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Inventory and Materials Management A. A. Elimam
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Inventory and Materials Management A. A. Elimam

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  1. Inventory and Materials ManagementA. A. Elimam

  2. Acquisition of raw materials Distribution Storage Storage Conversion The Materials Management Cycle

  3. Cost of Goods Sold - 1990

  4. Materials 66% Cost of Goods Sold - 1990

  5. Energy 18% Materials 66% Cost of Goods Sold - 1990

  6. Energy 18% Labor 12% Materials 66% Cost of Goods Sold - 1990

  7. Capital 4% Energy 18% Labor 12% Materials 66% Cost of Goods Sold - 1990

  8. Alternative Percentage Change Profit Potential of Materials

  9. ( ) $10 million $100 million (100%) = 10% Profit Potential of Materials Alternative Percentage Change 1. Increase sales by $10 million

  10. Alternative Percentage Change 1. Increase sales by $10 million 2. Reduce labor costs by $1 million ( ) $10 million $100 million (100%) = 10% ( ) $1 million $15 million (100%) = 7% Profit Potential of Materials

  11. ( ) $10 million $100 million (100%) = 10% ( ) $1 million $15 million (100%) = 7% ( ) $1 million $60 million (100%) = 2% Profit Potential of Materials Alternative Percentage Change 1. Increase sales by $10 million 2. Reduce labor costs by $1 million 3. Reduce materials costs by $1 million

  12. Where Inventories Are Held

  13. Where Inventories Are Held Manufacturing (36%)

  14. Where Inventories Are Held Manufacturing (36%) Retail trade (25%)

  15. Where Inventories Are Held Manufacturing (36%) Retail trade (25%) Wholesale trade (23%)

  16. Where Inventories Are Held Manufacturing (36%) Farm (8%) Retail trade (25%) Wholesale trade (23%)

  17. Where Inventories Are Held Manufacturing (36%) Other (8%) Farm (8%) Retail trade (25%) Wholesale trade (23%)

  18. The Acquisition Process Recognize a need Select suppliers Place the order Track the order Receive the order

  19. Inventory at Successive Stocking Points

  20. Types of Inventory

  21. Cycle Inventory Q + 0 2 Average cycle inventory = Types of Inventory

  22. Cycle Inventory Safety Stock Q + 0 2 Average cycle inventory = Types of Inventory

  23. Q + 0 2 Types of Inventory Cycle Inventory Safety Stock Anticipation Inventory Average cycle inventory =

  24. Cycle Inventory Safety Stock Anticipation Inventory Pipeline Inventory Q + 0 2 Average cycle inventory = Pipeline inventory = DL = dl Types of Inventory

  25. Inventory Measures

  26. Inventory Measures Average inventory = $2 million Cost of goods sold = $10 million

  27. ($2 million)(52 weeks) $10 million Weeks supply = = 10.4 weeks Inventory Measures Average inventory = $2 million Cost of goods sold = $10 million

  28. ($2 million)(52 weeks) $10 million Weeks supply = = 10.4 weeks $10 million $2 million Inventory turnover = = 5 turns/year Inventory Measures Average inventory = $2 million Cost of goods sold = $10 million

  29. ABC Analysis

  30. 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Percentage of dollar value 10 20 30 40 50 60 70 80 90 100 Percentage of items ABC Analysis

  31. 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Percentage of dollar value 10 20 30 40 50 60 70 80 90 100 Percentage of items ABC Analysis

  32. Class C 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class B Class A Percentage of dollar value 10 20 30 40 50 60 70 80 90 100 Percentage of items ABC Analysis

  33. Class C 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class B Class A Percentage of dollar value 10 20 30 40 50 60 70 80 90 100 Percentage of items ABC Analysis

  34. Class C 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class B Class A Percentage of dollar value 10 20 30 40 50 60 70 80 90 100 Percentage of items ABC Analysis

  35. 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Percentage of dollar value 10 20 30 40 50 60 70 80 90 100 Percentage of items ABC Analysis Class C Class B Class A

  36. Aggregate demand Time Independent Demand Inventory

  37. Aggregate demand Time Independent Demand Inventory

  38. Average demand Aggregate demand Time Independent Demand Inventory

  39. Average demand Aggregate demand Time Demand averaged over all customers is relatively smooth Independent Demand Inventory

  40. How Much? When!

  41. Economic Order Quantity

  42. On-hand inventory (units) Time Economic Order Quantity

  43. On-hand inventory (units) Time Economic Order Quantity

  44. Receive order Q On-hand inventory (units) Time Economic Order Quantity

  45. Receive order Q On-hand inventory (units) 1 cycle Time Economic Order Quantity

  46. Receive order Q On-hand inventory (units) 1 cycle Time Economic Order Quantity

  47. Receive order Inventory depletion (demand rate) Q On-hand inventory (units) 1 cycle Time Economic Order Quantity

  48. Receive order Inventory depletion (demand rate) Q On-hand inventory (units) 1 cycle Time Economic Order Quantity

  49. Receive order Inventory depletion (demand rate) Q Q — 2 On-hand inventory (units) Average cycle inventory 1 cycle Time Economic Order Quantity

  50. Annual cost (dollars) Lot Size (Q) Economic Order Quantity