Operations Management Ch 12

Front 1

inventory

Back 1

stock of any item or resource used in any production or service facility

Front 2

objective of inventory management

Back 2

minimize total relevant costs without sacrificing service quality

Front 3

reasons for keeping inventory

Back 3

-demand uncertainty
-supply uncertainty
-process uncertainty
-quantity discounts
-production smoothing

Front 4

inventory costs

Back 4

-interest or opportunity costs
-storage and handling costs
-taxes, insurance, and shrinking costs
-ordering and setup costs
-shortage costs

Front 5

types of inventory

Back 5

-cycle inventory
-safety stock inventory
-anticipation inventory
-pipeline inventory

Front 6

formula for average cycle inventory

Back 6

(Q+0)/2

Front 7

inventory models

Back 7

-continuous review system (Q)
-periodic review system (P)

Front 8

continuous review system (Q)

Back 8

anytime the the inventory reaches a pre-established level (called re-ordering point) an order for the same amount is reissued

Front 9

periodic review system (P)

Back 9

system in which an item's inventory position is reviewed periodically rather than continuously

Front 10

comparison of Q & P systems

Back 10

P systems
-convenient to administer
-orders may be combined
-IP only required at review

Q system
-individual review frequencies
-possible quantity discounts
-lower, less-expensive safety stocks

Front 11

economic order quantity assumptions

Back 11

1.) Demand rate is constant
2.) No gradual delivery
3.) No quantity discount
4.) Only relevant costs are holding and ordering/setup
5.) Decisions for items are independent form other items
6.) No uncertainty in lead time

Front 12

economic order quantity cost functions

Back 12

total cost =(Q/2)(H)+(D/Q)(S)
holding cost =(Q/2)(H)
ordering cost=(D/Q)(S)

Front 13

economic order quantity (EOQ)

Back 13

the lot size that minimizes total annual inventory holding and ordering costs

Front 14

inventory management

Back 14

the planning and controlling of inventories in order to meet the competitive priorities of the organization

Front 15

inventory holding costs

Back 15

the sum of the cost of capital and the variable costs of keeping items on hand such as storage and handling, taxes, insurance, and shrinkage

Front 16

ordering costs

Back 16

the cost of preparing a purchase order for a supplier or a production order for the shop

Front 17

setup cost

Back 17

the cost involved in changing over a machine to produce a different item

Front 18

quantity discount

Back 18

a drop in price per unit when an order is sufficiently large

Front 19

cycle inventory

Back 19

the portion of total inventory that varies directly with lot size

Front 20

lot sizing

Back 20

the determination of how frequently and in what quantity to order inventory

Front 21

safety stock inventory

Back 21

surplus inventory that a company holds to protect against uncertainties in demand, lead time, and supply changes

Front 22

pipeline inventory

Back 22

inventory moving from point to point in the materials flow system

Front 23

pipeline inventory formula

Back 23

pipeline inventory =dL

Front 24

repeatability

Back 24

the degree to which the same work can be done again

Front 25

special

Back 25

an item made to order; if purchased, it is bought to order

Front 26

standard

Back 26

an item that is made to stock or ordered to stock, and normally is available upon request

Front 27

ABC analysis

Back 27

the process of dividing items into three classes, according to their dollar usage, so that managers can focus on items that have the highest dollar value

Front 28

time between orders (TBO)

Back 28

the average elapsed time between receiving (or placing) replenishment orders of Q unites or a particular lot size

Front 29

EOQ formula

Back 29

EOQ= √(2DS/H)

Front 30

independent demand items

Back 30

items for which demand is influenced by market conditions and is not related to the inventory decisions for any other item held in stock

Front 31

reorder point system (ROP)

Back 31

continuous review system (Q)

Front 32

inventory position (IP)

Back 32

the measurement of an item's ability to satisfy future demand

Front 33

scheduled receipts (SR)

Back 33

orders that have been placed but have not yet been received

Front 34

open orders

Back 34

scheduled receipts (SR)

Front 35

reorder point (R)

Back 35

the predetermined minimum level that an inventory position must reach before a fixed quantity Q of the item is ordered

reorder point = average demand during lead time + safety stock

Front 36

service level

Back 36

the desired probability of not running out of stock in any one ordering cycle which begins at the time an order is placed and ends when it arrives in stock

Front 37

cycle service level

Back 37

service level

Front 38

protection interval

Back 38

the period over which safety stock must protect the user from running out of stock

Front 39

safety stock formula

Back 39

safety stock = zσL

Front 40

visual system

Back 40

a system that allows employees to place orders when inventory visibly reaches a certain marker

Front 41

two bin system

Back 41

a visual system version of the Q system in which an item's inventory is stored at two different locations

Front 42

single bin system

Back 42

a system of inventory control in which a maximum level is marked on the storage shelf or bin on a measuring rod, and the inventory is brought up to the mark periodically

Front 43

perpetual inventory system

Back 43

a system of inventory control in which the inventory records are always current

Front 44

optional replenishment system

Back 44

a system used to review the inventory position at fixed time intervals and if the position has dropped to (or below) a predetermined level to place a variable-sized order to cover

Front 45

base-stock system

Back 45

an inventory control system that issues a replenishment order Q each time a withdrawal is made for the same amount of the withdrawal

Front 46

cycle counting

Back 46

a inventory control method whereby storeroom personnel physically count a small percentage of the total number of items each day correcting errors that they find

Front 47

cycle inventory reduction tactics

Back 47

1.) streamline the methods for placing orders and making setups
2.) increase repeatability to eliminate the need for changeovers

Front 48

safety stock inventory reduction tactics

Back 48

1.) improve demand forecasts
2.) cut lead times of purchased or produced items
3.) reduce supply uncertainties (share production plans with supplier)
4.) rely more on equipment and labor buffers (ex. capacity cushions and cross-trained workers)

Front 49

anticipation inventory reduction tactics

Back 49

1.) add new products with different demand cycles
2.) provide off season promotional campaigns
3.) offer season pricing plans

Front 50

pipeline inventory reduction tactics

Back 50

1.) find more responsive suppliers or improve materials handling
2.) decrease Q

Front 51

placement of inventories basis

Back 51

dependent of special or standard item

Front 52

don't use the EOQ

Back 52

if you use "make-to-order" strategy or order size is constrained by capacity limitations

Front 53

modify the EOQ

Back 53

if significant quantity discounts are given or replenishment is not instantaneous

Front 54

use the EOQ

Back 54

if you follow "make-to-stock" strategy and carrying/setups/ordering costs are known

Front 55

sensitivity analysis of EOQ

Back 55

-increase D leads to increase in EOQ
-increase S leads to increase in EOQ
-increase H leads to decrease in EOQ

Front 56

advantages of p systems

Back 56

1.) convenient because replenishments are made at fixed intervals
2.) order for multiple items from the same supplier can be combined into a single purchase order
3.) IP needs to be known only when a review is made

Front 57

advantages of q systems

Back 57

1.) review frequency of each item may be individualized
2.) fixed lot sizes can result in quantity discounts if large enough
3.) lower safety stocks result in savings