7/28/2019 inventory management.ppt
1/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Chap ter 13 -
Inventory
Management
7/28/2019 inventory management.ppt
2/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Inven tory Costs
In terest o r
Oppo rtuni ty Cos ts
Storage andHand l ing Costs
Taxes , Insurance, and
Shr inkage Cos ts Order ing and Setup Costs
Transpo rtat ion Costs
7/28/2019 inventory management.ppt
3/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven tory
7/28/2019 inventory management.ppt
4/102
7/28/2019 inventory management.ppt
5/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven toryCyc le Inven tory
Safety Stoc k Invento ry
Average cycle inventory =Q+ 0
2
7/28/2019 inventory management.ppt
6/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven toryCyc le Inven tory
Safety Stoc k Invento ry
Ant ic ipat ion Inventory
Average cycle inventory =Q+ 0
2
7/28/2019 inventory management.ppt
7/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven toryCyc le Inven tory
Safety Stoc k Invento ry
Ant ic ipat ion Inventory
Pipel ine Invento ry
Average cycle inventory =
Pipeline inventory = DL = dL
Q+ 02
7/28/2019 inventory management.ppt
8/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven tory
7/28/2019 inventory management.ppt
9/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven tory
Cycle inventory = Q/2
Example 13.1
7/28/2019 inventory management.ppt
10/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven tory
Cycle inventory = Q/2= 280/2= 140 drills
Example 13.1
7/28/2019 inventory management.ppt
11/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven tory
Cycle inventory = Q/2= 280/2= 140 drills
Pipeline inventory = DL = dL
Example 13.1
7/28/2019 inventory management.ppt
12/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven tory
Cycle inventory = Q/2= 280/2= 140 drills
Pipeline inventory = DL = dL
= (70 drills/week)(3 weeks)= 210 drills
Example 13.1
7/28/2019 inventory management.ppt
13/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Types o f Inven tory
Figure 13.1
7/28/2019 inventory management.ppt
14/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis
7/28/2019 inventory management.ppt
15/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis
10 20 30 40 50 60 70 80 90 100
Percentage of items
Pe
rcentageofdo
llarvalue
100
90
80
70
60
50
40
30
20
10
0
Figure 13.2
7/28/2019 inventory management.ppt
16/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis
10 20 30 40 50 60 70 80 90 100
Percentage of items
Pe
rcentageofdo
llarvalue
100
90
80
70
60
50
40
30
20
10
0
Figure 13.2
7/28/2019 inventory management.ppt
17/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis
10 20 30 40 50 60 70 80 90 100
Percentage of items
Pe
rcentageofdo
llarvalue
100
90
80
70
60
50
40
30
20
10
0
Class C
Class A
Class B
Figure 13.2
7/28/2019 inventory management.ppt
18/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis
10 20 30 40 50 60 70 80 90 100
Percentage of items
Pe
rcentageofdo
llarvalue
100
90
80
70
60
50
40
30
20
10
0
Class C
Class A
Class B
Figure 13.2
7/28/2019 inventory management.ppt
19/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis
10 20 30 40 50 60 70 80 90 100
Percentage of items
Pe
rcentageofdo
llarvalue
100
90
80
70
60
50
40
30
20
10
0
Class C
Class A
Class B
Figure 13.2
7/28/2019 inventory management.ppt
20/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis
10 20 30 40 50 60 70 80 90 100
Percentage of items
Pe
rcentageofdo
llarvalue
100
90
80
70
60
50
40
30
20
10
0
Class C
Class A
Class B
Figure 13.2
7/28/2019 inventory management.ppt
21/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
HowMuch?
When!
