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Required Readings book can be found at *SITE1* Operations Management Review Chapters 11, 12, 13, 14,Content Folder Lecture Unit 5 lecture and script Lecture covers-Timing,People and Productivity please use source from the *** university library : You are required to navigate to the *** University Library database to research and locate the scholarly article(s) . In order to retrieve the scholarly article, first navigate to the Library tab. The articles are listed and can be accessed through the database. Go to *SITE2* student log in at the top of the page then click on Blackboard look at the top of the page for the library tab
Discuss the added value benefits of planning, organizing, and implementing an effective scheduling system. Feel free to exemplify these added benefits when designing and implementing a quality control system.
This is unit 5
Timing, People, and Productivity
• Explain the importance of inventory, types of inventories, and key decisions and costs.
• Describe the major characteristics that impact inventory decisions.
• Describe how to conduct an ABC inventory analysis.
• Explain how a fixed order quantity inventory system operates.
• Explain the logic of the EOQ model and how to calculate the optimal order quantity.
• Explain how a fixed period inventory system operates.
• Describe how to apply the single period inventory model.
The remainder of this presentation will follow a question and answer format in an effort to maximize interest and interactivity.
What is Inventory Management?
Inventory is any asset held for future use or sale.
The expenses associated with financing and maintaining inventories are a substantial part of the cost of doing business (i.e., cost of goods sold).
Inventory Management involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs.
Here’s a case to emphasize the point. Banana Republic is a unit of San Francisco’s Gap, Inc. and accounts for about 13 percent of Gap’s $15.9 billion in sales. As Gap shifted its product line to basics such as cropped pants, jeans, and khakis, Banana Republic had to move away from such staples and toward trends, trying to build a name for itself in fashion circles. But fashion items, which have a much shorter product life cycle and are riskier because their demand is more variable and uncertain, bring up a host of operations management issues. In one recent holiday season, the company had bet that blue would be the top-selling color in stretch merino wool sweaters. They were wrong. Marka Hansen, company president noted, “The No. 1 seller was moss green. We didn’t have enough.”
What are the basic concepts of inventory?
Raw materials, component parts, subassemblies, and supplies are inputs to manufacturing and service-delivery processes.
Work-in-process (WIP) inventory consists of partially finished products in various stages of completion that are awaiting further processing.
Finished goods inventory is completed products ready for distribution or sale to customers.
Cycle inventory (order or lot size inventory) is inventory that results from purchasing or producing in larger lots than are needed for immediate consumption or sale.
Safety stock inventory is an additional amount of inventory that is kept over and above the average amount required to meet demand.
What are the fundamental decisions inventory managers deal with?
When to order items from a supplier or when to initiate production runs if the firm makes its own items
How much to order or produce each time a supplier or production order is placed
What are the four categories of inventory costs?
• Ordering or setup costs
• Inventory-holding costs
• Shortage costs
• Unit cost of the stock-keeping units (SKUs)
Ordering costs or setup costs are incurred as a result of the work involved in placing purchase orders with suppliers or configuring tools, equipment, and machines within a factory to produce an item.
Inventory-holding costs or inventory-carrying costs are the expenses associated with carrying inventory.
Shortage costs or stockout costs are the costs associated with a SKU being unavailable when needed to meet demand.
Unit cost is the price paid for purchased goods or the internal cost of producing them.
What are the characteristics of inventory systems?
Number of items: each item is identified by its stock-keeping unit (SKU).
A stock-keeping unit (SKU) is a single item or asset stored at a particular location.
Maintaining data integrity on thousands of SKUs is difficult but must be done. The quality of inventory model decisions is related to the quality of information used in the model(s).
Number of time periods in planning horizon: short or long planning horizon such as days, weeks, months, quarters, and years.
Size of time periods: hours, days, weeks, months, quarters.
The lead time is the time between placement of an order and its receipt.
A stockout is the inability to satisfy demand for an item. When a stockout happens, the item is either back-ordered or a sale is lost.
A backorder occurs when a customer is willing to wait for an item.
A lost sale occurs when the customer is unwilling to wait and purchases the item elsewhere.
What is the nature of demand?
Independent demand is demand for an SKU that is unrelated to the demand for other SKUs and needs to be forecast.
