2.1.2.6 Inventory Control Model
The oldest inventory control model was introduced by Ford W Harris in 1915. The approach of this model is to build a model of an idealized inventory system and calculate the fixed order quantity that minimizes total costs. This optimal order size is called the economic order quantity (EOQ) (Waters, 2003). The EOQ model depends on four parameters, there is; demand is known and constant, holding cost is known and constant, order cost is known and constant and the unit cost is known and constant. So, based on the parameters can be shown that in EOQ approach the pattern is figured like a tooth.
Figure 2.3 Economic Order Quantity
Source: Waters (2003
In addition, when the right time to order is commonly called by recommended order point (ROP). ROP is working based on two parameters, average demand during lead time and safety stock. But, Lin (1980) which cited in Zong (2008) stated that safety stock is not necessary if the supplier is reliable and there is no seasonal demand.
In his studies, Slack (2007) stated that In many cases, the Economic Batch Quantity (EBQ) system, is useful for item which produced internally and intermittent. Other inventory control model known as Vendor Managed Inventory (VMI), is retailer-vendor relationship inventory model which the buyer allowed the vendor gives replenishment based on actual demand.
The other inventory control method is Just in Time. Abuhilal (2006) stated that there is a method to manage inventory which emphasizing on how to get the most effective cost. The method is pull system, JIT. This method was introduced by Toyota Corp as a one of pull method inventory management. Boyd (2002) states that JIT method implementation gives a positive trend effect to s...
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...ory holding costs, ordering costs, and shortage costs, and have a classification system for inventory items.
Kuiper Leda lacks an effective Inventory Management to handle properly the increase in demand of stock and production. An inventory management plan would be capable of forecasting errors in production, client-required service levels, total lead time in manufacturing a unit or batch of the product, and demand priorities. Inventory control is a challenge currently because of the size of Midland Motor's order. In order to meet the demand the company needs to increase the inventory which increases the inventory costs. KL have an opportunity of using the Just - In - Time method of inventory control which eliminates waste by making the resources and labor available only in the time and amount required. It will help increase productivity, product quality and work performance while saving inventory costs for the company. (Curtin, 2008). Kuiper Leda also needs to keep in mind that they will still have to fill orders from other clients that have previously placed orders or even new customers.
JIT is a manufacturing management method developed in Japan during the 70’s to meet customer demands. The individual most credited with the development of JIT is Taiichi Ohno, the vice president of Toyota Motor Company. After Toyota introduced JIT and was proven to be successful, it was tried by other companies shortly after and now today is widely used by many companies. JIT can be applied to almost any type of industry and channel relationships. JIT could someday become the norm of the business world.
In addition, we divided our forecasted sales into retail and consumer. Our average demands per month for each quarter for retail sales are 22,082, 24,583, 26,432, and 27,846. For direct to consumer sales, our averages per month for each quarter came out to 1,790, 1,993, 2,143, and 2,258. After determining the average demand per month for each quarter, we used this data to calculate how much safety stock we need to keep per month for each different quarter as well. Safety stock is inventory that is kept to prevent a stock out due to uncertainty. For our product, Cosmic Brownies, we came to the conclusion that a service level of 95% would be sufficient for our retail customers, while a 90% service level was appropriate for direct to consumer. Since our retail sales make up about 92.5% of our total sales, we determined that it was important to have a higher service level for this portion of our
In today’s operational management arena, there are certain expectations from a managerial aspect that must be met in order to be successful. A comprehensive look at the Space Age Furniture Company will show exactly what the Materials Requirement Planning (MRP) calculations are for this company at present time and then take the information given in order to properly suggest ways to improve the sub-assemblies. In addition, there will be an analysis on the trade-offs between the overtime and inventory costs. A calculation will be made on the new MRP that will improve the base MRP. This paper will also compare and contrast the types of production processing to include the job shop, batch, repetitive, or continuous, and determine which the primary mode of operation should be and exactly why. A detailed description on how management can keep track of the job status and location during production will also be addressed. Finally, there will be a recommendation on they type of changes that need to occur that will be beneficial to the company and at the same time add value to the customer. This paper will conclude with summary of the major points.
The just-in-time (JIT) inventory system was developed in Japan after World War II, in an effort to control costs during fiscally challenging economic times (Waguespack and Cantor, 1996). The challenge that faced many Japanese companies in the post-War era was to find a way to meet the needs of customers and businesses while utilizing as few resources and as little capital as possible. The Japanese developed these set of techniques in order to control production, limit unnecessary products and reinvest the valuable capital left from the savings back into the business structure (Waguespack and Cantor, 1996). Much of the success of many Japanese corporations over the past four or five decades has been was linked to the principles of JIT (Chhikara and Weiss, 1995).
