OPMT 303 1st Edition Lecture 8 Previous Chapter Outline 1 Pull System 2 Production in Small Quantities 3 Simplified Processes 4 Zero Buffer Inventories 5 Necessity to Produce Perfect Quality 6 Constant Improvements 7 Purchasing Chapter Outline 1 Inventory management 2 Two groups of inventories 3 Assumptions 4 Comparison of Q and P systems 5 ABC Classification I Inventory management a Functions i To meet demand ii To smooth production requirements seasonality iii To decouple operations MRP iv To protect against stock outs v To take advantage of order cycles vi To hedge against price increase vii To permit operations WIPs viii To take advantage of quantity discounts b OBJECTIVES These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute II III IV i To meet demand ii To meet demand at the lowest cost iii To control stockouts c Independent and dependent demand i Three basic questions 1 When to order timing 2 How much to order quantity 3 How to monitor the system Continuous or periodic Two groups of inventory costs a Holding i Holding carrying cost building rent or depreciation operating cost taxes on building and insurance on building ii Material handling cost equipment lease or depreciation power equipment operating cost iii Manpower cost from extra handling and supervision iv Pilferage scrap and obsolescence v ANY HOLDING COST LESS THAN 20 IS SUSPECT BUT MANY EXCEED 40 b Ordering i Preparing invoices inspecting and shipping Assumptions a EOQ and sensitivity i Demand is known and at a constant rate ii Instantaneous replenishment iii Objectives 1 To meet demand 2 To meet demand at the lowest cost 3 To control stockouts b Models Q and P i Demand is unknown and variable c P Model i Review inventories every fixed time interval once a week ii ROP concept is not applicable Comparison of Q and P systems a Q model i Monitor continuous ii Quantity fixed iii Timing variable iv Vulner ability lead time only v Safety stock smaller vi Implementation difficult vii Orders individual b P model i Monitor periodic ii Quantity variable iii Timing fixed iv Vulner ability always v Safety stock larger V vi Implementation easy vii Orders can be grouped ABC Classification a A items i Account for a large number of dollar value but relatively small percentage of total items ii Complete and accurate records continuous monitoring high priorities and maximum attention b C items i Account for a small number of dollar value but relatively high percentage of total items ii Periodical reviews simplified records large safety buffer and large orders c B items i Between class A and class C items d Classification is arbitrary based on two steps i Calculate annual dollar usage 1 Annual demand unit price Rank items according to ADU
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