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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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.
Toyota introduced JIT approach in 1950 when the company faced tough competition, high capital investment, rapid change in automobile market in terms of price value and technology. The need to introduce JIT to Toyota, the primary need is to control the over production which is being on Toyota shop floor producing items irrespective of market demand following PUSH system conventionally which is later replaced by PULL system by TPS. The other main reason to introduce JIT is to track the order and status of INVENTORY, which was the main problem on the Toyota shop floor. Even though JIT was proposed in 1950, it took 30 long years to apply. Produce only the quantity number that is purchased by the customer Don’t produce the excess quantity than mentioned in Kanban because it leads to unwanted inventory at the shop floor and at the supplier.
This software can be used to optimize the supply chain cycles and warehouse management according to the company’s unique needs. The software packages contains stuff to better handle the supply chain management, purchasing, requisitioning and procurement, inventory management, and order entry and processing management. This software package allows Dirt Bike the ability to integrate all of their sales and purchasing systems to make the process go faster.
However, if the materiality of the spare parts is too small, it would be hard to classify them as inventories because it would be hard to count and keep a record of each asset at a time. These kinds of assets include screwdrivers among many others (Walter, 2015). If these items are in large quantities say thousands of screwdrivers, then they should be classified as
middle of paper ... ... Reduce overhead costs of working with JIT based customers by. o Consider implementing JIT production and inventory methodology. o Reduce order handling overhead by implementing standing JIT orders (i.e. one order for a total quantity over time, instead of a separate order for each delivery).
While MRP I primarily address the inbound flow of inventory (materials management), MRP II adds other interfaces such as finance, marketing, and integrated logistics. Like MRP I, MRP II is a push inventory model which pushes product through manufacturing and distribution processes in order to meet forecast demand. However, it adds further dimensions to the basic model. MRP II not only considers the inbound flow of material, but also how much material can actually be handle within the plant. Furthermore, it actually handles production scheduling, labour needs, inventory budgets, and personnel needs. But the most important feature is the addition of the finance interface. This module provides the capability of transforming the operating production plans into financial terms, consequently the data can be used for financial planning and control purposes of a more general management nature. Another significant addition is the simulation module. This simulation capability enables management to perform a more comprehensive alternative planing work in developing the marketing and business plans. Operating variable could be regulated to examine the systemwide response to the proposed operating change.
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).
There are two basic types of inventory methods namely the Specific Identification method and the Cost Flow Assumption method. Companies choose their inventory method depending on various factors like the nature of their business etc. The Specific identification method is used to determine the particular goods sold and which ones are still in ending inventory. Specific Identification is possible only in companies that sell a very limited variety of high cost items that can be and are easy to identify right form the time of purchase till the time of their sale. Due to this characteristic of the Specific Identification method I would advise Mr. Koblet, to use this method for his Inventory Costing, owing to the nature of his business which is a car dealership which requires a method that can specifically identify each individual vehicle, which is generally done by giving each vehicle a identification number that becomes its ID. The Cost Flow Assumption is generally used in businesses where specific identification of particular goods is almost impractical. There are three types of Cost Flow Assumptions namely:
In the competitive environment, it is necessary for moving products involves reception of products at an intermediate location, store, repackage, clear customs and transport to final destination. The other factor in the supply chain logistics is speed given information flows fast in the internet era. The customer expects everything quick accustomed to the instant status access to the information. With the real time inventory, customer expects the location of the product, it is next scheduled movement and the final delivery schedule.
It is undeniable that Inventory Management is an important key to success at Walmart. This paper will discuss the two main methods of Inventory Management used by Wal-Mart: Material Requirements Planning and Just-in Time. Next we write about the technical means of keeping track of inventories, like RFID tags. We conclude by discussing how Wal-Mart, one of the world’s largest retailers, manages its inventories. Material Requirements Planning (MRP) Walmart needs to make sure that consumers are satisfied all the time, not only with the quality of service being provided to them, but with the quality of the product they are planning.
(Harbour, 2016) As for inventory management is used to describe a business’ level of effectiveness when managing their physical inventory of on-hand products in relation to supply and demand. (Sentell, 2016) Lean inventory management modernizes the amount of stock controlled. The use of effective technique consists of increasing the level of visibility. Harbour further states,” Increasing visibility means increasing transparency across all of the suppliers working with an organization on a daily basis, regardless of where they happen to be and how they integral. In order to increase the company’s overall level of flexibility is by eliminating unnecessary or excessive stock. (Harbour, 2016) Kumar emphasizes that Lean Manufacturing System has emerged greatly and is an important tool for the Indian automotive industry. The implementation Lean Manufacturing has eliminated product defect and increased its production. (Kumar, 2012) According to Kumar, “The variables of lean manufacturing system implementation have been identified from literature review and experts ' opinions. Further, classification of the variables has been carried out based upon the
According to Jonah, the excess manpower is the only reason for excess inventory, and only with the reduction of capacities but without trimming inventory and improving market performance, the manufacturers will suffer from higher inventory cost and volume and downward throughput rates. In addition, a widely recognized misconception, revealed by Jonah, is that the manufacturers should control their capacities to approach market demands. However, this is not necessarily true in dynamic market. When the capacities are reduced, the sales prices go up with the increase of unit cost of production, and therefore the market demand shrinks and inventory skyrockets. In Jonah’s opinions, the optimized methods of reducing inventory are efficient marketization and effective control of manpower in terms of the number of employees and their working
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 cost: the maintenance need to keep the spare parts in inventory in order to repair the facility when it fails.
At times, certain materials are important by their absence, that is if they are not available, they hold up the production and there are high costs if shut-down or slow-down of production. By themselves these items may not be highly priced in the market. Though the investment in these items may be small, lack of any of these items bring the production process to a grinding halt. The cost associated with items due to their absence is known as ‘nuisance value’. VED classification is a kind of classification of items that deals with the critical nature of the items such as whether they are ‘vital’ (V) to the production process, or ‘essential’ (E) or just ‘desirable’ (D). Similar to the ABC analysis, VED analysis also has a major role in inventory management. VED ranking can be done based on the shortage cost of the materials that can either be quantified or qualitatively