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1、CHAPTER 16 INVENTORY SYSTEMS FOR INDEPENDENT DEMANDChapter OverviewThis chapter examines one of the more important topics for todays business-inventory. The way organizations have viewed inventory has changed from that of an asset to that of a liability that hides problems. However, in spite of atte
2、mpts to eliminate inventory, it is still necessary. This chapter provides a framework in which to analyze independent demand inventory. Specifically, fixed-order and fixed-time period models are presented.Major Points of ChapterWhen setting inventory policies, the level to be maintained, when stock
3、should be replenished, and how large orders should be must be determined.1. Inventory is maintained to protect against uncertainty, support a strategic plan, take advantage of economies of scale, and as a buffer to smooth production.2. Inventory costs include holding, setup or ordering, shortage, an
4、d purchase costs.3. Independent demand items are items whose demand is unrelated to any other item.4. The fixed time period model typically has a larger inventory level to protect against stockouts. It is normally used when several different items are purchased from one vendor.5. The fixed order mod
5、el favors more expensive items or critical items. However, it requires more time and resources to operate.6. Single period models are useful for items that are for sale only during a single time period, have an unknown demand, and have a scrap value that is less than the initial cost of the item.191
6、Chapter 162DS lc2DS lc9.Quantity rangeCost (C)EOQFeasibleLess than 2500 pounds$0.82 per pound4277 poundsNo2500 to 4999 pounds$0.81 per pound4303 poundsYes5,000 or more pounds$0.80 per pound4330 poundsNoNote: EOQ =Therefore, calculate total cost at Q=4303, C=$0.81, and at Q=5000, C=$0.80n O5(Y)43()3T
7、CO 4303 c osi =DC + S + iC = 50m (0.81) + -30+ (.20)(0.81)=u.512/43032 八 7$41197.14TCO 5000c 080 =DC + S + iC = 5(m)(0.80) +-DUUU, Vv.oU,7TCO 5000c 080 =DC + S + iC = 5(m)(0.80) +-DUUU, Vv.oU,75000050005000(.20)(0.80)二$40700.00The best order size is 5,000 units at a cost of $0.80 per pound.10.Item n
8、umber Average monthly Price per unit Monthly usage Classdemand540002184000A320001224000A or B411002022000B7300026000B9500105000B170064200B or C8250012500C10100022000C6100101000C22004800C20011. Selling price (SP) = $5.25 Discounted price (DP) = $3.00 Cost (C) = $3.75a. WeekdaysProfitMake either 20 or
9、 22 dozen a day, each has the same expected profit.Demand12141618202224Probability.15.25.25.20.14.00.00Expectedof demandProfitNumber1218.0015.0012.009.006.003.000.0012.15of Bagels Made1416.5021.0018.0015.0012.009.006.0017.031615.0019.5024.0021.0018.0015.0012.0020.031813.5018.0022.5027.0024.0021.0018
10、.0021.152012.0016.5021.0025.5030.0027.0024.0020.782210.5015.0019.5024.0028.5033.0030.0019.28249.0013.5018.0022.5027.0031.5036.0017.78Make 18 dozen a day.b. WeekendsProfitsDemand12141618202224Probability.05.15.15.25.20.15.05ProfitNumber1218.0015.0012.009.006.003.000.008.85of Bagels Made1416.5021.0018
11、.0015.0012.009.006.0014.481615.0019.5024.0021.0018.0015.0012.0018.981813.5018.0022.5027.0024.0021.0018.0022.352012.0016.5021.0025.5030.0027.0024.0023.852210.5015.0019.5024.0028.5033.0030.0023.85249.0013.5018.0022.5027.0031.5036.0022.73Chapter 16Standard rate (SP) = $21.00Discounted rate (DP) = $12.0
12、0Cost (C) = $0.00Number of spaces (N) = 1006570758085Demand for StandardRateProbabilit y0.150.20.250.30.1ExpectedProfitNumber65178517401695165016051695of70166518301785174016951753.5spaces75154517101875183017851770Torqt分nd分rd80142515901755192018751734rate85130514701635180019651635Note: for cells on t
13、he diagonal (Demand = Spaces), profit = D(SP - C) + (N - D)(DP - C).For cells where demand exceeds spaces, profit = Q(SP - C) + (N - Q)(DP - C) - (D - Q)(SP -DP).For cells where spaces exceeds demand, profit = D(SP - C) + (N - Q)(DP - C) - (Q - C)(DP -C)Optimal profit occurs with 75 spaces allocated
14、 to hourly and 25 to daily (discounted).202Chapter 16Review and Discussion Questions1. Distinguish between dependent and independent demand in a McDonalds, in an integrated manufacturer of personal copies, and in a pharmaceutical supply house.The key to the answer here is to consider what must be fo
15、recasted (independent demand), and, given the forecast, what demands are thereby created for items to meet the forecasts (dependent demand).In a McDonalds, independent demand is the demand fbr various items offered for sale一Big Macs, fries, etc. The demand for Egg McMuffins, for example, needs to be
16、 forecasted. Given the forecast, then, the demand for the number of eggs, cheese, Canadian bacon, muffins, and containers can then be computed based on the amount needed for each Egg McMuffin.The manufacturer of copiers is integrated, i.e., the parts, components, etc. The parts are produced internal
