Inventory Management 2

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Inventory Management 2
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Current Trends

• Material Requirements Planning (MRP)
• Finished good, independent demands, previous
  models are most appropriate
• Demand for raw materials, components
  sub-assemblies is said to be dependent on
  finished goods
• MRP is technique to manage dependent demand
  inventories
• - computer system using master production
  schedule for finished goods, bill of materials
  (assembly) and inventory records file

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PRODUCTION
Without MRP
Inv. level
Finished Product
ROP
SS
Component Part
WD
Inv. level
ROP
LT
Order
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• Re-order Point
• Re-order point R is level of inventory when
• order is placed
• R L x D
• Where L is lead time
• Inventory position is stock on hand size of
• outstanding order
• In reality- demand fluctuates and lead time
• varies so most organisations build a safety
• stock (S.S) into their inventory policy
• RLxDSS

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Re-order Point Contd

• EOQ assumes stock should be ordered when it falls
  below re-order level
• Buffer stock acts as a safety net in order to
  cushion the effects of variability in lead time
• The re-order point can be defined as the sum of
  demand during the lead time and buffer stock
• Therefore RLxDSS

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With MRP
ROP
SS
ROP
LT
ORDER
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Modern Methods of Inventory Management

• Just-In-Time
• Kanban Systems
• Flexible Manufacturing Systems (FMS)
• Lean Inventory Control
• Agile Inventory Control
• Vendor Managed Inventory (VMI)
• Time Compression
• ABC Inventory Priority

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Just-In-Time

• To produce the right units in the right quantity
  at the right time
• Inventories are minimised just enough
  components produced to produce final product.
  Traditional inventory systems, including MRP, are
  referred to as PUSH systems once a
  sub-component has been produced as a result of
  forecasted demand for finished goods they are
  pushed up to the next level.

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• A JIT system is a PULL system. A sub-component
  is
• produced only on request from the work centre
  that
• utilises the sub-component in assembly. Hence
• inventory is pulled through the system.
• Batch size- in small minimum safety stock.
  Therefore
• failure in production process at some point can
  cause
• entire production process to shut down.
• - Use assemblies utilising that component run
  out of
• inventory and have to stop
• - Assemblies that go into making the component
• have sufficient inventory build-up not
  stop
• production

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Effect of avoiding problems and solving them
quickly

• The factory and its suppliers must be completely
  coordinated
• Suppliers must make JIT deliveries smaller
  deliveries to accommodate the manufacturers
  production schedules
• Improved profile resulting from reduced inventory
  cost
• Improved quality
• Popular in Japan less so in the USA

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KANBAN Systems

• Ordering of inventory from one production level
  to the
• next is frequently done using a KANBAN system.
  Ticket
• based, originated in Japan, keeps track of flow
  of
• component through the factory.
• 1. Component produced in a small batch ,
  attached to a
• production ordering KANBAN which is shipped
  to an
• intermediary storage location (store).
• 2. The assembly that needs the component collects
  it from store to a holding area. Production
  order KANBAN is removed and replaced by a
  withdrawal KANBAN.

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KANBAN Systems (contd)

• When a component is removed from the holding area
  for use in production the withdrawal KANBAN is
  placed in a KANBAN port. When a sufficient number
  of these are reached another delivery to the
  holding store is initiated.
• When production ordering KANBAN reach a
  predetermined amount, production of the component
  is resumed.

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Flexible Manufacturing Systems (FMS)

• Computer controlled machine, capable of
  performing
• several different operations in the production
  process as
• offered to traditional production line/assembly
  line
• where machine has dedicated function.
• Advantages-
• Reduced WIP inventory
• Reduced manufacturing LT
• Reduced labour costs
• Reduced plant space requirements
• Increased machine utilisation
• Increased range of products produced
• However, increased cost of sophisticated
  machines.

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Modern Methods Lean Inventory Control
(contd)

• Lean refers to waste elimination form of NVA (non
  value added) stock holding seen as waste (sat on
  rack in store)
• Lean inventory stresses smooth, uninterrupted
  flow of product through the warehouse and down
  supply chain
• Note- lean suited to conditions where supply
  chain cost rank higher than customer
  satisfaction. Main priority lies with elimination
  of NVA activity
• Unlike agile which aims for flexibility by
  allowing necessary non value added (NNVA)
  activity to be present

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Modern Methods Agile Inventory Control
(contd)

• Agile INV. (control differs from lean in that it
  allows non value adding activity to be present in
  the system. If necessary in order to gain level
  of flexibility i.e. inventory could be stored if
  related to flexibility this is known as necessary
  non value adding (NNVA)
• Agile approach to management of inventory suited
  to customers satisfaction as the main priority
• Marks and Spencer
• M S classic example i.e. flexible inventory
  management approach of being able to react to
  large, fluctuating patterns suited to such an
  organisation

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Modern Methods Vendor MGE. Inventory
(contd

• VMI An approach to inventory and order
  fulfilment whereby supplier, not customer is
  responsible for management and replenishing
  inventory
• Decisions made with retailer
• Suppliers take over task of stock replenishment
  by tracking product sales/inventory levels at
  customer
• Send goods only when stocks at ROL low
• Suppliers need to see stock levels at customers
  (often customer warehouse via EDI)

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Modern Methods Time Compression
(contd

• Time compression based on idea customer needs
  constantly changing
• Customers do not accept their needs cannot be met
  responsive flexibility needed to quickly adapt to
  demand changes
• Time compression not easy to implement. Re-eng of
  supply chain reqd
• Supply Chain more responsive, via fewer
  inventories held throughout supply chain,
  therefore less inventory to manage
• Reduced stock reduced waste
• Move closer to make-to-order scenario which
  release working capital. Pressure on efficient
  warehouse

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Modern Methods ABC Inventory Priority
(contd

• ABC analysis with a warehouse used to
• manage inventory relative to usage
• Allows managers time to concentrate, control
• more significant items of stock
• Class A 20 high usage 80 total usage value
• Class B 30 med.usage 10 total usage value
• Class C 50 low usage 10 total usage value
• ABC analysis useful to organisations who have a
• wide variety of products with various different
  levels
• of usage and volume. The approach allows a better
  
• coordinated approach to these items