Chapter 7- Inventory Management Part 1SCM 3301 1st EditionOutline of Previous Lecture Lecture 11Common Mistakes in ERP System Implementation- Lack of top management commitment- Lack of adequate resources- Lack of proper training- Viewing the implementation as only a technological challenge- Giving consultants total control of an implementationERP Software ProvidersThe 3 major ERP providers are now –- SAP ~22% market share- Oracle ~15% market share- Microsoft ~10% market shareNote: PeopleSoft is an ERP system owned by OracleSCM 3301 1st EditionChapter 7- Inventory Management Part 1- Independent Demand-Demand for final productsCustomer Demand- Dependent Demand- Demand for raw materials, components, and sub-assemblies needed to fill Independent DemandBasic Types of Inventory- Raw Materials- Work in Process (WIP)- Finished Goods- Maintenance, Repair, and Operating Supplies (MRO)- Primary Functions of Inventoryo Buffer demand fluctuationso Decouple processes to protect capacityMeasurement: Inventory Turnover- Inventory Turnover: Represents the number of times the value of the inventory is replenished during each accounting cycleInventory Turnover Ratio: Cost of Revenue Average Inventory- Cost of Revenue or “Costs of Goods Sold” from a firm’s financial income statementSCM 3301 1st EditionCurrent LectureEconomic Order Quantity ModelEOQ Goal: Minimize total annual costs whiles allowing the organization to continuously serve customersEOQ Model Variables- Annual Demand- Purchase Price- Ordering Costs- Holding Costs- Order QuantityEX: As ordering costs go down, the holding costs go up and vise versaREFER TO: Figure 7.5Assumptions of the EOQ ModelSCM 3301 1st Edition- Demand is known and constant- Delivery time is known and constant- Replenishment is instantaneous- Price is constant- Holding cost is known and constant- Order cost is known and constant- Stock-outs are not allowedRadio Frequency Identification (RFID)Inventory Review Systems- Continuous Review System- Difficult to achieve for all inventory items- Requires less safety stock- Periodic Review System- Physical inventory is reviewed at regular intervals (ABC)o Weeklyo Monthlyo Quarterlyo Annually- Requires safety stock to protect against inventory system
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