Inventory, EOQ and TQM

Topics

• Inventory management• Inventory control system• JIT• EOQ• TQM

Matching Supply with Demand

A term used to describe• all the goods and materials held by an organisation for sale or use• a list of items held in stock

Institute of Logistics and Transport

Definition of Inventory (Pg 315)

Source

Inventory, Logistics and Supply Chain Management

Matching Supply with Demand

Reduce the risk of supplier failure

Protect against lead-time uncertainties

Meet unexpected demands

Smooth seasonal or cyclical demand

Lot size considerations

Hedge against anticipated shortages and price increases

Ensure rapid replenishment of items in constant demand

Reasons for Keeping Inventory (Pg 316)

Discuss

• Do you think IBM production should keep inventory for DimS and case? Why?

Aims of Inventory Management (Pg 318)

Matching Supply with Demand

Provide internal and external customers with requiredservice levels at optimum cost

Ascertain present and future requirements for all typesof inventory to avoid overstocking

Keep stocks to a minimum by variety reduction

Provide upstream and downstream inventory visibilityin the supply chain

Discuss

• What would be the aims of inventory management for DimS and case, if needed, at IBM?

The demand for the final product

The inventory policy

Whether job, batch, assembly or process production methods are applicable

Whether demand is independent or dependent

The service level

Market conditions

Factors determining EOQ

Manufacturing/Assembly Type Organisations – Factors that Determine the Right Quantity (Pg 328)

Matching Supply with Demand

Discuss

• What would be the factors determine the right quantity at IBM?

JIT systems

“Pull” Systems“Push” Systems

Matching Supply with Demand

Inventory Control Systems

Pre-determined re-order levels

Periodic review systems

Elements of Both “Push” and “Pull”

Systems

MRP and OPT systems

MRP – Material planning planning Page 347OPT – Optimised production technology Page 89JIT – Just in time Page 342

Page 335 - 336

PUSH system

PULL system

Just In Time (JIT)

• Page 341• Making what the customer needs, when it is

needed and in the quantity needed using the minimum resources of people, materials and machinery

• (Page 343 for the concept, fig 10.8)

• Zero defects• Zero set-up-time• Zero inventory• Zero handling• Zero lead time• Lot size of one• (Page 341)

Objectives of JIT

• Uniform master production schedule• “Pull” production systems• Good customer-supplier relationships• Short distance between supplier and customer• Reliable delivery• Consistent quality with zero defects• Standardized components and methods• Material flow system (Pg 342)

Successful JIT

Discuss

• Which inventory system do you recommend to IBM for the two products (DimS and case)? Push or pull?

• Do you think JIT is suitable for IBM?

Economics of inventory

• Acquisition costs (Pg 323)– Preliminary costs: vendor selection, negotiation– Placement costs etc

• Holding costs– Financial costs: interest, capital tied up in inventory– Storage, handling, light, power, documentation

• Costs of stockouts– Loss of production output, time, action taken etc

Discuss

• What could be the costs of inventory in the case of IBM?

Economic order quantity(EOQ)

EOQ

• The optimal ordering quantity for an item of stock that minimizes cost

• Inventory costs– Holding (Carrying cost)

• Basic formula (Pg 337)

Discuss

Case DimS

u (annual usage quantity)o (ordering cost)c (unit cost)s (stockholding cost)

800,000$10$10$20

100,000$20$20$25

Table A (EOQ factors)

• Calculate EOQs of the following:

• Give your comment, if any, about the your calculation

Quality

• The ability of a product to satisfy stated or implied needs

• Fitness for use• When a product conforms to the customer’s

requirements.

Why quality?

• Today’s business environment is increasingly competitive– Globalization– Rapid advances in technology

• Suppliers need to stay focused on finding new ways to design, produce, sell and deliver products to meet the needs of customers better than the competitors.

8 dimensions of quality

• Performance• Reliability• Serviceability• Conformance• Durability• Features• Aesthetics• Perceived quality

Total quality management (TQM)

• Every job, every process, is carried out right the first time and every time (Pg 268)

• Focus on product improvement from customer’s viewpoint

• Shared responsibility for product quality at all levels

• To provide managers the necessary information to plan, control and evaluate performance

Quality programs

• ISO 9000

• Six Sigma– Six standard deviations => 99.99966% or– 3.4 defects, errors or deficiencies per one million

opportunities

Discuss

• In what ways TQM can be applied in the supply of DimS and case from Keytronics to IBM?

Benefits of TQM

• Improved customer satisfaction• Enhanced quality of goods and services• Reduced waste• Improve productivity• Reduced product development time• Increased flexibility in meeting market

demand• Reduced work-in-progress

Discuss

• What are the benefits of TQM for IBM and Keytronics?

Discuss

Case DimSu (annual usage quantity)o (ordering cost)c (unit cost)s (stockholding cost)

800,000$10$10$20

100,000$20$20$25

Table A (EOQ factors)

This first question asks you to assess (i.e. To evaluate) the two procedures: EOQ and TQM for the two products. You should consider all factors that apply to these two procedures and make a judgement how the two procedures relate to each other.

EOQWhat is the objective of EOQ?Calculate the EOQ for both products. Comment your observations.Ref: Page 337

TQMState briefly what is TQM? What are the benefits of TQM (Briefly). Relate to case.Relate JIT, ISO9000 or six sigma to this case, if applicableRef: Page 268 – 273