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Chapter 12 Inventory Planning
and Control
inventory is stored accumulation of material resources in a
transformation system
inventory exists because there is a difference in timing or rate of supply
and demand:
process-related inventory (direct materials for production)
support inventory (to ensure continuous function of operation)
there are 5 main types of process-related inventory:
buffer inventory:
also called safety inventory
to compensate for uncertainties inherent in supply and demand
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12 Inventory Planning and Control
cycle inventory:
occurs because the process cannot supply all possible variations, simultaneously
eg. process can only produce one variant at a time, hence must store othervariants to cope with demand
de-coupling inventory
in process layout operations, output inventory of each process
anticipation inventory:
to compensate for differences in timing of supply and demand
pipeline inventory:
exists as material cannot be transported instantaneously between the point of
supply and point of demand
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12 Inventory Planning and Control
there are 3 types of inventory position:
raw material (input) inventory:
cater for variability of supply
reduce overall lead times
WIP (work in progress):
stabilise different output rates of processes
increasing utilisation of plants
finished-goods inventory:
provides fast, off-the-shelf delivery
steady delivery to customers during demand fluctuations
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12 Inventory Planning and Control
there are 3 inventory decisions to be made by operations:
volume decision (how much to order):
must consider the cost of inventory: cost of placing order
stock-out costs
working capital costs
obsolescence costs
storage costs
inefficiency costs
EBQ (economic batch quantity) model suggests production of parts and their
shipment to an inventory point, while demand is continuing to take place
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Inventorylevel
Time
demandsupply
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12 Inventory Planning and Control
timing decision (when to place an order):
the re-order point (ROP) is the point at which stock will fall to zero, minus the
order lead time
predictability of lead times is of concern, hence some margin of safety in timing is
given for ROP, resulting in buffer stock
orders can also be placed after continuous or periodic reviews of stock levels
2 bin system:
has 2 full bins
when one is empty, that is the ROP
3 bin system: same as 2 bin system, but has one extra bin
3rd bin contains safety stock for demand fluctuations
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12 Inventory Planning and Control
inventory analysis and control systems (how to control):
information processing system required
inventory priorities discriminates between stock of more value due to usagerates
pareto curve:
class A items are high value items
class B items are medium value items
class C items are low value items
Cumulative%o
f
totalvalue
% of total number of items
50 10020
50
100
Class C
Class B
Class A
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Chapter 13 Supply Chain
Planning and Control
supply chain management (SCM) is the management of
interconnecting organisations which relate to each other through upstream
or downstream linkages
activities of SCM include:
purchasing and supply management:
purchasing function forms contracts with suppliers to buy materials and services
formal requests by purchasing function
quotations by supplier
negotiations with suppliers
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13 Supply Chain Planning and Control
selection of preferred supplier
purchase order
single-sourcing and multi-sourcing have advantages and disadvantages:
quality
economies of scale
commitment
strong relationships
price negotiations
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13 Supply Chain Planning and Control
physical distribution management:
multi-echelon inventory systems
includes storage at various points in chain
manufacturer to regional warehouses
warehouses to many retail stores
simplifies routes and communication
Factory Factory Factory
Customer Customer Customer Customer
12 routes
Factory Factory Factory
Customer Customer Customer Customer
10 routes
Warehouse Warehouse
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13 Supply Chain Planning and Control
types of relationships in supply chains include:
B2B, B2C, C2B, C2C
vertical integration:
determines how much of the supply chain an organisation should own
make or buy decisions
traditional market supply relationships:
purchase goods from outside
advantage - organisation concentrates on its core activities
disadvantage - over reliance on outsourcing can hollow out the company
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13 Supply Chain Planning and Control
virtual operations:
extreme form of outsourcing (ie. software or internet companies)
advantages - flexibility and speed, lower risks on investment
disadvantage - hollowing out effect
partnership supply relationships:
a compromise between vertical integration and pure market relationship
sharing success
joint learning
long-term expectationsjoint coordination of activities
information transparency
joint problem solving
trust
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13 Supply Chain Planning and Control
information sharing improves supply chain, reduces fluctuations which
ripple through from demand to supply
channel alignment is the adjustment of scheduling, material movement,
pricing strategies, so as to bring all operations in the chain in line with each
other
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