Final Review

1
Final Review
During the Semester
Where you are now!
2

• Inventory Stock of idle goods

Types of Inventories

• Raw materials purchased parts
• Partially completed goods work in progress
• Finished-goods inventories
• (manufacturing firms) or merchandise (retail
  stores)
• Replacement parts, tools, supplies
• Goods-in-transit to warehouses or customers

3
Why hold Inventory?

• To meet anticipated demand
• To smooth production requirements
• To maintain independence of production-distributi
  on operations
• To avoid stock-outs
• Take advantage of discounts in purchasing
• Speculative reasons Hedge against price
  increases
• Economic reasons To decrease costs of ordering
  and carrying inventory

4
Periodic vs Continuous Review Systems

• Periodic Review System
• Inventory level monitored at constant intervals
• Decision To order or not
• How much to order
• Continuous Review System (Perpetual Inventory
  Sys.)
• Inventory level monitored continuously
• Decision When to order How much to order

? More appropriate for valuable items
5
Classifying Items as ABC
6
EOQ Model
7

• Optimal Order Quantity Qopt

• Reorder Point (ROP)

where LT Leadtime (in days or weeks) d
Daily or weekly demand rate

• Optimal Annual Total Inventory Cost

TC (Q/2)H (D/Q)S
8
POQ Model Inventory Levels
Inventory Level
Inventory level with no demand
Max. Inventory Q(1- d/p)
Production Portion of Cycle
Q
Time
Demand portion of cycle with no supply
Supply Begins
Supply Ends
9
POQ Model Equations
D Demand per year S Setup cost H Holding
cost d Demand per day p Production per day
Run length Q/p
10
Quantity Discount ModelHow Much to Order?
Lowest cost not in discount range
11

• Cycle/Lead time Service Level is given by F(z) in
  terms of standard normal distribution
• - In EXCEL F(z) is given by NORMDIST(z, 0, 1, 1)
  or NORMSDIST(z) also from normal tables
• ROP mean lead time demand (LTD) zSTD of LTD
• Mean LTD ?LTD
• STD of LTD ?LTD
• Fill Rate/Annual Service Level 1 - E(z) STD
  of LTD/Q

Safety Stock

12
Continuous Demand Distribution

• The decision rule is to select Q such that

DECISION RULE

• is also referred as Customer Service Level (CSL)

If the selling price (p) increases, Q
increases If the purchase cost (c) increases, Q
decreases If the salvage value (s) increases, Q
increases
13
Computation of Expected Profit for Optimal
Decision Q 41.

• Profit Total Revenue Total Salvage Value
  Total Purchase Cost.
• For this example (salvage 0.00)

14
3
4
Traditional Supply Chain Flows
Information flow, Financial
flow Material flow
Supplier
Retailer
Distributor
Manufacturer
15
(No Transcript)
16
(No Transcript)
17
Drivers of Supply Chain Fit
Efficiency
Responsiveness
Supply Chain Structure
Inventory
Transportation
Facilities
Information
Drivers
18
Considerations for Supply Chain Drivers
19
Lack of Information Coordination Bull-Whip
Effect
Wholesaler
Manufacturer
Distributor
Retailer
Ordering
20
Centralization vs. Decentralization
3 / unit
3 / unit
manufacturer
Single
6 / unit
firm
retailer
12 / unit
12 / unit
customers
customers
Order quantity
30 units
42.5 units
Total profit
195 (Ret. 100, Mfr. 95)
213.75
21
Lessons

• Coordination is always beneficial for the supply
  chain (basic application of systems approach)
• Examples Contractual Coordination
• Revenue Sharing (Movie Business)
• BuyBack Contracts (Publishing)
• Coordination may put some members worse-off
  (compensation would be required for those
  members)
• Coordination requires information sharing and a
  systems approach
• Requires trust among SC members and long-term
  thinking

22
MRP

• Dependent items are needed just prior to when
  they are needed for production
• Demand is lumpy
• Little or no safety stock

23
MRP Inputs

• Bill-of-Materials (BOM) File List of all raw
  materials,parts, subassemblies needed to produce
  the product.
• Illustrated using a product-structure tree

24
MRP Computation
Should Net Requirements Planned Order
Receipts? Lot-for-lot production Fixed Multiple
batch size
25
Benefits of MRP

• Low levels of in-process inventories
• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time

Requirements of MRP

• Computer and necessary software
• Accurate and up-to-date inputs (master
  schedules,BOM,inventory records)
• Integrity of data

26
Scheduling Common Performance Measures

• Makespan Total time taken to complete all the
  jobs assigned to the workstation
• Flow time (Completion Time - Arrival time)
• Total Flow Time (Sum of flow times of jobs)
• Average Flow Time
• Average jobs Total Flow Time / Makespan
• Lateness (Completion Time - Due Date)
• Maximum Lateness
• Tardiness Max(Lateness, 0)
• Total Tardiness (Sum of tardiness of jobs)
• Average Tardiness

27
Sequencing Rules

• FCFS
• SPT minimize avg. flow (avg. lateness,
• avg. number of jobs)
• EDD minimize maximum tardiness
• (lateness)
• CR
• Johnsons Rule minimize makespan in
• two-machine flowshop

28
Costs of Quality

• Internal Failure Costs
• Costs incurred to fix problems that are detected
  before delivery to the customer.
• External Failure Costs
• Costs incurred to fix problems that are detected
  after delivery to the customer.
• Appraisal Costs
• All product and/or service inspection costs.
• Prevention Costs
• Costs of preventing defects (Training, Quality
  Planning, Process control, Quality Improvement)

29
Control Charts for Variables

• Data is measured

• Mean Chart Measure central tendency
• Range Chart Measure dispersion

30
Mean Charts

• For a given sample size n, 3-? values of A2 are
  listed in the table after this chapter.

31
Range Charts

• For a given sample size n, 3-? values of D3 and
  D4 are also listed in in the table after this
  chapter.

32
p-Chart

• If p is not known, use an estimate

33
c-Chart

• If c is not known, use an estimate