INV Chapter 1&2

INV Chapter 1&2

1. 4 types of inventory

   • Work In Progress
     • Parts that have entered the production stage, waiting to be worked on or are being worked on
   • Finished Goods
     • Parts that have completed the production stage and are ready to be sold as completed goods, can be stored in the central warehouse, factories and various parts of the warehouse
   • Purchased Parts
   • Raw materials
     • Purchased parts that have been received but have yet to enter the production stage, they include sub-assemblies and components parts

2. Buffer

   • Customer demand and finished goods as well as component availabity
     • Supply and Demand
       • In batch manufacturing, inventory is to decouple supply and demand and provide a buffer in between
         • Requirements for operation and output of proceeding operation
           • Materials and parts required to begin production and supplier of material

3. Functions

   • Anticipation
     • Inventory held in anticipation of future demand, helps to level production and minimise cost of changing production rates
     • Fluctuation
       • Cover random fluctuation in demand, supply or lead time. Safety stock to prevent stock out. Prevent disruption to manufacturing and delivering to customer
       • Lot size
         • To take advantage of quantity discounts, reduce shipping, clerical and set up cost some times call cycle stock
         • Transport inventory
           • Time is taken to transport the inventory from distribution centre to retail or to customer tA/365. The only way to reduce it is to reduce lead time

4. EOQ

   • Assumption
     • Demand is constant and is known
       • Purchase are done in batches not continously
         • Order preparation cost and inventory carrying cost are all known and consitent
           • Replacement all occurs at once
   • POQ
     • Attempts to minimize the cost of ordering and carrying cost with the assumption that demand is constant
       • Uses the same theory as EOQ, uses EOQ formula to calculate the economic time between orders. This generates a time interval which companies can order just to satisfy the demand in the given time period. The total order quantity remains the same as EOQ but the carrying cost is reduced. Order quantity each time varies and depends on the actual demand