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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1
Q

Dependent demand

A

Items used to produce final products.

2
Q

Independent demand

A

Items demanded by external customers.

3
Q

Aims of inventory management

A

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.

4
Q

5 reasons for holding inventory:

A

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.

5
Q

ABC Classification System

A

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.

6
Q

Economic Order Quantity (EOQ) model assumptions

A

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

7
Q

EOQ formula

A

See index cards.

8
Q

Criticisms of EOQ

A
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.
9
Q

Re-order point (ROP) system

A

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

10
Q

Economic Batch Quantity (EBQ) model

A

See index cards.

11
Q

Just in Time (JIT)

A

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.

12
Q

JIT philosophy

A

Minimise ALL kinds of waste.

13
Q

How is inventory seen as waste?

A
Requires more storage space.
Requires tracking and counting.
Increases movement activity.
Hides problems.
Increases risk of loss from theft/damage.
14
Q

Benefits of JIT

A
Cost savings.
Revenue increases.
Investment savings.
Work-force improvements.
Uncovering problems.
Reductions in waste and more sustainable operations.
15
Q

Issues with JIT

A

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.