Name: Husin Basri
NIM : 244311142
S1 MTL / TRISAKTI---- BP3IP JAKARTA
SUMMARY OF INVENTORY MANAGEMENT è ORDER QUANTITY ENGINEERING & FILL RATE PLANNING
A. ORDER QUANTITY ENGINEERING = EFFICIENT ORDER QUANTITIES
EOQ is size of an order at which the total of procurement cost and inventory carrying cost at minimum
Consider :
the POC(Purchase Order Cost), the Annual Demand rate(AD), The Inventory carrying Rate(ICR), and Unit Inventory Value(UIV)Ø large order quantities => high inventory levels & high inventory carrying costs
Ø High ordering costs & demand rates suggest large order quantities
Ø High inventory carrying cost & high unit inventory values suggest small order quantities
Mathematically EOQ is Computed as follows:
v EOQ =[(2 X POC x AD) / (ICR X UIV )]1/2 (this formula need adjustment)
Adjustments to make EOQ an Efficient logistic Quantity (ELQ);
v EOQ = [(2 X POC X AD ) / (ICR X {1-d} X UIV)]1/2
è d= discounting in percentage as a adjustment
EOQ analysis should be completed as a part of any inventory strategy if the analysis points out the importance of reducing the cost of placing purchase orders.
The POC lower è more economical
v Optimal time between orders = FAD / EOQ
Manufacturing run quantity analysis is an analysis to make complete the EOQ analysis
Tradeoff is the Inventory that builds up as a result of the large production run
The production run size that minimizes the total cost of setup and inventory carrying is the economic order (or run) quantity
The optimal carrying cost increase as the production run length increases and the set up cost declines accordingly.
The Basic principles of set up time reductions :
1. Focused factories
2. Dedicated setup personnel
3. Specialized tooling
4. Point of use tooling
5. Dedicated production lines
6. Slow period scheduling
7. Brand minimization
8. Parallel tasking
9. Optimal job scheduling
10. Training and practice
• Fill rate is percentage of customer or consumption orders satisfied from stock at hand
• Fill rate planning is The process of determining optimal service levels and inventory turns for each item è one of most difficult planning decision in all of logistic
Tradeoff è between ICCs and Lose Sales Costs (easy to state but difficult to model )
Fill rate optimization tool. The tool takes into consideration ICR, POC, SF, LT, USP, FAD, UFR
The optimization is based on the minimization of the sum of ICCs and LSCs
v ICC= ICR X AIV
v AIV= AIL X UIV
v AIL = SS + (EOQ/2) + (L X AD/365 )
The lost sales costs is estimated to be:
v LSC = USP X FAD X (1-UFR) X SF
• The shortage factor: the portion of the unit sales price lost when a unit is not available or out of stock.
• Fill rate can be expressed as the line, order, and or UFR. In each case the fill rate measures the ratio, of satisfied to total demand.
• Unit Fill Rate is the number of the ratio of total units shipped to the total units requested
• Line fill rate is the number of order lines completely satisfied to the total order lines
• Order fill rate is the ratio of the number of order completely filled to the number of orders placed
• In each case the fill rate can be measures as the First time fill rate which assesses the fill rate upon initial demand
• Secondary fill rate is the fill rate achieved via substitutions and backorders
EXPECTED OUTCOME
Optimum Fill Rate
• Optimum Inventory Turnover
• Efficient Order Quantities
• Outcomes Segmentation
o By Product/segment
o By Customer/segment
Source: Supply Chain Strategy by Edward H Frazelle Ph D Source: www.bussinessdictionary.com
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