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level: - Inventory control

Questions and Answers List

level questions: - Inventory control

Question	Answer
Minimise cost to maintain inventory - Investment cost - Storage cost - Cost of obsolescence or spoilage Maximise service and flexibility to customers	Objectives of IC
Raw materials Components WIP Finished products	Types of inventory
Independent demand Demand of an item that is unrelated to demand of other items e.g. end products and spare parts Dependent demand Demand of an item directly related to demand of other items e.g. car demand is independent, however tyre demand is dependent	Types of demand
independent demand How much to order - typically determined by economic order quantity (EOQ) eq When to order - typically determined by reorder points	Order point system
Number of parts to be produced in a batch (EOQ) Holding cost (C_ℎ) Setup cost (C_su) Annual demand for item (D_a)	EOQ
- When the inventory level declines to the 'reorder point' the item will be restocked - Reorder point is set at a high enough level to minimise probability of running out - Reorder point policies can be implemented by computerised inventory control systems	Reorder Point System
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Material requirements planning (dependent demand) This is a computational procedure to convert the MPS for end products into a detailed schedule for raw materials and components used in the end products Essentially a schedule with quantities of each item with when to order and deliver Most appropriate for job stop and batch production with many components Determines quantity of dependent demand items used for independent demand products - Raw materials - Purchased parts - WIP	MRP
- Master production schedule - Product design data as a bill of materials - Inventory records - Capacity requirements planning (not as important)	MRP inputs
Explodes the end product schedule into successively lower levels	How MRP works
Adjustments for inventory WIP or on order Net requirements = requirements on hand "less" on order Common use items for bulk buying Lead times (scheduled delivery of end products) - Ordering lead times (between purchase and delivery) - Manufacturing lead times (between order and completion)	Complicating factors of MRP
- Order releases - Purchase orders (to purchase raw materials/parts) - Work orders (to produce parts or assemble sub-assemblies) - Planned order releases (for the future) - Rescheduling notices (e.g. changes in due dates) - Cancellation notices (due to changes in the master schedule) - Inventory status reports - Exception reports (e.g. overdue orders, scrap, broken machine)	Output reports
- Inventory reduction - Faster response to changes in demand - Reduced setup and changeover costs - Better machine utilisation - Improved ability to respond to changes in the master schedule - Helpful in developing the master schedule	Benefits of MRP
- Application not appropriate (rubbish in, rubbish out) - Given inaccurate data - Master production schedule not coupled with capacity planning e.g. unrealistic schedule that overloads the factory	Why MRP systems may not succeed