Level of inventory

Step 2. Let the business costs be split up into two categories (1) the carrying cost or the cost of inventory and (2) the cost of production. Let D be the number of units produced in one run, and let Q (annual production level) be assigned a known value. If the problem were posed so that a minimum level of inventory is specified, it would not change the structure of the problem. 

This constraint is needed to indicate that a certain level of inventory must be maintained at all times to ensure material availability, in addition to the amount of materials purchased and/or produced. Equation 6.8 simply states that lft+1, the starting inventory of material i in period t + 1 is the same as jf(, the... 

This basic formula has been used to develop an economic order quantity (EOQ) model (Carroll, 1998 Huffman, 1996 Silbiger, 1999 Tootelian and Gaedeke, 1993). While the EOQ model may be difficult to derive and calculate, it is often incorporated into computer software used by many pharmacies to manage their inventory and make purchasing decisions. The EOQ model describes the level of inventory and reorder quantity at which the combined costs of purchasing and carrying inventory are at a minimum. The formula is... 

Each simulation model gives several outputs, but we focus on a single output, namely, the average weekly cost of the total supply chain in the steady state. This cost is calculated from inventory-related costs and quality-related costs. The inventory-related costs are calculated from the inventory levels throughout the supply chain and the current value of each product at each step in the chain. The quality-related costs concern yield, scrap, and modification time multiplied by the modification cost. The rework affects the inventory-related costs with higher levels of inventory as the reworked products once again flow through the supply chain. 

Suppose the Fashion Store wants to provide a service level of 90%. What level of inventory is required ... 

Select the appropriate aspects of products (e.g., types of product, product range, Mfe cycles) and markets (e.g., sales/promotional tools, delivery service requirements), logistics (e.g., volume shipment via consolidation), investment and cost (e.g., level of investment, level of inventory, shipping cost), and infrastructure (e.g., corporate culture and management styles). 

An (s,S) inventory system involves the periodic review of the level of inventory of some discrete unit. If the inventory position (units in inventory plus units on order minus units backordered) at a review is found to be below s units, then enough additional units are ordered to bring the inventory position up to S units. When the inventory position at a review is found to be above s units, no additional units are ordered. One possible goal is to select the values of s and S that minimize inventory cost. The third example is the (s, S) inventory model in Koenig and Law (1985) and Law and Kelton (2000). 

The correct level of inventory to accommodate all of these possible delays needs to be developed and maintained by the customer. This is where the importance of the relationship comes into play, as a detailed understanding of both businesses needs to occur. 

The book supply chain involves the printer, the wholesaler, the retail store, and the customer. Ownership of this supply chain is fragmented, with each entity s success based on different metrics. For printers to be competitive, they must have large-volume press runs that economize printing costs. Capacity decisions are made by retailer and wholesaler and determine the level of inventory and lead time to satisfy demand. Coordination between wholesaler and retailer depends on the flexibility offered for books to be returned from the retailer to the wholesaler. At the store level, competitiveness requires a large variety of books to be in stock, the flexibility for the customer to browse books before purchase, accessible locations, and other factors. The wholesaler has to be flexible to accommodate bookstore returns. The flexibility to return books provides the incentive for the bookstore to order efficient quantities from the supply chain. 

We can now repeat this process for different levels of inventory chosen by Retailer 2 and the optimal decision by Retailer 1. Let Q2 be the inventory chosen by Retailer 2, and Qj be the optimal response of Retailer 1. Recall that we just calculated that when Q2 = 40, we get Qi = 50 and the profit for Retailer 1 as 76 correspondingly for Retailer 2, the profit was 67.6. Table 3.6 shows the optimal response of Retailer 1 to every choice by Retailer 2 and the associated profits for each retailer. 

Note that from the table above, this equihbrium level is 50 units. When Retailer 2 chooses an inventory of 50 units, so does Retailer 1, and thus the decision for Retailer 2 remains the same in response. We can identify an equilibrium level of inventory for both retailers to be 50 units. Note that this inventory level is higher than the level in the independent retailer system, but with a higher level of expected profit. Thus, for this example, competition to satisfy demand from one s own customer base and spillover demand from other retailers leads to higher profits and higher inventory levels for all retailers. 

Intransit inventory costs When inventory is shipped from the supply point, we assume that title for the goods passes to the buyer, who then arranges all transport. Thus the buyer is responsible for the inventory of goods in transit between supply and demand points. What is the level of inventory in transit from the supply to demand points ... 

