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1 MAN 3504 Test 3 Conceptual Review Guide CHAPTER 13 Objective of Inventory Management to keep enough inventory to meet customer demand while being cost effective Purpose of Inventory Management to determine the amount of inventory to keep in stock how much to order when to order Types of Inventory 1 Cycle Inventory order extra just for today due to cost of placing orders Goal Balance cost of ordering cost of holding inventory 2 Anticipation Inventory based on seasonal cyclical demand What Do We Inventory Raw Materials Purchased Parts Supplies Tools Equipment WIP Products Finished Goods Items Being Transported Reasons to Hold Extra Inventory 1 Buffer against demand variations Safety Stock in case demand is higher than expected Decoupling Inventory keep WIP inventory sitting around in case of machine breakdown Bullwhip Effect as you move farther from actual demand order quantities get larger 2 Ensure that production can continue smoothly even with work stoppages Level of Customer Service ability to effectively meet internal demand as well as external demand in a timely efficient manner Inventory must be sufficient to provide high quality customer service Types of Demand 1 Dependent Demand demand for items used to produce final products dependent on your own decisions 2 Independent Demand demand that comes from external customers Inventory Costs Carrying Costs cost of holding inventory opportunity spoilage facility obsolete costs Ordering Costs cost of replenishing inventory Shortage Costs cost incurred when demand cannot be met 2 losing customers expediting costs word of mouth Types of Inventory Control Systems Continuous System Fixed Order Quantity constantly monitoring inventory level place preset order amount when inventory hits preset amount Quantity Constant Time Variable Periodic System Fixed Time Period based on calendar place order at predetermined point in time order enough to reach target inventory level Quantity Variable Time Constant ABC Classification System focusing prioritizing mechanism A Items few items sell large amount pay most attention to these items C Items lots of items sell small amount B Items in between A C Economic Order Quantity EOQ the optimal order quantity that will minimize total inventory costs associated with continuous inventory system Assumptions of EOQ Model Demand is known is constant No shortages allowed only worry about holding carrying costs Lead time for receipt of orders is constant time btw place receive order Order quantity is received all at once Order Cycle the time between receipt of orders in an inventory cycle Annual Ordering Cost KNOW HOW TO CALCULATE Annual Carrying Cost KNOW HOW TO CALCULATE Total Annual Inventory Cost KNOW HOW TO CALCULATE annual ordering cost annual carrying cost Optimal Q the lowest point on the total cost curve CALCULATION FORMULA ON FORMULA SHEET Reorder Point the level of inventory at which a new order should be placed CALCULATION FORMULA ON FORMULA SHEET Quality Discounts price per unit decreases as order quantity increases given for specific higher order quantities TOTAL COST W QUANTITY DISCOUNTS CALCULATION FORMULA ON FORMULA SHEET the calculation determines if an order size w a discount is more cost effective than optimal Q Stockout an inventory shortage when you run out of inventory 3 Safety Stock buffer added to on hand inventory during lead time rather expensive form of inventory typically holding just in case Service Level the probability that you don t stockout Reorder Point w Variable Demand KNOW HOW TO CALCULATE In Class Problem 3 from March 26th A Periodic Inventory System normally requires a larger safety stock time btw orders is constant but order size varies CHAPTER 2 What is Quality the characteristics of a product service that bear on its ability to satisfy stated implied needs Customer s Perspective of Quality Fitness for Use how well the product service does what it is supposed to do Quality of Design designing quality characteristics into product Producer s Perspective of Quality Quality of Conformance ensuring product service is produced according to design Dimensions of Quality Manufactured Goods 1 Performance 2 Features 3 Reliability 4 Conformance meet standards 5 Durability 6 Serviceability ease of service 7 Aesthetics 8 Safety 9 Other Perceptions Dimensions of Quality Services not as easily measured 1 Time Timeliness 2 Completeness 3 Courtesy 4 Consistency 5 Accessibility Convenience 6 Accuracy 7 Responsiveness Deming Wheel PDCA Cycle 4 Act 3 Check 1 Plan 2 Do Evolution of Quality Management cid 224 cid 223 4 W Edwards Deming statistician quality was about management philosophy led to transform of Japan s manufacturing systems Joseph M Juran first to really consider the costs of quality thought of as strategic issue to think about always Cost of Quality cost of achieving good quality prevention appraisal cost of poor quality internal external cost of poor quality exceeds cost of good quality Prevention Cots Project Planning Costs Product Design Costs Process Costs Appraisal Costs Inspection Testing Costs Test Equipment Costs Training Costs Information Costs Operator Costs Internal Failure Costs incurred before it gets to the customer Scrap Costs Rework Costs Process Failure Costs Process Downtime Costs Price Downgrading Costs External Failure Costs incurred once it gets to the customer Customer Complaint Costs Product Return Costs Warranty Claims Costs Product Liability Costs Lost Sales Costs Note Quality Saves You Money Total Quality Management TQM Involves Being Customer Oriented Leadership Strategic Planning Employee Responsibility Continuous Improvement Cooperation Statistical Methods Training Education Quality Management Systems QMS systems to achieve customer satisfaction that complements other company systems Participative Problem Solving employees are directly involved in the quality management process 5 Kaizen involves everyone in a process of continuous improvement Quality Circle group of workers supervisors from the same area who address quality problems Process Improvement Team includes members from the interrelated functions departments that make up a process Benchmark best level of quality achievement in one company that other companies seek to achieve Six Sigma measure of how much a process deviates from perfection Theory if the number of defects in a process can be measured then it can be systematically determined how to eliminate them get as close to zero defects

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