Supply Chain Management Assignment

SUPPLY CHAIN MANAGEMENT Course code: BBA311

INVENTORY MANAGEMENT (2) UNIT 6

• Definitions of inventory

• Planning inventory

• Economic Order Quantity

• Inventory management policies

• Materials Requirements Planning (MRP)

Unit 6: index

Inventory Types

Stock concepts according to

its nature

Raw materials WIP Finished Goods Spare parts Packaging

Stock concepts according its functionality

Cycle stock Safety stock Seasonal stock Stock in transit Speculative stock Recovery stock Obsolete stock

Stock concepts according to its operation

use

Optimal stock Zero stock Physical stock Net stock Available stock

Planning Inventory

Forecast demand

+ Firm orders

Commercial team

+ Market

research +

Logistics +

Purchasing

Seasonality +

Life cycle +

Current and Historical

sales +

Consumer trends

PLAN

Make sure there are units for everyone when needed

• OBJECTIVE OF EOQ:

Economic Order Quantity

LOWER INVENTORY COSTS

ORDER COSTS

FIND THE BEST QUANTITY TO ORDER TO:

CARRYING COSTS

EOQ 2 x D x S√ H

D= demand rate (in units)

S= order costs

H= holding costs

Economic Order Quantity

N D

EOQ

Expected Number of Orders

TEOQ 2 x S

√D x H Optimal time

between orders

CvEOQ √2xDxSxH Variable

cost

T Working days per year

N

Expected Time Between Orders

d D

Working days per year

Fixed Cost Fixed Cost

Economic Order Quantity

TC D

Q

Fixed-Order-Quantity Model. TOTAL COST

D x C x S Q

2 x H

TC= Total Cost

D= demand rate (in units)

C= cost per unit

Q= quantity to be ordered

S= order costs

H= holding costs per unit

H= i x C i= carrying “interest” rate, % of € value per period

Cv= variable cost

Annual Order Set up Cost

Annual Order Set up Cost

Annual Holding

Cost

Annual Holding

Cost

D x CTC EOQ

Cv EOQ

EOQ Model. TOTAL COST

Inventory Management Policies

• Periodic, order-up-to policy: Time and Stock defined (T,S)

• Fixed order quantity policy: Reorder point and Quantity defined (R,Q)

• Continuous, order-up-to policy (Min,Max)

• Days of supply (DOS)

– Demand based

– Forecast based

SuppliersSuppliers, Inventory

checks and policy help

being responsive

Material Requirements Planning

MPS (Master Production Schedule)

INVENTORY

BOM (Bill of Materials)

Purchase or Replenishment

Work Order

Reporting

MRP (Material

Requirements Planning)

MRP (Material

Requirements Planning)

Material Requirements Planning

BOM (Bill of Materials)

Every single part of a BOM need:

• to have a specific code assigned

• to belong to a specific level in the structure

Material Requirements Planning

Reduce inventories

Reduce waiting times

Be realistic with the plan

Increase efficiency

Provide early alerts

Long term scenario

MRP (Material

Requirements Planning)

MRP (Material

Requirements Planning)

OBJECTIVES

Inventory waste 1. Overproduction

2. Waiting time

3. Freight

4. Too many processes

5. Inventory

6. Too many operations

7. Too many movements

8. Employee capacity

Inventory cycle

Goods in

Raw material

inventory

WIP inventory

Finished Good

inventory

Manufacturing Invoice to Customer

A company is dedicated to the commercialization of Electronic products through speculative purchase. You want to know what the best supply policy is for a new GPS device. You want to buy 6000 computers in a year. They make you sign a contract to give it to you at a very affordable price, € 30 each. The cost of administering an order is € 125 and the storage cost is € 6 per year. The provider's lead time is 60 days.

Calculate: 1. Cost of the item as per the fix order quantity model

2. Cost of the item as per the EOQ model. You can also calculate: 1. Optimal batch quantity

2. Expected number of orders

3. Time between orders

4. Item cost

5. Security stock

Case: