Special Topics in Supply Chain
Inventory: The Basics
Inventor
IE 5107
Material Flow Systems
Dr. Boray Huang
Industrial & Systems Engineering
National University of Singapore
Standardization
Standardization
When to standardize? When to customize?
The advantages of standardization:
Product Life Cycle
Matching
Matching demand with supplies
Unit Cost
Unit Price
Sales Revenue
Profit
Sale Amount
Production Cost
Production
Amount
Types
Types of Inventory
Raw material
Purchased but not processed
Work-in-process n 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
Functions
Functions of Inventory
To
deal with variability
(fluctuations) in supply and demand To take advantage of discount
To hedge against inflation
To lower the impact of fixed costs
To provide convenience
The
The Material Flow Cycle
Cycle time
95%
Input
Wait for inspection Wait to be moved
5%
Move Wait in queue Setup Run time for operator time time
Output
Costs
Costs of Inventory
Holding Costs
◦ The costs of holding or “carrying” inventory over time
Ordering (Setup) Costs
◦ The costs of placing an order and receiving goods
◦ The costs to prepare a production run for manufacturing an order
Shortage Cost
◦ The costs of losing revenue or goodwill if an
The
order is not satisfied.
Purchase Cost?
Holding
Holding Costs
Category
Cost (and Range)
(and Range) as a Percent of
Inventory Value
Housing costs (including rent or
(i
depreciation, operating costs, taxes, insurance) 6% (3 - 10%)
Material handling costs (equipment lease or depreciation, power, operating cost)
3% (1 - 3.5%)
Labor cost
3% (3 - 5%)
Investment costs (borrowing costs, taxes,
and
Inventor
IE 5107
Material Flow Systems
Dr. Boray Huang
Industrial & Systems Engineering
National University of Singapore
Standardization
Standardization
When to standardize? When to customize?
The advantages of standardization:
Product Life Cycle
Matching
Matching demand with supplies
Unit Cost
Unit Price
Sales Revenue
Profit
Sale Amount
Production Cost
Production
Amount
Types
Types of Inventory
Raw material
Purchased but not processed
Work-in-process n 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
Functions
Functions of Inventory
To
deal with variability
(fluctuations) in supply and demand To take advantage of discount
To hedge against inflation
To lower the impact of fixed costs
To provide convenience
The
The Material Flow Cycle
Cycle time
95%
Input
Wait for inspection Wait to be moved
5%
Move Wait in queue Setup Run time for operator time time
Output
Costs
Costs of Inventory
Holding Costs
◦ The costs of holding or “carrying” inventory over time
Ordering (Setup) Costs
◦ The costs of placing an order and receiving goods
◦ The costs to prepare a production run for manufacturing an order
Shortage Cost
◦ The costs of losing revenue or goodwill if an
The
order is not satisfied.
Purchase Cost?
Holding
Holding Costs
Category
Cost (and Range)
(and Range) as a Percent of
Inventory Value
Housing costs (including rent or
(i
depreciation, operating costs, taxes, insurance) 6% (3 - 10%)
Material handling costs (equipment lease or depreciation, power, operating cost)
3% (1 - 3.5%)
Labor cost
3% (3 - 5%)
Investment costs (borrowing costs, taxes,
and