OPMT 303 1st Edition Lecture 8Previous Chapter Outline1. Pull System2. Production in Small Quantities3. Simplified Processes4. Zero Buffer Inventories5. Necessity to Produce Perfect Quality6. Constant Improvements7. PurchasingChapter Outline1. Inventory management2. Two groups of inventories3. Assumptions4. Comparison of Q and P systems5. ABC ClassificationI. Inventory management a. Functionsi. To meet demandii. To smooth production requirements (seasonality)iii. To decouple operations (MRP)iv. To protect against stock outsv. To take advantage of order cyclesvi. To hedge against price increasevii. To permit operations (WIPs)viii. To take advantage of quantity discountsb. OBJECTIVESThese 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.i. To meet demandii. To meet demand at the lowest costiii. To control stockoutsc. Independent and dependent demandi. Three basic questions1. When to order? (timing)2. How much to order (quantity)3. How to monitor the system? Continuous or periodicII. Two groups of inventory costsa. Holdingi. Holding (carrying cost)- building rent or depreciation, operating cost, taxes on building, and insurance on buildingii. Material handling cost- equipment lease or depreciation, power, equipment operating costiii. Manpower cost- from extra handling and supervisioniv. Pilferage- scrap and obsolescencev. ANY HOLDING COST LESS THAN 20% IS SUSPECT, BUT MANY EXCEED 40%b. Orderingi. Preparing invoices, inspecting, and shippingIII. Assumptionsa. EOQ and sensitivityi. Demand is known and at a constant rateii. Instantaneous replenishmentiii. Objectives1. To meet demand2. To meet demand at the lowest cost3. To control stockoutsb. Models Q and Pi. Demand is unknown and variablec. P Modeli. Review inventories every fixed time interval once a weekii. ROP concept is not applicableIV. Comparison of Q and P systemsa. Q modeli. Monitor: continuous ii. Quantity: fixediii. Timing: variableiv. Vulner ability: lead time onlyv. Safety stock: smallervi. Implementation: difficultvii. Orders: individualb. P modeli. Monitor: periodicii. Quantity: variableiii. Timing: fixediv. Vulner ability: alwaysv. Safety stock: largervi. Implementation: easyvii. Orders: can be groupedV. ABC Classificationa. A itemsi. 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 attentionb. C itemsi. Account for a small number of dollar value but relatively high percentage of totalitemsii. Periodical reviews, simplified records, large safety buffer, and large ordersc. B itemsi. Between class A and class C items.d. Classification is arbitrary based on two steps:i. Calculate annual dollar usage1. Annual demand * unit priceRank items according to
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