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GLOBAL LOGISTIC MANAGEMENTGLOBAL LOGISTIC MANAGEMENT LECTURE 3: INVENTORY MANAGEMENT Agenda Agenda 1 What is Inventory Management2 Two forms of Demand3 Inventory and Supply Chain Management4 Inventory and Quality Management5 Inventory Control system6 Economic Order Quantity (EOQ) Models AgendaAgenda7 Production Quantity Model8 Quantity Discounts9 Reorder Point10 Safety Stocks 1 What is Inventory management 1 What is Inventory management ??Inventory management is the process of trading off the level of inventory held to achieve high customer service levels with the cost of holding inventory, including capital tied up in inventory, variable storage costs and obsolescence. The purpose of Inventory Management:◦how many units to order◦when to order 2 Two forms of Demand2 Two forms of DemandDependentDependent◦Demand for items used to produce final Demand for items used to produce final products products ◦Tires stored at a Goodyear plant are an example of a dependent demand itemIndependentIndependent◦Demand for items used by external Demand for items used by external customerscustomers◦Cars, appliances, computers, and houses are examples of independent demand inventory 3 Inventory and Supply Chain 3 Inventory and Supply Chain ManagementManagementBullwhip effect◦demand information is distorted as it moves away from the end-use customer◦higher safety stock inventories to are stored to compensateSeasonal or cyclical demandInventory provides independence from vendorsTake advantage of price discountsInventory provides independence between stages and avoids work stop-pages 4 Inventory and Quality 4 Inventory and Quality Management Management Customers usually perceive quality service as availability of goods they want when they want themInventory must be sufficient to provide high-quality customer service in Total Quality Management (TQM) 5 Inventory Control System5 Inventory Control SystemContinuous system (fixed-order-Continuous system (fixed-order-quantity)quantity)◦constant amount ordered when constant amount ordered when inventory declines to inventory declines to predetermined levelpredetermined levelPeriodic system (fixed-time-period)Periodic system (fixed-time-period)◦order placed for variable amount order placed for variable amount after fixed passage of timeafter fixed passage of time 6 Economic Order Quantity 6 Economic Order Quantity (EOQ) Models(EOQ) Models EOQ◦optimal order quantity that will minimize total inventory costsBasic EOQ modelProduction quantity modelAssumptions of EOQ Model:Demand is known with certainty and is Demand is known with certainty and is constant over timeconstant over timeNo shortages are allowedNo shortages are allowedLead time for the receipt of orders is Lead time for the receipt of orders is constantconstantOrder quantity is received all at onceOrder quantity is received all at once Order Inventory CycleOrder Inventory CycleDemand Demand raterateTimeTimeLead Lead timetimeLead Lead timetimeOrder Order placedplacedOrder Order placedplacedOrder Order receiptreceiptOrder Order receiptreceiptInventory LevelInventory LevelReorder point, Reorder point, RROrder quantity, Order quantity, QQ00 123doc.vn