Dependent demand is demand directly related to the demand for other SKUs and can be calculated without needing to be forecast.
Deterministic demand is when uncertainty is not included in its characteristics.
Stochastic demand incorporates uncertainty by using probability distributions.
Static demand is stable demand.
Dynamic demand varies over time.
What is ABC inventory (Pareto) analysis ?
ABC inventory (Pareto) analysis gives managers useful information to identify the best methods to control each category of inventory.
A vital few SKUs represent a high percentage of the total dollar inventory value.
“A” items account for a large dollar value but relatively small percentage of total items (e.g., 10% to 30 % of items, yet 60% to 80% of total dollar usage).
“C” items account for a small dollar value but a large percentage of total items (e.g., 5% to 15% of items, yet about 50% of total dollar usage). These can be managed using automated computer systems.
“B” items are between A and C.
How do the behavioral and political concerns affect the design of the inventory management system?
This happens frequently in business. Workers and managers mayhave a history of poor communication, which cause tension between them. Look to find resources available to assist in controlling the inventory. Other problems such as lack of accountability for inventory decisions require resolution. Workers may be resistant to management control, and management may not be satisfied with the way inventory is being managed.
What is a fixed quantity system?
In a fixed quantity system (FQS), the order quantity or lot size is fixed; the same amount, Q, is ordered every time.
The process of triggering an order is based on the inventory position.
Inventory position (IP) is the on-hand quantity (OH) plus any orders placed but which have not arrived (scheduled receipts, or SR), minus any backorders (BO).
Fixed Quantity Systems (FQS): the order quantity or lot size is fixed; the same amount, Q, is ordered every time.
Notice that the fixed order (lot) size, Q, can be a box, pallet, container, or truck load. Q might equal 10, 100, or 1,000 units.
Q does not have to be economically determined, such as using EOQ
When inventory falls at or below a certain value, r, called the reorder point, a new order is placed.
Reorder point depends on the lead time and nature of demand—oftentimes, the reorder point is selected using the average demand during the lead time
Where d is average demand per unit of time and L is the lead time expressed in the same units of time.
What is Economic Order Quantity ?
The Economic Order Quantity (EOQ) model is a classic economic model developed in the early 1900s that minimizes total cost, which is the sum of the inventory-holding cost and the ordering cost.
Cost of storing one unit in inventory for the year
Total Annual Cost: inventory holding cost plus the order (setup cost)
Optimal Order Quantity: order quantity that minimized the total cost expressed in the equation above.
Q* is the quantity that minimizes the total cost and is known as the economic order quantity, or EOQ.
What are the Key Assumptions of the EOQ Model?
Only a single item (SKU) is considered.
The entire order quantity (Q) arrives in the inventory at one time. No physical limits are placed on the size of the order quantity, such as shipment capacity or storage availability.
Only two types of costs are relevant—order/setup and inventory holding costs.
No stockouts are allowed.
The demand for the item is deterministic and continuous over time. This means that units are withdrawn from inventory at a constant rate proportional to time. For example, an annual demand of 365 units implies a weekly demand of 365/12 and a daily demand of one unit.
Lead time is constant.
Discuss some of the issues that a small pizza restaurant might face in inventory management. Would a pizza restaurant use a fixed order quantity or period system for fresh dough (purchased from a bakery on contract)? What would be the advantages and disadvantages of each in this situation?
A pizza restaurant must maintain inventories of dough, toppings, sauce, and cheese, and other supplies such as boxes, napkins, and so on. Because many of these items are perishable, careful decisions must be made on the quantities to purchase. Without adequate forecasting, it would be difficult to know how much and when to purchase. Supplier relationships are important to ensure that food and suppliers are delivered on time.
A fixed order quantity system would ensure that fresh dough would be replenished as it is needed, especially if demand fluctuates, whereas a period system would often result in shortages or wasted product since it is perishable. However, it might be difficult for a supplier (such as a bakery) to be able to meet orders placed by a fixed quantity system while it would be easier to schedule production of dough using a period system. Clearly this is something that would have to be negotiated based on the supplier’s capabilities.
This concludes the presentation for this unit. Please direct any questions, comments, or concerns to your instructor.
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