inventory in electronic supply chain-university of ottawa-
TRANSCRIPT
ADM – eSupply Chain Management
Morvarid Kardan , Sara Mohammadi, Sonia Peri
Dr. Mohamed Baymout
Inventory Management
Winter 2014
Outline
• What is inventory • Myths in inventory management • Reasons for having inventory • Rolls of Inventory in SCM• Types of Demands • Benefits/Drawbacks• Methods for inventories• Inventory Techniques
Supplier Manufacturing Distributer Retailer
Customer•Inventories
•Raw Materials •Work in Progress •Finished Goods
•Goods in Transit
•Finished Goods
SCM/Inventories
Traditional Supply Chain Management(SCM)
G.Trites, J.Boritz, “e-business strategies, a Canadian perspective for a networked world” ,Pearson-Prentice Hall, 2009
What is Inventory?
Raw Materials Component parts Work-in-Process
Finished Products
Planning Directing
Controlling
Myths in Inventory Management
The “SALES” data that we have in our company records, is all we need for inventory management”
“The more expensive a software system is, the better it will help us control our inventory“
“We keep all of our sales histories by month, and this data is all we need to make good forecasts for inventory planning”
Reasons for Inventories
o Improve Customer Serviceo Economies of purchasingo Economies of Productiono Transportation Savingso Hedge against futureo Unplanned shocks(labor strikes, natural
disasters, surges in demand, etc)o To maintain independence in supply chain
Goal
Role of Inventory in Supply Chain
Supply ChainUnderstocking : Demand exceeds amount available
- Lost margin and future sales
Overstocking : Amount available exceeds demand- Liquidation, Obsolescence, Holding
Matching Supply and Demand
Types of DemandD
epen
dent
Independent
• Demand for items used to produce final products.
• Demand for items used by
external customers.
Benefits of Inventory Management
Improve customer service
Reduce inventory investment
Increase the profitability of business
Increase productivity
Inventory is insurance
Drawbacks of Keeping Inventory
• Inventory is expensive • Items deterioration • Products obsolescence
Inventory Management Techniques
Stock Review
Just In Time
ABC Analysis
EOQ Model
Methods For Supervising Inventory
• Manual Count Method• Periodic Methods• Perpetual Methods• LIFO and FIFO Methods (Valuation Method)
Pros and ConsMethods Pros Cons
Manual Count Method Identifying and removing broken items
Time consuming
Periodic Method Less upfront costs Outdated inventory information
Perpetual Method The most up to date information
A lot of data need to be uploaded
LIFO Ideal for heavy products and producer of homogenous products
Not ideal for products that have expiration dates
FIFO Ideal for products that have expiration dates and products with relatively short demand cycles
Not suitable approach during the inflation period
Inventory control Techniques
A
B
C
A: very importantB: importantC: marginally important
< Always better control (ABC) classification >
High Low
Annu
al $
Val
ue o
f Ite
ms
Percentage of Items Low
Inventory Control Techniques<The EOQ Model>
Assumptions
Two Types of Cost
– Costs of storage space (E.g. warehouse depreciation) – Security– Insurance– Forgone interest on working capital tied up in inventory– Deterioration, theft, spoilage, or obsolescence
– Clerical costs of preparing purchase orders – Some spent finding suppliers and expediting orders– Transportation costs– Receiving costs (E.g. unloading and inspection)
Holding Cost:
Ordering Cost:
Development of EOQ Model
• (a.) Develop a COST EQUATION (MODEL) QUANTITIVELY and QUANTITIVELY
• TC = Holding cost + Setup Cost + DC
• (b.) Minimize the total cost equation (model) • (c.) Find REORDER QUANTITY
D = annual demand in units
C = cost of an individual item
Lead time
Time
Inve
ntor
y Co
ntro
l
0
Minimum Inventory
Order Quantity [maximum inventory level]
Q
Usage Rate
Average inventory on hand Q/2
Inventory Usage Over Time
Annu
al C
ost
Total Cost of Holding and Setup (order)
Holding Cost
Setup (order) Cost
Order Quantity Optimal Order Quantity (Q*)
Min
imum
to
tal c
ost
Minimizing Cost
Inventory control Techniques<The EOQ Model>
Q = Number of pieces per order Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order H = Holding or carrying cost per unit per year
Annual Holding Cost = (Number of orders placed per-year)*(Setup or order cost per order)
= { Average inventory level } { Holding cost per unit per year }
= {Q/2 } ( H )
Annual Setup Cost = (Number of orders placed per-year)*(Setup or order cost per order)
= { Annual demand / Number of units in each order } { Setup or order cost per order }
= { D/Q } ( S )
Inventory control Techniques< The EOQ Model >
Q = Number of pieces per order Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order H = Holding or carrying cost per unit per year
Optimal order quantity is found when annual setup cost equals annual holding cost
{Q/2 } ( H ) = = { D/Q } ( S )
Q* = √2DS/H
< The EOQ Model > Q = Number of pieces per order
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year
Unreliable Vendors
Scrap Capacity
Imbalances
Work in process inventory level(hides problems)
Lowering Inventory /Reduces Waste
Unreliable Vendors Scrap
Capacity Imbalances
Work in process inventory level
Unreliable Vendors Scrap
Capacity Imbalances
Work in process inventory level
Reducing inventory reveals problems so they
can be solved.
Excessive inventory mask the problems
Ahm
ad S
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Man
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Syst
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Just
-in-
Tim
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and
Lean
Man
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http:
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Videohttp://www.youtube.com/watch?v=1d0O8MAMyAM
“One of the great responsibilities that I have is to manage my assets wisely, so that they create value.”
Alice Walton
Thank You!