3: Inventory Management and Lean Operations Flashcards Preview

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Flashcards in 3: Inventory Management and Lean Operations Deck (15)
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Dependent demand

Items used to produce final products.


Independent demand

Items demanded by external customers.


Aims of inventory management

Reduce inventory costs to acceptable levels.
Keep inventory costs down.
Match inventory policy to the firm's ongoing process needs.
Matching sourcing policy to the firm's ongoing strategic requirements.


5 reasons for holding inventory:

Meet unexpected demand.
Smooth seasonal/cyclical demand.
Overcome lead time problems (customers don't like waiting).
Take advantage of price discounts.
Hedge against price increases.
Reduce dependency on a supplier/customer.
Artifice? - conceal process inefficiencies, poor management practices or poor quality record.


ABC Classification System

Classify inventory into 3 categories:
A: 20% of items accounting for 80% of stock value.
B: Next 30% of items accounting for 10% of stock value.
C: Remaining 50% of items accounting for 10% of stock value.


Economic Order Quantity (EOQ) model assumptions

Uniform and known demand rate.
Fixed item cost.
Fixed ordering cost.
Constant lead time.


EOQ formula

See index cards.


Criticisms of EOQ

A simple model.
Cost minimisation (and cost is just one performance metric).
Unrealistic assumptions.
Real costs of stock in operations are not as assumed in the EOQ model, e.g. shelf life.


Re-order point (ROP) system

EOQ tells us how much to order, but when do we place that order?
See index cards.


Economic Batch Quantity (EBQ) model

See index cards.


Just in Time (JIT)

Repetitive production system in which processing and movement of materials and goods occur just as they are needed.
Aims to meet demand instantly with perfect quality and no waste - JIT views inventory as waste.


JIT philosophy

Minimise ALL kinds of waste.


How is inventory seen as waste?

Requires more storage space.
Requires tracking and counting.
Increases movement activity.
Hides problems.
Increases risk of loss from theft/damage.


Benefits of JIT

Cost savings.
Revenue increases.
Investment savings.
Work-force improvements.
Uncovering problems.
Reductions in waste and more sustainable operations.


Issues with JIT

Performs best in stable conditions.
Implementing JIT procedures can involve a major overhaul of your business systems.
Little room for mistakes as minimal stock is kept.
Production very reliant on suppliers - if they fail the whole production schedule can be delayed.
No spare product available to meet unexpected demand.