17、ly. The demand for the number of copiers is independent (must be forecasted). Given the forecast, the Bill of Materials is exploded to determine the amounts of raw materials, components, parts, etc. that are needed (more on the BOM in chapter 17).The pharmaceutical supply company is an extreme case
18、where only end items are carried and nothing is produced internally. The bill of materials is the end item and, therefore, the independent demand (forecasted from customers) is the same as the dependent demand. One might attempt to consider that when the demand for items occurs together, that this i
19、s similar to a bill of materials. However, this is not a bill of materials, but rather a causal relationship making it easier to forecast.2. Distinguish between work-in-process inventory, safety stock inventory, and seasonal inventory.Work-in-process inventory consists of those items of materials co
20、mponents and partially completed units that are currently in the production process.Safety-stock inventory is set so that inventory is maintained to satisfy some maximum level of demand. It could be stated that safety stock is that level of inventory between the minimum expected demand and the desir
21、ed level of demand satisfaction.Seasonal inventory is that inventory accumulated to meet some periodic increase in demand.3. Discuss the nature of the costs that affect inventory size.The optimum inventory size is one that minimizes the combined total of holding cost, ordering (or setup) cost, short
22、age cost, and purchase cost.1924. Under which conditions would a plant manager elect to use a fixed-order quantity model as opposed to a fixed-time period model? What are the disadvantages of using a fixed-time period ordering system?Fixed-order quantity models-when holding costs are high (usually e
23、xpensive items or high deprecation rates), or when items are ordered from different sources.Fixed-time period models-when holding costs are low (i.e., associated with low-cost items, low- cost storage), or when several items are ordered from the same source (saves on order placement and delivery cha
24、rges).The main disadvantage of a fixed-time period inventory system is that inventory levels must be higher to offer the same protection against stockout as a fixed-order quantity system. It also requires a periodic count and closer surveillance than a fixed-order quantity system. A fixed- order qua
25、ntity system can operate with a perpetual count (keeping a running log of every time a unit is withdrawn or replaced) or through a simple two-bin or flag arrangement wherein a reorder is placed when the safety stock is reached. This latter method requires very little attention.5. There is a current
26、trend to reduce inventories. How is this being accomplished and what is the impact of lower inventories to the firm, its suppliers, and its customers?JIT has encouraged almost all organizations to attempt to reduce inventory, yet improve customers service. Changes in performance measures, such as in
27、ventory turns and product quality have also encouraged this trend. Many have been successful and have thus increased their profitability. However, some organizations have put tremendous pressure on their suppliers to provide a wide variety of products with very short notice. This, in some cases, has
28、 produced decreases in productivity. Additionally, some customers have seen decreases in the availability of products as organizations have reduced their inventories.6. Discuss the general procedure for determining the order quantity when quantity discounts are involved. Would there be any differenc
29、es in procedure if holding cost were a fixed percentage of price rather than a constant amount?In computing inventory size for the case where item cost varies with quantity ordered, if holding costs are constant, then only one EOQ is calculated. Then, the total cost for the feasible EOQ and all brea
30、k-points above are calculated. The lowest total cost is the best order size.If holding cost is a fixed percentage of the price, then the problem is worked from the largest quantity (lowest price) to the smallest (highest price). Successively lower prices in the EOQ formula until the EOQ is a feasibl
31、e一i.e., the EOQ falls into the same ranges as the price used in the equation. At this point it is only necessary to compute the total cost with this EOQ, and with the price breakpoints above (at lower prices). Again, the lowest total cost is the best order size.7. What two basic questions must be an
