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12-1© 2011 Pearson Education, Inc. publishing as Prentice Hall
12Inventory
Management
PowerPoint presentation to accompany
Heizer and Render
Operations Management, 8e
12Inventory
Management
PowerPoint presentation to accompany
Heizer and Render
Operations Management, 8e
12-2© 2011 Pearson Education, Inc. publishing as Prentice Hall
Outline
The Importance of Inventory
Functions of Inventory
Types of Inventory
Managing Inventory
ABC Analysis
Record Accuracy
Cycle Counting
Control of Service Inventories
Inventory Models
Independent vs. Dependent Demand
Holding, Ordering, and Setup Costs
Outline
The Importance of Inventory
Functions of Inventory
Types of Inventory
Managing Inventory
ABC Analysis
Record Accuracy
Cycle Counting
Control of Service Inventories
Inventory Models
Independent vs. Dependent Demand
Holding, Ordering, and Setup Costs
12-3© 2011 Pearson Education, Inc. publishing as Prentice Hall
Outline–Continued
Inventory Models for Independent Demand
The Basic Economic Order Quantity (EOQ) Model
Minimizing Costs
Reorder Points
Production Order Quantity Model
Quantity Discount Models
Probabilistic Models and Safety Stock
Other Probabilistic Models
Single-Period Model
Fixed-Period (P) Systems
Outline–Continued
Inventory Models for Independent Demand
The Basic Economic Order Quantity (EOQ) Model
Minimizing Costs
Reorder Points
Production Order Quantity Model
Quantity Discount Models
Probabilistic Models and Safety Stock
Other Probabilistic Models
Single-Period Model
Fixed-Period (P) Systems
12-4© 2011 Pearson Education, Inc. publishing as Prentice Hall
Learning Objectives
When you complete this chapter you should be able
to:
1.Conduct an ABC analysis
2.Explain and use cycle counting
3.Explain and use the EOQ model for independent
inventory demand
4.Compute a reorder point and safety stock
5.Apply the production order quantity model
6.Explain and use the quantity discount model
7.Understand service levels and probabilistic
inventory models
Learning Objectives
When you complete this chapter you should be able
to:
1.Conduct an ABC analysis
2.Explain and use cycle counting
3.Explain and use the EOQ model for independent
inventory demand
4.Compute a reorder point and safety stock
5.Apply the production order quantity model
6.Explain and use the quantity discount model
7.Understand service levels and probabilistic
inventory models
12-5© 2011 Pearson Education, Inc. publishing as Prentice Hall
Inventory Management
The objective of inventory management is to
strike a balance between inventory
investment and customer service
Inventory Management
The objective of inventory management is to
strike a balance between inventory
investment and customer service
12-6© 2011 Pearson Education, Inc. publishing as Prentice Hall
Importance of Inventory
One of the most expensive assets of many
companies representing as much as 50% of
total invested capital
Operations managers must balance inventory
investment and customer service
Importance of Inventory
One of the most expensive assets of many
companies representing as much as 50% of
total invested capital
Operations managers must balance inventory
investment and customer service
12-7© 2011 Pearson Education, Inc. publishing as Prentice Hall
Functions of Inventory
1.To decouple or separate various parts of the
production process
2.To decouple the firm from fluctuations in
demand and provide a stock of goods that will
provide a selection for customers
3.To take advantage of quantity discounts
4.To hedge against inflation
Functions of Inventory
1.To decouple or separate various parts of the
production process
2.To decouple the firm from fluctuations in
demand and provide a stock of goods that will
provide a selection for customers
3.To take advantage of quantity discounts
4.To hedge against inflation
12-8© 2011 Pearson Education, Inc. publishing as Prentice Hall
Types of Inventory
Raw material
Purchased but not processed
Work-in-process
Undergone some change but not completed
A function of cycle time for a product
Maintenance/repair/operating (MRO)
Necessary to keep machinery and processes
productive
Finished goods
Completed product awaiting shipment
Types of Inventory
Raw material
Purchased but not processed
Work-in-process
Undergone some change but not completed
A function of cycle time for a product
Maintenance/repair/operating (MRO)
Necessary to keep machinery and processes
productive
Finished goods
Completed product awaiting shipment
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