7/28/2019 inventory management.ppt
22/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
EconomicOrderQuantity
7/28/2019 inventory management.ppt
23/102To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
1. Demand rate is constant
2. No const rain ts on lot s ize3. Only re levant costs are hold ing and
order ing/setup
4. Decis ions fo r items are independentfrom other i tems
5. No uncer tain ty in lead t ime or supply
Assumpt ions
7/28/2019 inventory management.ppt
24/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
7/28/2019 inventory management.ppt
25/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
On-h
andinventory
(units)
TimeFigure 13.3
7/28/2019 inventory management.ppt
26/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
On-h
andinventory
(units)
TimeFigure 13.3
7/28/2019 inventory management.ppt
27/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
On-h
andinventory
(units)
Time
Receiveorder
Q
Figure 13.3
7/28/2019 inventory management.ppt
28/102
7/28/2019 inventory management.ppt
29/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
On-h
andinventory
(units)
Time
Receiveorder
Q
1 cycleFigure 13.3
7/28/2019 inventory management.ppt
30/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
On-h
andinventory
(units)
Time
Receiveorder
Inventory depletion(demand rate)
Q
1 cycleFigure 13.3
7/28/2019 inventory management.ppt
31/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
On-h
andinventory
(units)
Time
Receiveorder
Inventory depletion(demand rate)
Q
1 cycleFigure 13.3
7/28/2019 inventory management.ppt
32/102
7/28/2019 inventory management.ppt
33/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
7/28/2019 inventory management.ppt
34/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(dollars)
Lot Size (Q)Figure 13.4
7/28/2019 inventory management.ppt
35/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(dollars)
Lot Size (Q)
Holding cost (HC)
Figure 13.4
7/28/2019 inventory management.ppt
36/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(dollars)
Lot Size (Q)
Holding cost (HC)
Ordering cost (OC)
Figure 13.4
7/28/2019 inventory management.ppt
37/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(dollars)
Lot Size (Q)
Ordering cost (OC)
Holding cost (HC)
Total cost = HC+ OC
Figure 13.4
7/28/2019 inventory management.ppt
38/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
7/28/2019 inventory management.ppt
39/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Example 13.2
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
40/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Example 13.2
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
41/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(d
ollars)
| | | | | | | |50 100 150 200 250 300 350 400
3000
2000
1000
0
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Lot Size (Q)
Birdfeeder costs
C= (H) + (S)Q
2
DQ
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units
Example 13.2
7/28/2019 inventory management.ppt
42/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(d
ollars)
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
C= (H) + (S)Q
2
DQ
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units
C = $2925 + $108 = $3033
Example 13.2
7/28/2019 inventory management.ppt
43/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(d
ollars)
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
C= (H) + (S)Q
2
DQ
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units
C = $2925 + $108 = $3033
Example 13.2
7/28/2019 inventory management.ppt
44/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(d
ollars)
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
C= (H) + (S)Q
2
DQ
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units
C = $2925 + $108 = $3033
Example 13.2
7/28/2019 inventory management.ppt
45/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(d
ollars)
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
C= (H) + (S)Q
2
DQ
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 468 units
Example 13.2
7/28/2019 inventory management.ppt
46/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
Annualcost(d
ollars)
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
C= (H) + (S)Q
2
DQ
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 468 units
C = $3510 + $90 = $3600
Example 13.2
7/28/2019 inventory management.ppt
47/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Figure 13.4
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
48/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q
)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= EOQ
C= (H) + (S)Q
2
DQ
EOQ =2DSH
Example 13.3
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
49/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q
)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75 units
C= (H) + (S)Q
2
DQ
EOQ =2DSH
Example 13.3
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
50/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75 units
C = $562 + $562 = $1124
C= (H) + (S)Q
2
DQ
EOQ =2DSH
Example 13.3
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
51/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75 units
C = $562 + $562 = $1124
C= (H) + (S)Q
2
DQ
EOQ =2DSH
Example 13.3
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
52/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Holding cost = (H)Q2
Ordering cost = (S)DQ
Bird feeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75 units
C = $562 + $562 = $1124
C= (H) + (S)Q
2
DQ
EOQ =2DSH
Lowestcost
Best Q
(EOQ)Example 13.3
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
53/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Lowestcost
Best Q
(EOQ)Example 13.3
Annualcost(dollars)
Bird feeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75 units
C = $562 + $562 = $1124
C= (H) + (S)D
Q
Q2
EOQ =2DSH
7/28/2019 inventory management.ppt
54/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Birdfeeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75 units
C = $562 + $562 = $1124
C= (H) + (S)D
Q
Q2
EOQ =2DSH
Lowestcost
Best Q
(EOQ)Example 13.3
D
Q
Time between orders
TBOEOQ = = 75/936 = 0.080 yearEOQ
D
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
55/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Economic Order Quantity
| | | | | | | |50 100 150 200 250 300 350 400
Lot Size (Q)
3000
2000
1000
0
Currentcost
Current
Q
Total cost = (H) + (S)D
Q
Q2
Birdfeeder costs
D= (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75 units
Lowestcost
Best Q
(EOQ)
Time between orders
TBOEOQ = = 75/936 = 0.080 year
TBOEOQ = (75/936)(12) = 0.96 months
TBOEOQ = (75/936)(52) = 4.17 weeks
TBOEOQ = (75/936)(365) = 29.25 days
EOQ
D
Example 13.3
Annualcost(d
ollars)
7/28/2019 inventory management.ppt
56/102
7/28/2019 inventory management.ppt
57/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
HowMuch?
