OMIS 430 Woosley - Exam 3

treat inventory like

stacks of cash

independent demand items

items that are ready to be sold or used

dependent demand items

components of finished products: tires when there is a demand for bikes

MRO

maintenance, repair, and operations

WIP

work in process

two main concerns of inventory management

1. level of customer service

2. costs of ordering and carrying inventories

level of customer service

having the right goods available in the right quantity in the right place at the right time

overall objective of inventory management

to achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds

inventory management has two basic functions

establish a system for tracking items in inventory and make decisions about when and how much to order

effective inventory management requires

system to keep track of inventory, reliable demand forecast, knowledge of lead time and variability, reasonable estimate of costs, and classification system for inventory

holding costs

the costs of holding or “carrying” inventory over time, usually annually

ordering costs

costs of ordering and receiving inventory

shortage costs

cost of running out (when demand exceeds supply), usually ignored

periodic inventory system

physical count of items in inventory made at intervals

perpetual inventory system

maintains a continuous record of inventory purchased and sold

forecasts

estimates amount and timing of future demand

point of sale systems

electronically records sales

purchase costs

amount paid to buy inventory

setup costs

costs involved in preparing equipment for a job, interchangeable with ordering costs

ABC classification system

classifying inventory according to some measure of importance, and allocating control efforts accordingly

cycle counting

a physical count of items in inventory

single period model

model for ordering perishables and other items with limited useful lives (newspapers, food)

seeks to find the balance between costs of overstock and understock

economic order quantity (EOQ) model

try to find what is the most cost effective ordering quantity

lead time

time interval between ordering and receiving

optimal order quantity

where annual holding costs are equal to annual ordering costs

quantity discount

price reduction from buying in large volumes

reorder point

specifies the level of inventory balance of an item must fall to before replenishing stock

safety stock

stock held in excess of the expected demand to protect us during lead time or variables in demand

as safety stock increases

risk of stockout decreases

service level

matching supply and demand during lead time, % probability that there will not be a stockout

fixed order interval (FOI)

orders placed at fixed time intervals; requires larger safety stock and increased holding costs, but could save money on holding/ordering costs over time

materials requirement planning (MRP)

a planning system that schedules the precise quantity of materials needed to make a product

master schedule

states which items are to be produced, when these items are needed and it what quantities; must equal the least cumulative lead time

bill of materials

complete list of all materials/components that go into making one single item

low-level coding

restructuring the bill of materials so that multiple occurrences of a component al coincide with th elowest level at which the component occurs

net requirements

gross requirements minus scheduled receipts and inventory on hand

an MRP is not

a static document

planned orders

schedule indicating the amount of timing of future orders

change reports

revisions of dates or quantities, or cancellation of orders

exception report

data on anything that happens other than what is expected

lot sizing

the determination of how frequently and in what quantity to order inventory

lot for lot

one to one matching quantities and demand: ordering exactly what is needed

economic order quantity

the optimum quantity of stock to reorder

fixed period ordering

ordering ahead of time for a certain number of periods

system stability

diverse systems are more resilient after and resistant to disturbances

time fences

breaks in the schedule where orders can change

frozen time schedule

no schedule changes allowed in this window

moderately firm time schedule

specific changes allowed within product groups as long as parts are available

flexible time schedule

significant variation allowed as long as overall capacity requirements remain at the same levels

aggregate production plan details

long range, more than a year, product families broken down into months

main purpose of aggregate planning

specify optimal combo of production rate, workforce level, and inventory on hand

master production schedule details

mid range, 2-18 months, specific end times, broken down into months/weeks

aggregate planning is tired to

the budgeting process

material requirements planning details

short range, raw materials, components, subassemblies, broken down into days/weeks

pure strategies

level capacity strategy, chase demand strategy

advantages of chase strategy

investment in inventory is low and labor utilization is high

chase demand strategy

matching capacity to demand: the planned output for any period would be equal to the expected demand for that period

disadvantages of chase strategy

cost of adjusting output rates and/or workforce levels; constantly changing instead of becoming moe efficient

advantages of level strategy

stable output rates and workforce, can focus on efficiency

disadvantages of level strategy

greater inventory costs, increased overtime/idle time, resource utilizations vary over time

yield management

we can segment customers based on their preferences and charge them more for these options; used to maximize revenue