32、swered by an inventory-control decision rule?Any inventory control model or rule must establish (1) when items should be ordered, and (2) how many should be ordered.Chapter 16Discuss the assumptions that are inherent in production setup cost, ordering cost, and carrying cost. How valid are they?Inve
33、stigation of ordering and production setup cost will likely show that a single, unique cost does not exist for each product, nor is it linearly related to the number of order (as implied in the equations or inventory models). In the purchasing department, for example, an employee is paid either a sa
34、lary or an hourly rate for a normal workweek. The cost for that employee is sometimes divided among the number of items or orders for which he has responsibility, resulting in an averaged or allocated cost for each order he places. However, when we consider an inventory ordering cost based on the nu
35、mber or orders per year (as is done in most inventory models), reducing the number of orders the individual places does not necessarily decrease the net cost to the firm since his weekly pay remains the same. What happens is really an increase in the ordering cost for each of the remaining items wit
36、hin his responsibility.Nonlinearity of costs also occurs in production setups. Consider the time for making a setup in preparation for a production run. Setup time is roughly based on an expected frequency of making this particular product run. However, as the frequency increases, familiarity with t
37、he setup allows some shaving of the setup time. Moreover, if the setup is repeated often, an investment in specialized equipment or the construction of jigs may become warranted, reducing the setup time even more.The terms carrying or holding costs for maintaining goods in inventory include a multit
38、ude of cost elements. To determine the nature and amounts of these costs can be a challenging feat. Fortunately, total inventory cost curves tend to be dish shaped and can, therefore, tolerate some error. The holding costs associated with insurance, obsolescence, and personnel who are handling mater
39、ials are extremely difficult to ascertain on an item-by-item basis, yet each requires realistic analysis. Warehouse storage costs of an item, for example, may be based on a ratio of its required square footage and the entire available warehouse space, but this may not be an accurate representation s
40、ince it is an allocation of cost rather than true cost. Take the warehouse that is too large, or is used to stock products in an off season or depressed period. Allocation based on a share of total warehouse cost will result in a high cost for storage, when, in fact, excess storage space should crea
41、te pressure for higher-not lower-order quantities.In the simple inventory model, holding costs are based on the average inventory on hand. 6CAverage inventory presumes that, as stock is depleted, other product lines will be moved in to occupy the space. It may be that costs should be based on maximu
42、m inventory, especially if these is an excess of space, or if the needs of an item are so specialized that no other products can use the space (for example, due to environmental requirements). Each remaining cost may be similarly challenged. Breakage, pilferage, deterioration, and insurance costs ar
43、e not constant but, rather, vary with inventory size. As the value of inventory increases, insurance rates are lower, more refined handling procedures can be installed to reduce breakage, some environmental control and maintenance can be used to reduce deterioration, and better security procedures c
44、an reduce theft.These challenges to determining true costs are not intended to discourage the use of inventory models. The intent, rather, is to prevent the use of any model without clear knowledge of its requirements and assumptions. Indeed, each application must consider the operating conditions a
45、nd needs of the firm. An appropriate model can then be developed in a fashion similar to those covered in this chapter.1948. “The nice thing about inventory models is that you can pull one off the shelf and apply it so long as your cost estimates are accurate.Comment.Unfortunately, there is no model
46、 or set of models universally applicable to all inventory situations. As stated in the chapter several times, each situation is different and requires a model to suit those conditions. Students frequently try to memorize specific models rather than the process of building an inventory model.9. Which
47、 type of inventory system would you use in the following situations?a) Supplying your kitchen with fresh food.b) Obtaining a daily newspaper.c) Buying gas for your car.To which of these items do you impute the highest stockout cost?d) ) Supplying kitchen with foodboth a periodic model and order quantity. Generally, a household will shop once weekly for the majority of