When!
7/28/2019 inventory management.ppt
58/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Continuous Review
Time
Figure 13.7
On-handinve
ntory
7/28/2019 inventory management.ppt
59/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Continuous Review
Time
R
Orderreceived
Q
OH
Figure 13.7
On-handinve
ntory
7/28/2019 inventory management.ppt
60/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Continuous Review
Orderreceived
Q
OH
Orderplaced
IP
TBO
L
R
Figure 13.7
On-handinve
ntory
7/28/2019 inventory management.ppt
61/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Continuous Review
Time
Orderreceived
Orderreceived
Q Q
OH OH
Orderplaced
Orderplaced
IP IP
TBO
L
TBO
L
TBO
L
R
Orderreceived
Q
OH
Orderplaced
IP
Orderreceived
Figure 13.7
On-handinve
ntory
7/28/2019 inventory management.ppt
62/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Continuous Review
Time
Orderreceived
Orderreceived
Q Q
OH OH
Orderplaced
Orderplaced
IP IP
TBO
L
TBO
L
TBO
L
R
Orderreceived
Q
OH
Orderplaced
IP
Orderreceived
Chicken Soup
On-handinve
ntory
Example 13.4
7/28/2019 inventory management.ppt
63/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Continuous Review
Time
Orderreceived
Orderreceived
Q Q
OH OH
Orderplaced
Orderplaced
IP IP
TBO
L
TBO
L
TBO
L
R
Orderreceived
Q
OH
Orderplaced
IP
Orderreceived
Example 13.4
Chicken Soup
R= Average demand during lead time= (25)(4) = 100 cases
On-handinve
ntory
7/28/2019 inventory management.ppt
64/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Continuous Review
On-handinve
ntory
Time
Orderreceived
Orderreceived
Q Q
OH OH
Orderplaced
Orderplaced
IP IP
TBO
L
TBO
L
TBO
L
R
Orderreceived
Q
OH
Orderplaced
IP
Orderreceived
Example 13.4
Chicken Soup
R= Average demand during lead time= (25)(4) = 100 cases
IP = OH+ SR BO
= 10 + 200
0 = 210 cases
7/28/2019 inventory management.ppt
65/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Uncertain Demand
7/28/2019 inventory management.ppt
66/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Uncertain Demand
Time
R
Figure 13.8
On-handinve
ntory
7/28/2019 inventory management.ppt
67/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Uncertain Demand
Time
On-handinve
ntory
Orderreceived
QOH
Orderplaced
Orderplaced
Orderreceived
IP IP
R
TBO1 TBO2 TBO3
L1 L2 L3
Q
Orderplaced
Q
Orderreceived
Orderreceived
Figure 13.6
7/28/2019 inventory management.ppt
68/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Reorder Point / Safety Stock
7/28/2019 inventory management.ppt
69/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Reorder Point / Safety Stock
Averagedemand
duringlead time
Figure 13.9
7/28/2019 inventory management.ppt
70/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Reorder Point / Safety Stock
Probability of stockout(1.0 0.85 = 0.15)
Cycle-service level = 85%
Averagedemand
duringlead time
zL
R
Figure 13.9
7/28/2019 inventory management.ppt
71/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Probability of stockout(1.0 - 0.85 = 0.15)
Cycle-service level = 85%
Averagedemand
duringlead time
zL
R
Reorder Point / Safety Stock
Probability of stockout(1.0 0.85 = 0.15)
Example 13.5
Safety Stock/R
7/28/2019 inventory management.ppt
72/102
7/28/2019 inventory management.ppt
73/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Probability of stockout(1.0 - 0.85 = 0.15)
Cycle-service level = 85%
Averagedemand
duringlead time
zL
R
Reorder Point / Safety Stock
Probability of stockout(1.0 0.85 = 0.15)
Example 13.5
Safety Stock/R
Safety stock = zL= 2.33(22) = 51.3= 51 boxes
