【正文】 Operations Management, 9/e 302 CHAPTER 12: INVENTORY MANAGEMENT Teaching Notes This is a fairly long, and important chapter. The key points are: 1. Good inventory management is important for successful anizations. 2. The key issues are when to order and how much to order. 3. Because all items are not of equal importance, it is necessary to establish a classification system for allocating resources for inventory control. 4. EOQ models answer the question of how much to order. Variations of the basic EOQ model include the quantity discount model and the economic run size model. 5. EOQ models tend to be rather robust: even though one or more of the parameters may be only roughly correct, the model can yield a total cost that is close to the actual minimum. 6. ROP models are used to answer the question of when to order. Different models are used, depending on whether demand, lead time, or both are variable. 7. Other models described are the fixed interval model and the single period model in the supplement. 8. All of the models in this chapter pertain to independent demand. The SinglePeriod Model is used to handle ordering of perishables (such as fresh fruits and vegetables, seafood, and cut flowers) as well as items that have a limited useful life (such as newspapers and magazines). Analysis of singleperiod situations generally focuses on two costs: shortage and excess. Shortage costs may include a charge for loss of customer goodwill as well as the opportunity cost of lost sales or unrealized profit per unit. Excess cost pertains to items left over at the end of the period and is the difference between purchase cost and salvage value. There may be costs associated with disposing of excess items which would make the salvage value negative and hence increase the excess cost per unit. Answers to Discussion and Review Questions 1. Inventories are held (1) to take advantage of price discounts, (2) to take advantage of economic lot sizes, (3) to provide a certain level of customer service, and (4) because production requires some inprocess inventory. 2. Effective inventory management requires (1) cost information, information on demand and lead time (amounts and variabilities), an accounting system, and a priority system (., ABC). 3. Carrying or holding costs include interest, security, warehousing, obsolescence, and so on. Procurement costs relate to determining how much is needed, vendor analysis, inspection of receipts and movement to temporary storage, and typing up invoices. Shortage costs refer to opportunity costs incurred through failure to make a sale due to lack of inventory. Excess costs refer to having too much inventory on hand. 4. The RFID (Radio Frequency Identification) chip tags are beginning to be used with consumer products and they contain bits of data, such as product serial number. Scanners will automatically read the information on an RFID chip into a database, so the panies can keep track of sales Instructor’s Manual, Chapter 12 303 and inventory. Keeping track of inventory will enable suppliers to keep track of trends and react to market changes. In addition, RFID chips will assist in increasing the speed of munication on a supply chain. The information between parties will travel faster, which will improve the responsiveness of buyers and ordering information on the supply chain. The risk of using RFID chip tags stems from privacy concerns. It is feared that puter pirates will figure out security controls and be able to scan shoppers’ merchandise and determine what they have bought. In order to avoid this risk, panies are considering turning of RFID tags once the items are purchased. 5. It may be inappropriate to pare the inventory turnover ratios of panies in different industries because the production process, requirements and the length of production run varies across different industries. The shorter the production time, the less the need for inventory. In addition, the material delivery lead times may vary between different industries. The higher the variability of lead time and the longer the lead time, the greater the need for inventory. As supplier reliability increases, the need for inventory decreases. The industries with higher forecast accuracies have less of a need for inventories. 6. Price isn’t included in the basic EOQ model because it has no effect on Qo. It is indirectly included when carrying costs are stated as a percentage of unit price. 7. The total cost curve is relatively flat in the vicinity of the EOQ, so that there is a “zone” of values of order quantity for which the total cost is close to its minimum. The fact that the EOQ calculation involves taking a square root lessens the impact of estimation errors. Also, errors may cancel each other out. 8. As the carrying cost increases, holding inventory bees more expensive. Therefore, in order to avoid higher inventory carrying costs, the pany will order more frequently in smaller quantities because ordering smaller quantities will lead to carrying less inventory. 9. Safety stock is inventory held in excess of expected demand to reduce the risk of stockout presented by variability in either lead time or demand rates. 10. Safety stock is large when large variations in lead time and/or usage are present. Conversely, small variations in usage or lead time require small safety stock. Safety stock is zero when usage and lead time are constant, or when the service level is 50 percent (and hence, z = 0). 11. Service level can be defined in a number of ways. The text focuses mainly on “the probability that demand will not exceed the amount on hand.” Other definitions relate to the percentage of cycles per year without a stockout, or the percentage of annual demand satisfied from inventory. (This last definition often tends to confuse students in my ex