1. Review Sistem Persediaan Independent Demand

2. Overview What is an inventory system and why hold stock? Textbook prescriptions versus reality and variety? Independent versus Dependent Demand Inventory types, flows, costs Re-order quantities, EOQ & calculations Safety stocks & service levels Review systems Discounts and staged deliveries JIT ABC Analysis Stock taking Make or buy

3. What is an Inventory System? Inventory the stock of any item or resource used in an organization: raw materials, finished products, component parts, supplies and work-in-process. An inventory system policies and controls for monitoring levels of inventory Information system that records transactions and enables analysis of stock requirements and levels/quantities, costs etc

4. Organisations, Roles, Methods and Systems? What type of organisations use systematic inventory management methods? How are the methods manifested? How is inventory management linked to –aggregrate planning, buying for MRP, JIT, retail buying, sales systems, accounting practice? Who does it? –buyers, store keepers, production planners, accountants? What manual & IT-based systems are involved? –Stock cards, orders, delivery notes, GRNs, return advice notes, inventory module in integrated accounting packages, stock checks and auditing. Are textbook methods really used? How, where? What is the clerical burden of inventory analysis and control?

5. E(1 ) Independent vs. Dependent Demand Independent Demand (not related to other items or final end-product) Dependent Demand (derived from component parts, sub-assemblies, raw materials, etc.)

6. Independent versus Dependent Demand Dependent demand Work in progress Components and raw materials Time Demand/usage Independent demand - finished goods - spare parts Time Demand/usage

7. Why hold stock? Provide flexibility –minimum delay in supplying customers –a good range Protect against uncertainties Enable economic purchasing Anticipate changes in demand or supply –Buffers to feed processes and enable efficient scheduling –Strategic stock holdings

8. Inventory Types  Raw-materials, components and sub-assemblies  Work-in-progress or in-transit  Finished-goods  In the warehouse, awaiting shipment, in delivery vehicles, in tanks, on shelves, in the stores  Strategic inventory  Scrap & re-work

9. Material-Flows Process From Suppliers To Customer Production Processes Inventory in transit Stores warehouse Finished goods WIP Work in process

10. Stock : Input (Flow in), Storage (Holding) and Flow out (Usage) Supply Rate Inventory Level Rate of Demand (Usage) Stock Level

11. Costs of Inventory Ordering costs – purchase order & office, shipping and/or set up Holding Costs –tied up capital (item value), staff & equipment, obsolescence, perishability, shrinkage, insurance & security, m 2 - m 3 (rent/lease), audit. Cost of being out of stock, cancelling an order Scrap and re-working annual costs = holding cost factor % average value of stockholding e.g. 25% or 2p in £ per month of stock

12. Order Quantities & Reorder Points R = Reorder point L = Lead time L L q R Time No. of units on hand safety or buffer level Average stock q/2 q

13. Simple inventory system Raise order for ROQ <=ROL? Outstanding Order? Orders MRP Check stock level Yes No Receive/inspect. Accept into stock Send back? Part-delivery Due now? No Next Check point Yes No Yes

14. Bin systems Two-Bin - quantity stock in bin 2 = re-order level FullEmpty Order one bin One-Bin (periodic check) Order enough to refill bin? ROQ Options Keep order costs to a minimum? Order one year's supply in one go? OR Hand-to-mouth, once per week?

15. EOQ Aim = Cost Minimisation Cost Ordering Costs Holding Costs Q eoq Order Quantity (Q) Total Cost Holding + ordering costs = total cost curve. Find Q eoq inventory order point to minimise total costs.

16. Economic Order Quantity (EOQ) Assumptions Single product line Demand rate: recurring, known, constant Lead time: constant, known No quantity discounts - stable unit cost No stock-outs allowed Items ordered/produced in a lot or batch Batch received all at once Holding cost is linear based on average stock level Fixed order + set up cost

17. Order Point with Safety Stock Units Days Safety Stock Actual lead time is 3 days! (at day 21) 2200 2000 Order Point 400 200 0 18 21 Dip into safety stock

18. Safety Stock and Re-order Levels –Reserve - buffer - cushion against uncertain demand (usage) & lead time. –A basis for a "2-bin" system –Application to JIT? EOQ assumes certain demand & lead time. If uncertain, then: ROL = Average usage in lead time + safety stock (Avg. lead time x Avg. daily usage)

19. How Much Safety Stock? Cost vs. safety level Depends on:  Uncertainty: demand & lead time  cost of  being out of stock  carrying inventory  increasingly better service Service level policy  % confidence of not hitting a stock-out situation

20. Cost vs service level £ Service level 708090100 % Cost of better and better service Cost of poor service (out-of-stock) Loss of -part order -future order -customer goodwill -buying from non-regular sources 0

21. Normal Distribution of Demand over Lead Time m = mean demand r = reorder point s = safety stock frequency probability of stock out demand over lead time service level probability msr

22. Service level protection ROL = Average usage in lead time + Safety stock (Avg. usage (day/week) x Avg. Lead time) K x stdev demand x Avg. lead time Confidence of % non –stock out K = 2 for 97.5 confidence K = 3 for 99.87

23. ROL AND Service Level Example ROL = Average usage in lead time + Safety stock (Avg. usage … day/week x Avg. lead time) K x stdev demand x Avg. lead time ROL = (250 per week x 4 weeks) + ( 2 x 50 x (4) ) = 1000 + 200 = 1200 Stock falls to or below ROL & no order is outstanding? Place a new order for 1200. Service level @ 97.5%  stock-out for 1 in 40 reorder situations.

24. Review Systems Top-up with regular review –Stock not to exceed upper limit (perishables, corrosives, limited capacity) –use with – regular review (continuous or periodic) Continuous review –relax “constant demand” assumption –Continuous system to monitor “stock-on-hand” Periodic review –Apply EOQ (demand constant + “no stock-out”) –orders must be placed at specified intervals. –Use when multiple, items ordered from same supplier (joint- replenishment) –inexpensive items

25. Price discounts and staged deliveries Quantity Discounts, buying frequency & Oc, Hc –more storage space –different payment terms –if demand changes – surplus stock Staged deliveries & EOQ? –Extra delivery & handling cost? –Assumes constant order cost –Requires reliable deliveries & steady demand –JIT – collaborative supplier relationships –Affect on supplier (locate nearer customer?)

26. U-shaped function True Q opt values occur at the start of each price-break interval.The total annual cost function is a “u” shaped function 0 1826 2500 4000 Order Quantity Total annual costs Price-breaks

27. Just-in-Time Accurate production & inventory information system Highly efficient purchasing Reliable suppliers Efficient inventory-handling system approach to inventory management & control in which inventories are acquired & inserted in production at exact time when needed. Requirement

28. ABC - 20/80 Principle and Inventory Control Items not of equal importance: – £ invested & profit potential – Sales/usage volume – stock-out penalties Control expensive items closely. “A” items – review frequently Review “B” & “C” items frequently. 0 15 45 100 Cumulative % 70 90 100 Cumulative Percentage of Inventory Value A B C Pareto - 20/80 Principle Identify inventory items based on % of total £ value. “A” items top 20 %, “B” next 40 %, "C" the lower 20%.

29. Annual Usage by £ Value

30. ABC Chart 36924110857 Item No. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Percent Usage 0% 20% 40% 60% 80% 100% 120% Cumulative % Usage Cumulative % A BC

31. Stock Check Book stock vs physical stock Stock valuation – wastage & shrinkage Audit stock security systems Organising the stock check Internal & external audit –Segmentation of duties