -firms are focusing on reducing setup and order costs, resulting in smaller economic order quantities -firms are working more closely with vendors to reduce product throughput times and lead times |
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ABC analysis
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a method for grouping items by dollar volume to identify those items to be monitored closely
-follows the pare to principle A items: high dollar volume (15%) 75% value B items: moderate dollar volume (35%) 20% value C items: low dollar volume (50%) 5% value |
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Lean Production
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an integrated set of activities designed to achieve high-volume flexible production using minimal inventories of raw materials
--based on the premise that nothing will be produced until it is needed |
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Pull System
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implemented throughout the supply chain, with the production signal moving backward from the customer to the most basic raw materials
-reduction of waste -involvement of the work force |
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Elimination of Waste
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1. Focused factory networks
2. Group technology 3. Jidoka--quality at the source 4. JIT production 5. Uniform plant loading 6. Kanban production control system 7. Minimized setup times |
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JIT production
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a coordinated approach that continuously reduces inventory while also improving quality
--seeks to achieve high volume production using minimal inventories of raw material, WIP, and fixed goods |
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Purposes of lot sizing in JIT
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-minimize inventory investment
-shorten production lead times -react faster to demand changes -uncover any quality problems |
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JIT Layouts/Design Flow Process
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1. Design must ensure balanced continuous workflow with minimum of WIP and delays
2. Internal and external logistics must be considered 3. Preventative maintenance is emphasized 4. Process orientation encourages the use of simple machines 5. Goal is an economic production lot sizes of one |
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Impediments to JIT
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-geographic distances separate suppliers from customers
-paternalistic relationships do not occur between customers and suppliers -supplier have a broader customer base |
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JIT American Style
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-working in partnership with suppliers (Materials Requirement Plan)
-reducing setup times -encouraging worker participation |
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Materials Requirement Planning (MRP)
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a process that uses bills-of-material, an inventory status file, and the master production schedule (MPS)
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MRP systems
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-creates requirements and schedules identifying the parts, components, and materials necessary to produce the end products specified in the MPS
-links inventory and scheduling systems |
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Inventory control
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order the right part in the right quantity at the right time
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Assign Operating Priorities
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order with the right due date valid
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Capacity
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-plan for a complete and accurate load
-plan for an adequate time to view future load |
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Theme
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getting the right materials to the right place at the right time
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Objectives
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-improve customer service
**minimize inventory investment** -maximize production operating efficiency |
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Philosophy
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-expedite materials only if the overall production schedule will be delayed
-de-expedite materials if schedule falls behind |
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MRP =
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MPS + BOM + ISF
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MPS
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engine that drives the MRP
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BOM
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lists of material required to produce end items
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ISF
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records file, used to store information on the status of each item by time period
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MPS
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short range schedules for the production of end items that span from a few weeks to a few months
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End items have
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independent demand
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Dependent demand
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demand for items that are subassemblies or components to be used in the production of finished goods
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Time Fences
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periods of time with each period having some specified level of opportunity for the customer to make changes
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Frozen
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make no or only insignificant changes to products
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Moderately Firm
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allow some changes in specific products
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Flexible
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allow almost any variation in products
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BOM File
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a list of subassemblies, components, and raw materials and their respective quantities required to produce specific end items
--also called a product structure or product tree file |
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Low Level Coding
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placing identical items on the same level in the product hierarchy
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ISF
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computerized record--keeping system for the inventory status of all subassemblies, components, and raw materials
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MPS -->
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MRP --> POS (Planned Order Schedule)
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Output reports
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primary reports--planned orders
secondary reports--planning, performance, exceptions reports inventory transactions |
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Benefits of an MRP System
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-more competitive pricing
-lower selling prices -lower inventory levels -improved customer service -faster response to market demands -increased flexibility to change the master schedule -reduced setup and tear-down costs -reduced idle time |