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Production Operations Management

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Production and Operations Management ­MGT613
VU
Lesson 31
INVENTORY MANAGEMENT
Learning Objectives
Our discussion on Inventory Management would be complete only when we are able to learn and
understand the types of Inventories and objectives of Inventory Control. This would ensure that we are
able to understand the major reasons for holding inventories. We would be able to differentiate between
independent and dependent demand. We will also learn the requirements of an effective inventory
management system. We will review both periodic as well as perpetual Inventory systems. We will
discuss in detail the ABC approach with a suitable example. Since our discussion would extend over
three lectures we will also discuss the objectives of inventory management, describe the basic EOQ
model, Economic Run Size, Quantity Discount Model with solved examples.
Types of Inventories
The five common types of inventories are:
1. Raw materials & purchased parts.
2. Partially completed goods called work in progress.
3. Finished-goods inventories:
a. (manufacturing firms) or
b. merchandise, (retail stores)
4. Goods-in-transit to warehouses or customers.
5. Replacement parts, tools, & supplies.
Objective of Inventory Control
To achieve satisfactory levels of customer service while keeping inventory costs within reasonable
bounds. Operations Managers are well aware of the fact that customer services with respect to Inventory
takes into account both the internal customers as well as external customers.
1. Level of customer service.
2. Costs of ordering and carrying inventory.
Functions of Inventory
A manufacturing organization has one or more of the following functions of inventory in mind when it
tries to set up a pragmatic and effective inventory management system.
1. To meet anticipated demand.
2. To smooth production requirements.
3. To decouple operations.
4. To protect against stock-outs.
5. To take advantage of quantity discounts.
6. To permit operations.
7. To help hedge against price increases.
8. To take advantage of order cycles.
Requirements of Effective Inventory Control
Management has two basic functions concerning Inventory.
1. To make decisions about how much and when to order.
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Production and Operations Management ­MGT613
VU
2. To establish a system of keeping track of items in an inventory.
Effective Inventory Management
An Inventory Management System would be called Effective if it is able to fulfill the following
requirements.
1.
A system to keep track of inventory.
2.
A reliable forecast of demand.
3.
Knowledge of lead times.
4.
Reasonable estimates of:
a. Holding costs
b. Ordering costs
c. Shortage costs
5. A classification system.
Inventory Counting Systems
There are two famous types of Inventory Counting Systems
1. Periodic System
2. Perpetual Inventory System( CONTINUAL)
Periodic System: Physical count of items made at periodic intervals.
Perpetual Inventory System( CONTINUAL): System that keeps track of removals from inventory
continuously, thus monitoring current levels of each item. Perpetual Inventory Systems can be simple or
complex, the two common perpetual Inventory systems found in Pakistan are the:
Two-Bin System - Two containers of inventory; reorder when the first is empty.
Universal Bar Code - Bar code printed on a label that hasinformation about the item
to which it is attached.
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Table of Contents:
  1. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT
  2. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Decision Making
  3. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Strategy
  4. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Service Delivery System
  5. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Productivity
  6. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:The Decision Process
  7. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Demand Management
  8. Roadmap to the Lecture:Fundamental Types of Forecasts, Finer Classification of Forecasts
  9. Time Series Forecasts:Techniques for Averaging, Simple Moving Average Solution
  10. The formula for the moving average is:Exponential Smoothing Model, Common Nonlinear Trends
  11. The formula for the moving average is:Major factors in design strategy
  12. The formula for the moving average is:Standardization, Mass Customization
  13. The formula for the moving average is:DESIGN STRATEGIES
  14. The formula for the moving average is:Measuring Reliability, AVAILABILITY
  15. The formula for the moving average is:Learning Objectives, Capacity Planning
  16. The formula for the moving average is:Efficiency and Utilization, Evaluating Alternatives
  17. The formula for the moving average is:Evaluating Alternatives, Financial Analysis
  18. PROCESS SELECTION:Types of Operation, Intermittent Processing
  19. PROCESS SELECTION:Basic Layout Types, Advantages of Product Layout
  20. PROCESS SELECTION:Cellular Layouts, Facilities Layouts, Importance of Layout Decisions
  21. DESIGN OF WORK SYSTEMS:Job Design, Specialization, Methods Analysis
  22. LOCATION PLANNING AND ANALYSIS:MANAGING GLOBAL OPERATIONS, Regional Factors
  23. MANAGEMENT OF QUALITY:Dimensions of Quality, Examples of Service Quality
  24. SERVICE QUALITY:Moments of Truth, Perceived Service Quality, Service Gap Analysis
  25. TOTAL QUALITY MANAGEMENT:Determinants of Quality, Responsibility for Quality
  26. TQM QUALITY:Six Sigma Team, PROCESS IMPROVEMENT
  27. QUALITY CONTROL & QUALITY ASSURANCE:INSPECTION, Control Chart
  28. ACCEPTANCE SAMPLING:CHOOSING A PLAN, CONSUMERíS AND PRODUCERíS RISK
  29. AGGREGATE PLANNING:Demand and Capacity Options
  30. AGGREGATE PLANNING:Aggregate Planning Relationships, Master Scheduling
  31. INVENTORY MANAGEMENT:Objective of Inventory Control, Inventory Counting Systems
  32. INVENTORY MANAGEMENT:ABC Classification System, Cycle Counting
  33. INVENTORY MANAGEMENT:Economic Production Quantity Assumptions
  34. INVENTORY MANAGEMENT:Independent and Dependent Demand
  35. INVENTORY MANAGEMENT:Capacity Planning, Manufacturing Resource Planning
  36. JUST IN TIME PRODUCTION SYSTEMS:Organizational and Operational Strategies
  37. JUST IN TIME PRODUCTION SYSTEMS:Operational Benefits, Kanban Formula
  38. JUST IN TIME PRODUCTION SYSTEMS:Secondary Goals, Tiered Supplier Network
  39. SUPPLY CHAIN MANAGEMENT:Logistics, Distribution Requirements Planning
  40. SUPPLY CHAIN MANAGEMENT:Supply Chain Benefits and Drawbacks
  41. SCHEDULING:High-Volume Systems, Load Chart, Hungarian Method
  42. SEQUENCING:Assumptions to Priority Rules, Scheduling Service Operations
  43. PROJECT MANAGEMENT:Project Life Cycle, Work Breakdown Structure
  44. PROJECT MANAGEMENT:Computing Algorithm, Project Crashing, Risk Management
  45. Waiting Lines:Queuing Analysis, System Characteristics, Priority Model