2. DERIVED INVENTORY STRATEGIES Organizational Objectives Organizational Strategies Operations Strategies Inventory Strategies Marketing Strategies Finance Strategies

3. BALANCING INVENTORY OBJECTIVES Maximize Customer Service Operating Efficiency Minimize Inventory Investment

9. DEMAND-BASED INVENTORY SYSTEMS Demand Independent (Continuous) Dependent (Discrete) Fixed Order Size System Fixed Order Interval System EOQ/B; EPQ/B EOI/E Time-Phased Order Point (TPOP) System Derived Order Quantity System Perpetual System Two-Bin System Periodic System Optional Replenishment System Distribution Requirements Planning (DRP) System Single Order Quantity System Material Requirements Planning (MRP) System Just-In-Time System

10. PERPETUAL INVENTORY SYSTEM SAFETY STOCK 0 B A C D E F G H I TIME INVENTORY LEVEL 1. Variable Demand (slope) 2. Fixed reorder point B 3. Fixed reorder quantity AC 4. Fixed lead time DE = FG= HI 5. Variable time between orders DF  FH

13. PERIODIC INVENTORY SYSTEM 1. Variable demand (slope) 2. Fixed review period FH =HJ 3. Variable reorder points C = B = D 4. Variable reorder quantities E-C  E-B  E-D 5. Variable lead time FG  HI  JK 6. Safety stock = OB (Reorder quantity = E - inventory level at review period SAFETY STOCK 0 B C F G H I J K TIME INVENTORY LEVEL E D

15. OPTIONAL REPLENISHMENT INVENTORY SYSTEM 1. Variable demand (slope) 2. Fixed review period = FG =GJ = IJ = JL = LM = MN 3. Reorder points = D or lower 4. Variable reorder quantity = E-C  E-B 5. Fixed lead time = GH = JK = NP 6. Safety stock = OA 0 A C F G H I J K TIME INVENTORY LEVEL E D B P Q N L M

16. TRILEVEL DISTRIBUTION NETWORK LDC 101 LDC 102 LDC 103 LDC 104 RDC 100 LDC 201 LDC 202 LDC 203 RDC 200 LDC 301 LDC 302 LDC 305 LDC 305 RDC 300 MDC MDC = master (central) distribution center RDC = regional distribution center LDC = local distribution center

17. TYPICAL ABC INVENTORY ANALYSIS 0 20 40 60 80 100 120 0 20 40 60 80 100 C B A PERCENT OF TOTAL DOLLAR USAGE PERCENT OF TOTAL ITEMS A = HIGH VALUE ITEMS B = MEDIUM VALUE ITEMS C = LOW VALUE ITEMS

18. TYPICAL ABC INVENTORY ANALYSIS 40 20 0 20 40 60 80 60 A B C PERCENT OF DOLLAR VALUE PERCENT OF ITEMS

19. RELATIVE ANALYSIS OF ABC CLASSIFICATIONS Item Degree of Control Type of Records Lot Sizes Frequency of Review Size of Safety Stocks A Tight Accurate / Complete Low Continuous Small B Moderate Good Medium Occasional Moderate C Loose Simple Large Infrequent Large

21. INVENTORY CONTROL SYSTEM Reorder Point EOQ EPQ EOI SOQ DRP TPOP MRP MPS JIT TOC END ITEM FORECASTS FORECASTING MODELS INVENTORY DECISION RULES ITEM ORDERS INVENTORY STATUS DATA SUPPLIERS 1. External 2. Internal RECEIPT Market Research Sales Orders Opinions INVENTORY Transfer

24. DISTRIBUTION AND MANUFACTURING INTEGRATION MASTER PRODUCTION SCHEDULE Production Plan CDC RDC LDC LDC LDC End Item Component Component Component Component Component Distribution Requirements Production Efficiency DRP MRP

25. LARGE INVENTORY SYNDROME Functional Problem inaccurate forecasts absenteeism substandard quality equipment breakdowns large setup items scheduling problems Classic Response increase finished goods inventory maintain buffer inventory maintain buffer inventory maintain work-in-process queues run larger lot size maintain buffer inventory

27. AGGREGATE INVENTORY PROFILE Supplies Raw Materials In-Process Goods Finished Goods Outputs Inputs Total Inventory Level

28. RAW MATERIALS / SUPPLIES INVENTORY PROFILE Excess Stock Surplus / Idle Stock Working Stock Safety Stock Outputs Inputs Nonproductive Productive

29. FINISHED GOODS INVENTORY PROFILE Surplus Stock Working Stock Safety Stock Outputs Inputs Nonproductive Productive Seasonal Stock (anticipation) Excess Stock

30. IN-PROCESS INVENTORY PROFILE Unreleased Orders Orders in Transit Orders in Temporary Storage Orders Waiting to be Worked Orders Being Inspected Orders Being Worked Backlog Nonproductive Productive In-Process Inventory Outputs Inputs Finished Goods

32. THE INVENTORY FUNCTION Mgt. policies Working capital Space Plant capacity INVENTORY PLANNING AND CONTROL Purchase Order / Set-up Holding Stockout OPERATIONS PLANNING Forecasts Demand rates Production rates Stock-on-hand Backorders Lead times Product structures REPEAT ORDER SYSTEMS 1. Perpetual 2. Two-Bin 3. Periodic 4. Optional Replenishment 5. MRP 6. Just-in-Time 7. DRP 8. TOC SINGLE ORDER SYSTEMS DECISION RULES 1. What to order? 2. When to order? 3. How much? 4. From whom? INPUTS CONSTRAINTS COSTS OUTUTS