Reorder point = ADDLT + SS= 250 + 51= 301 boxes
7/28/2019 inventory management.ppt
74/102
7/28/2019 inventory management.ppt
75/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Figure 13.10
t= 15
+75
Demand for week 1
7/28/2019 inventory management.ppt
76/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Figure 13.10
t= 15
+
+75
Demand for week 1
75Demand for week 2
t
= 15
7/28/2019 inventory management.ppt
77/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Figure 13.10
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t
= 15
t= 15
L d Ti Di t ib ti
7/28/2019 inventory management.ppt
78/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Figure 13.10
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t= 26
225Demand for
three-week lead time
t
= 15
t= 15
L d Ti Di t ib ti
7/28/2019 inventory management.ppt
79/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Example 13.6
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t= 26
225Demand for
three-week lead time
t= 15
t= 15
Bird feeder Lead Time Distribution
L d Ti Di t ib ti
7/28/2019 inventory management.ppt
80/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Example 13.6
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t= 26
225Demand for
three-week lead time
t= 15
t= 15
Bird feeder Lead Time Distribution
t= 1 week d= 18 L = 2
L d Ti Di t ib ti
7/28/2019 inventory management.ppt
81/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Example 13.6
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t= 26
225Demand for
three-week lead time
t= 15
t= 15
Bird feeder Lead Time Distribution
t= 1 week d= 18 L = 2
L = t L = 5 2 = 7.1
L d Ti Di t ib ti
7/28/2019 inventory management.ppt
82/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Example 13.6
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t= 26
225Demand for
three-week lead time
t= 15
t= 15
Bird feeder Lead Time Distribution
t= 1 week d= 18 L = 2
L = t L = 5 2 = 7.1
Safety stock = zL = 1.28(7.1) = 9.1 or 9 units
Reorder point = dL + Safety stock= 2(18) + 9 = 45 units
L d Ti Di t ib ti
7/28/2019 inventory management.ppt
83/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Example 13.6
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t= 26
225Demand for
three-week lead time
t= 15
t= 15
Bird feeder Lead Time Distribution
t= 1 week d= 18 L = 2
Reorder point = 2(18) + 9 = 45 units
L d Ti Di t ib ti
7/28/2019 inventory management.ppt
84/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Lead Time Distributions
Example 13.6
t= 15
=
+
+75
Demand for week 1
75Demand for week 2
75
Demand for week 3
t= 26
225Demand for
three-week lead time
t= 15
t= 15
Bird feeder Lead Time Distribution
t= 1 week d= 18 L = 2
Reorder point = 2(18) + 9 = 45 units
C = ($15) + ($45) + 9($15)75
2
936
75
C= $562.50 + $561.60 + $135 = $1259.10
P i di R i S t
7/28/2019 inventory management.ppt
85/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
P i di R i S t
7/28/2019 inventory management.ppt
86/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
TimeP P
T
Figure 13.11
On-handin
ventory
P i di R i S t
7/28/2019 inventory management.ppt
87/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
Time
On-handin
ventory
P P
T
Q1
Orderplaced
Figure 13.11
P i di R i S t
7/28/2019 inventory management.ppt
88/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
Time
On-handin
ventory
P P
T
Q1
L
Orderplaced
Figure 13.11
P i di R i S t
7/28/2019 inventory management.ppt
89/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
Time
On-handin
ventory
P P
T
