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Flashcards in Inventory Management Deck (18)
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Material Requirement Plan
Planning & control System

right materials & quality available at right time
meet demand
determine what components are needed (meet MPS)
based on Lead time
calculate periods when components must be available


decision points

what to order
when to order
how much to order
when to schedule delivery


Inputs to MRP System

MPS - end items to be produced (quantity and dates)
Inventory Record (quantity record - how much are actually needed)
Bill of Material (intermed., subassemblies, RM etc.)
--> all involved to show all parts required to produce 1 ITEM


MRP Description

each pat has only one part number
unique number
a part is defined by its form


Lead Time

"spam time need to perform a process"
a) manuf.: time to order preparation --> any expected delays (finished product)
b) procurement --> purchase order and receive goods


Inventory Management

1. What is Demand - fluctuations
2. How much should be order at one time
3. When should order be placed?


Inventory Management
1. Demand Strategies

Chase Demand


Inventory Management
2. How much to order?

Lot for Lot Rule
--> order exactly what is needed (MRP - production just in time)
Fix-Order- Quantity
Min-Max Quantity
--> order is placed when Quantity available falls below Order Point


Inventory Management
2. Min Max System

Average Cycle Inventory = OQ/2
Number of Order per year =
Annual Demand/OQ


2. EOQ Assumptions

"how much to order at one time"
demand relative stable
items produce in batch not continuous
order preparation & carrying cost are known & constant
replacement occur all at once
--> assumes demand is linear & quantity is received immediately


EOQ Calculations

= (2 * Annual usage * ordering cost) / (annual carrying cost rate *unit cost)
--> where carrying and ordering cost crosses each other


Inventory Management
3. When to place replacement order

Order Point System
OP = DDLT (demand during Leat Time) + SS (safety Stock)
Reorder point is between cycle reorder time + lead time
on the delivery date you always still have the safety stock (depends on your service level wanted)


Safety Stock

most common way of buffering against uncertainty
- variability in demand (during lead time - most risk)
- frequency of reorder
- service level desired
- length of lead time - the longer the more SS


Safety Stock & Lead Time

the longer the lead time
--> the more risk involve
--> the more SS needs to be carried to provide specific level


Order one bulk bu only once

High average inventory (storage cost)
less transport cost
high storage capacity
risk of perishability
stock out risk only once a year (when order is placed)


Order various time a year
smaller amounts

less average inventory cost
less storage cost & perishability
high transport cost
less storage capacity
stock out risk several times a year


Forecast Evolution

1. do nothing
2. sales history (starting point)
3. Mathematical projection
--> assumes whatever happens in the past will be in the future
4. Forecast
--> not always the best solutions (sometimes not forecast & responding to demand is better)


Efecto Portfolio

Aggregate Demand
Consolidate Production (Data/information stored in WH)
--> reduces uncertainty
--> reduce variability