MAN3504 Exam 3 Study Guide Read the syllabus there will be questions from it Chapter 13 Inventory Management Homework 1 3 7 8 9 22 23 31 32 36 38 Even though you can t inventory a service you CAN inventory the inputs that go into providing a service Inventory Stock of items kept to meet future demand Inventory management answers 2 questions o How many units to order o When to order Inventory management aims to keep enough inventory to meet customer demand AND also be cost effective Zero defects philosophy of quality management says that the long term benefits outweigh the short term production related costs like inventory costs Why should you hold extra inventory o You can rack up inventory by ordering a large quantity of something to o Inventory provides independence from vendors that a company doesn t receive a lower price on it have direct control over o Cycle Inventory It is usually cheaper to hold inventory than to constantly be ordering it You want to balance the cost of holding inventory with the cost of ordering new inventory o Anticipation Inventory Seasonal or cyclical demand You buy stock up on inventory in slow periods of demand o Buffer against demand variations demand is usually higher than we expect it to be so we keep an extra inventory called a buffer or a safety stock Decoupling inventory one form of a buffer that makes it where each workstation is not as dependent on each other Inventory is held at each workstation in a production line This way if one work station breaks down then the other stations down the line can keep working until the machine is fixed This is controversial because it can cause workers to become lazy and allow machines to break The Japanese just keep their machines in top shape and do not use decoupling If a machine does break they have more of an incentive to quickly fix it This method can also be used if we have a vendor who does not always send us raw materials and inventory reliably Bullwhip effect As we move up the supply chain from customer to retailer wholesaler etc the orders get bigger So if a retailer needs 10 sweaters from the wholesaler the wholesaler must order 100 from the manufacturer This means that stockpiles of inventory accumulate as you move up the supply chain and this leads to a distortion in demand info Information technology can decrease the negative effects of the bullwhip effect because it is easier to share info along the supply chain Types of Inventory o Raw materials o Purchased parts and supplies o Work in process partially completed o Pipeline rolling Items being transported this becomes more important to take into account as the number of players in the supply chain increases o Tools and equipment o Finished inventory Two types of demand Inventory Costs o Independent things we sell to the customer o Dependent Demand for items used to produce final products o Ex the demand for bikes is independent but we need wheels spokes screws etc to make the bikes and these products demand is dependent on the demand for bikes independent o Carrying cost cost of holding an item in inventory Occurs because items take up space opportunity cost because they aren t being sold etc o Ordering cost cost of ordering new inventory replenishing As the number of orders increases the ordering costs increase They react inversely to carrying costs As order size increases ordering costs decrease and carrying costs increase o Shortage cost stock out cost When customer demand can t be met When you run out of inventory you can lose sales and lose customers This might also include the cost of expediting or throwing in a gift card etc to make up for not having the inventory Inventory control systems o Continuous When to place an order is determined by inventory level always order the same amount It is hard to implement and costly because you continuously have to be checking inventory levels Ex bar code systems and ledger checkbooks o Periodic Inventory is counted in specific time intervals for example order every two weeks and a different amount is ordered each time You have less direct control this way and you will have larger inventory levels to protect against unexpected stock outs early in the fixed period Ex college or university bookstore ABC Classification An inventory classification system that helps us decide which types of inventory are most important to monitor A items make up the smallest portion of inventory but the highest dollar amount they should be continuously monitored B and C items are less important and do not require as much attention C items have low carrying costs so high inventory levels can usually be maintained Economic Order Quantity Models economic lot size model used to determine the optimal order size that minimizes total inventory costs Is a continuous inventory system that is resilient to errors in the cost estimates and demand it is robust o 1 Basic EOQ Model determining optimal order size that minimizes the sum of carrying costs and ordering costs These two costs react inversely to each other Demand is known with certainty and constant over time No shortages are allowed Lead time between orders is constant Order quantity is received all at once o Quantity discount given for higher order quantities Discount prices are associated with a specific order size which is not the same as the economic order size You must evaluate the tradeoff to decide what will be the best choice o Reorder point level of inventory that signals when to reorder o Safety stock extra inventory that is held to avoid stock outs when there is not enough inventory to meet customer demand o Service level Probability that a stock out will not occur o Order quantity for periodic inventory system time between orders is constant and order size varies You rely on vendors to come check the inventory of their products and to replenish them to the desired level The products are usually of low value and so larger safety stocks are not very costly Chapter 2 Quality Management Homework none Customer Perspective on quality A subjective term that describes 1 the ability of a product or service to satisfy implied and stated needs and 2 a product or service without deficiency It is what the customer wants and is willing to pay for o Fitness for use the product or service does what I want it to o Quality of design designing quality characteristics into a product or service performance features size etc Ex A Ford and BMW are equally fit for use but have