Q1
L
Orderplaced
Orderreceived
Figure 13.11
Periodic Review Systems
7/28/2019 inventory management.ppt
90/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
Time
On-handin
ventory
Orderreceived
Orderreceived
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
T
Orderreceived
Figure 13.11
Periodic Review Systems
7/28/2019 inventory management.ppt
91/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
T
Orderreceived
IP
Figure 13.11
Periodic Review Systems
7/28/2019 inventory management.ppt
92/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
Orderreceived
IPTV Set - PSystem
IP= OH+ SRBO
Qt= T- IPt
T= 400 BO= 5OH= 0 SR= 0
IP= 0 + 0 5 =5 sets
Q= 400
(
5) = 405 sets
Periodic Review Systems
7/28/2019 inventory management.ppt
93/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Periodic Review Systems
Example 13.7
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
7/28/2019 inventory management.ppt
94/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
Example 13.8
Bird feeder Calculating Pand T
Periodic Review Systems
7/28/2019 inventory management.ppt
95/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
Example 13.8
EOQ = 75 units D= (18 units/week)(52 weeks) = 936 units
t= 18 units L = 2 weeks cycle/service level = 90%
Bird feederCalculating Pand T
Periodic Review Systems
7/28/2019 inventory management.ppt
96/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
Example 13.8
EOQ = 75 units D= (18 units/week)(52 weeks) = 936 units
t= 18 units L = 2 weeks cycle/service level = 90%
Bird feederCalculating Pand T
P= (52) = (52) = 4.2 or 4 weeksEOQD
75936
P+L = t P+ L = 5 6 = 12 units
Periodic Review Systems
7/28/2019 inventory management.ppt
97/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
Example 13.8
T = Average demand during the protection interval + Safety stock= d(P+ L ) + zP + L= (18 units/week)(16 weeks) + 1.28(12 units) = 123 units
EOQ = 75 units D= (18 units/week)(52 weeks) = 936 units
t= 18 units L = 2 weeks cycle/service level = 90%
Bird feederCalculating Pand T
P= (52) = (52) = 4.2 or 4 weeksEOQD
75936
P+L = t P+ L = 5 6 = 12 units
Periodic Review Systems
7/28/2019 inventory management.ppt
98/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
Example 13.8
EOQ = 75 units D= (18 units/week)(52 weeks) = 936 units
t= 18 units L = 2 weeks cycle/service level = 90%
Bird feederCalculating Pand T
P= 4 weeks T= 123 units
Periodic Review Systems
7/28/2019 inventory management.ppt
99/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Time
On-handinventory
IP1
IP3
IP2
Orderreceived
Orderreceived
IP IP
OH OH
Orderplaced
Orderplaced
Q1Q2
Q3
L L L
P P
Protection interval
TOrderreceived
IP
Periodic Review Systems
Example 13.8
EOQ = 75 units D= (18 units/week)(52 weeks) = 936 units
t= 18 units L = 2 weeks cycle/service level = 90%
Bird feederCalculating Pand T
C = ($15) + ($45) + 15($15)4(18)
2
936
4(18)
C= $540 + $585 + $225 = $1350
P= 4 weeks T= 123 units
7/28/2019 inventory management.ppt
100/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
Comparison ofQand PSystems
P Systems
Q Systems
Convenient to adm inister
Orders may be combined
IP on ly required at review
Ind iv idual review frequenc ies Possib le quant i ty discounts
Lower, less -expens ive safety sto cks
ABC Analysis Solved Problem 2
7/28/2019 inventory management.ppt
101/102
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.
ABC Analysis Solved Problem 2
Comparison of P and Q Systems
7/28/2019 inventory management.ppt
102/102
Comparison of P and Q Systems Solved Problem 6