Inventory control, which is craicemed with maintaining the most appropriate levels of inventory in the face of two opposing objectives minimizing the investment and storage costs of holding inventory and maximizing service to customers. 

In the building of market-driven value networks, an important shift for leadership teams is to move from a focus on inventory levels to look at the form and function of inventory. Today, most companies focus on the level of inventory—how much inventory is the right amount—for their supply chain. The shift to look not only at the amount but also at the type of inventory requires a deepening of processes and technology. These shifts are outlined in Table 4.2. 

If the supplier is reliable (who has own manufacturing facilities), it may be possible to procure supplies at short notice and hence lower stock level of inventory can be maintained. It is thus advisable to obtain supplies from a manufacturer directly rather than a trader. It can assure better quality also. 

Finally, at the project-based approach by this company, the focus of lean manufacturing implementation is reducing the level of inventory. For this company, inventory is the mother of other wastes. There are several wastes that have been identified by the prior research. The seven main types of wastes identified by the... 

In lean manufacturing implementation approach by this company, the level of inventory is visualized similar to the level of water in a river. When they reduced the level of inventory, this means that they will be able to lower down the level of water in the river. Consequently, this action will highlight other wastes hiding at the lower level. The other wastes at the lower level are namely over production, waiting times, excessive transportation, excessive processing, excessive motion, and defective products. This scenario of reducing inventory level can be best illustrated by the authors as shown in Fig. 27.2. 

The relationship among the performance measures needs to be taken into consideration when analyzing the results. For instance, the higher the number of chemicals ordered, the higher the number of inventory items likely to expire. However, in this case, it is more likely that operators will not run out of stock due to higher level of inventory items available for production. Overall, since a = 0.2 and P = 0.2 yield the highest service level, which is the primary... 

It is important to understand that JIT is not an inventory reduction system. It is a system that focuses on the elimination of waste in all of its forms. It is sometimes thought of as stockless production, because it uses much less inventory than other systems. But, it still requires inventory. The level of inventory does provide a good measurement of how effectively waste is being eliminated. In this way, inventory is analogous to a thermometer. A thermometer tells the temperature, but it does not create the temperature. The level of inventory in a system tells the observer how effectively waste has been... 

It was only possible to operate with less inventory after the problems creating the waste in the system were eliminated. Inventory is an effective measure of waste in the system, because the level of inventory in the system is the combined outcome of all the system components. If the quality of the system is poor, then there is additional inventory to compensate for the bad quality, so bad parts will not shut the system down. If the process used in the system is defective, then additional inventory is needed to accommodate the problems such as an extended flow time. The product design greatly influences inventory. The design of a product determines how many components there are in a product and also determines how easy it is to manufacture the product. Maintenance certainly influences the level of inventory, as machines, which are not maintained appropriately, break down more frequently and consequently more inventory is needed to protect against breakdowns. The employees motivation makes a difference in the level of inventory in a shop as the employees can help solve problems if they are motivated to do so. 

Given the above background, we can look at inventory policies to answer the question of when to order. This inventory policy tells us when the level of inventory or the inventory position of an item should be reviewed to identify whether an item should be ordered. Until the computer took over most inventory functions, the inventory policy usually used was a periodic review policy. With this policy the inventory manager would count the amount of inventory available at prescribed times. Now that computers can continuously review the inventory status of thousands of item, most firms use a continuous review policy. This means that every time an item is used, the computer calculates the balance in stock (i.e., determines the item s inventory position) and evaluates whether this inventory position is at or below a reorder point. 

The analysis of the entire logistics system integrates all of the material in the previous chapters. The logistics system is concerned not only with the physical placement of the facilities, but also with the levels of inventory and the flow of material through those facilities. Each of these will be considered in the remaining sections of this chapter. 

In this simple system, the number of warehouses influences both the average level of inventory in the system and the shipping costs. With one warehouse for the system, the standard deviation of demand on the warehouse... 

In a continuous replenishment strategy, sometimes called rapid replenishment, vendors receive POS data and use this data to prepare shipments at previously agreed intervals to maintain specific levels of inventory. 

Platinum catalyst is used for production of an active pharmaceutical ingredient (API) in an Eastern European Pharmaceutical Company (henceforth referred as company ). Used catalyst is sent back to supplier who recovers platinum and uses it for production of fresh catalysts. During that cycle certain quantity of catalyst evanesces and new quantity has to be purchased periodically to maintain required level of inventory. The catalyst is expensive because of platinum and the related cost of capital for required catalyst inventory is significant. A task team led by a Six Sigma Black Belt was formed to reduce the cycle time of procuring the platinum catalyst. 

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