Inventory management has traditionally been considered as a necessary resource that every company needed. Its primary purpose was to evaluate and control inventory from the raw material level, through the production process and control stage, to the final out-door delivery. These older models of inventory management had several issues, such as inefficient control system, long cycle time, and bureaucratic process. Beginning in the late 1980s, many corporate businesses became deeply interested in developing new inventory management system that will reduce operation cost and expand market chare. Today, the business world is still improving its inventory system. The most effective systems are now not just count products and manage production schedule, but obtain lower prices by making large purchases, and increase inventory turnover. Today, forward-looking corporations build their serious efforts at inventory management systems through implementing new technologies, involved digitization, Internet, high-speed data network, and other e-sources that became available after business outsourcing and globalization.
The purpose of an inventory management is to meet ongoing demand forecast, prices and products. There are three types inventory management cycle inventory, seasonal inventory and safety inventory. The FAA regulates MRO company parts and inventory because when parts fail or when maintenance work is not done correctly people lives are at risk. The FAA also ground aircraft if the maintenance work or the parts fail, (MRO) providers are facing many challenges to forecast inventory in order to maintain competiveness, an applied parts method has been developed for inventory planning of parts in the aviation industry. There several different types of inventory wholesale, intermediate and user level. All aviation parts have local and national parts numbers required by the department of
2010). As it has been mentioned, this lean production system has been very successful and many other car makers are implementing this as their manufacturing and operational strategy. This is due to its basic objective which is reducing costs by eliminating the waste associated by time, labour and storage space. Many, believe that the success of the company widely relies on the production strategy of the company. As (Bortolotti et al. 2013) point out, “JIT improves most performance dimensions, in particular manufacturing costs, inventory turnover, cycle time, on-time delivery, fast delivery, volume flexibility and mix flexibility”. This shows that Just in time strategy can definitely improve the operational performance of businesses especially in high repetitive manufacturing systems and be used in order to remove the waste from the operation
Inventory Optimization is a critical concept in order to keep the costs under control within the supply chain. For getting the best result from management efforts, it focuses on items that cost the most. ABC approach states that a company should rate its items from A to C:
According to Srinidhi and Tayi (2004), companies that are flexible enough and are able to change from a JIT system to a traditional inventory system will have a competitive advantage over other firms who do not switch. In such uncontrollable environments, the major benefit of JIT becomes a handicap with the increase in delivery times and the added data handling and coordination required in such times. This leads to a decrease in quick response time, which ultimately leads to increase in costs to the firm.
The Just-In-Time (JIT) means having the quality product a customer wants when the customer wants it. This is in contrast to the traditional production model of producing items in anticipation of a need or having surplus on hand just in case (JIC) a demand arose or for the marketing department to create more demand. The system JIT requires tight control and synchronization of many factors: machinery must be in excellent orders, suppliers must be reliable so there is a consistent flow of supplies, product quality must be high, production consistent and resources flexible enough to respond to any shifts (REFERENCE). Creating products to meet customer demand is supposed to eliminate the waste associated with excess inventory, over production and waiting. Implementation of JIT requires that organizations examine each segment of production and inventory process to identify what processes can be adjusted. The organization is responsive to the customer.
Toyota has implemented many different systems such as performance monitoring software, the Just in time (JIT) inventory system, electronic quality control system, communication system and information system thought out their value chain which enable to make correct decision during the manufacturing process. They have identified that having large inventories of spares cost them extensive capital and they have implemented the Just in time (JIT) inventory system which advices the suppliers the exact spares that the product line required and provides a time frame. Toyota adopted continuous learning and embraces change allowing their staff to research and innovation (Toyota
Inventory management is a method through, which a business handles tangible resources and materials to ensure availability of resources for use. It is a collection of interdisciplinary processes including a full circle from the demand forecasting, supply chain management, inventory control and reverse logistics. Inventory management is the optimization of inventories of manufactured goods, work in progress, and raw materials. According to Doucette (2001) inventory management can be challenging at times; however, the need for effective inventory management is largely seeing more as a necessity than a mere trend when customer satisfaction and service have become a prime reason for a business to stand apart from its competition. For example, Wal-Mart’s inventory management is one of the biggest contributors to the success of the company;
Inventory cost: the maintenance need to keep the spare parts in inventory in order to repair the facility when it fails.