Summary

Samenvatting H9 Inventory Management | Operations Management (Twelfth edition)

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Course
Operations Management

Institution
Hogeschool Windesheim (HW)

Book
Operations Management

Comprehensive and complete summary of Chapter 9 Inventory Management Operations Management (Twelve edition) Processes and Supply Chains

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Summarized whole book? No
Which chapters are summarized? Hoofdstuk 9
Uploaded on November 2, 2021
Number of pages 11
Written in 2021/2022
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Book Title:Operations Management

Author(s):Larry P. Ritzman, Lee J. Krajewski

Edition:Unknown
ISBN:9781292259932
Edition:12

Institution
Hogeschool Windesheim (HW)
Education
Technische Bedrijfskunde
Course
Operations Management

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Inhoudsopgave
Inventory Management..........................................................................................................................2
Inventory Trade-offs...........................................................................................................................2
Pressures for Small Inventories......................................................................................................2
Pressures for Large inventories......................................................................................................2
Types of Inventory..............................................................................................................................2
Accounting Inventories...................................................................................................................2
Operational Inventories..................................................................................................................4
Inventory Reduction Tactics...............................................................................................................4
Cycle inventory...............................................................................................................................4
Safety stock inventory....................................................................................................................4
Anticipations Inventory..................................................................................................................5
Pipeline Inventory...........................................................................................................................5
ABC Analysis.......................................................................................................................................5
Economic Order Quantity...................................................................................................................5
Calculating the EOQ........................................................................................................................6
Managerial Insights from the EOQ..................................................................................................7
Continuous Review System (Q)...........................................................................................................7
Selecting the Reorder Point when Demand and Lead Time are Constant......................................8
Selecting the Reorder Point when Demand is Variable and Lead Time is Constant........................8
Selecting the Reorder Point when Both Demand and Lead Time Are Variable.............................10
System Based on the Q system.....................................................................................................10
Calculating Total Q System Costs..................................................................................................10
Advantages of the Q system.........................................................................................................10
Periodic Review System (P)...............................................................................................................10
Selecting the Target Inventory Level when Demand is Variable and Lead Time is Constant........11
Systems Based on the P System....................................................................................................11
Calculating Total P System Costs..................................................................................................11
Advantages of the P System.........................................................................................................11

1

, Inventory Management
Inventory Trade-offs
Inventory management is the first of the tools we discuss in Part 2 of this text that is focused on how
to satisfy that demand.

Much of inventory management involves lot sizing which is the determination of how frequently and
in what quantity to order inventory.

We make ample reference to the term lot size, which is the quantity of an inventory item that
management either buys from a supplier or manufactures using internal processes.

Inventory is a stock of materials used to satisfy the customer demand or support in a supply chain
through the analogy of a water tank.

Pressures for Small Inventories
The inventory holding costs (or carrying cost) is inventory of the cost capital plus the variable costs of
keeping items on hand, such as storage and handling costs and taxes, insurance, and shrinkage costs.

Pressures for Large inventories
Each time a firm places a new order, it incurs an ordering cost, or the cost of preparing a purchase
order for a supplier or a production order for manufacturing.

The cost involved in changing over a machine or workspace to produce a different item is the setup
cost.

A quantity discount, whereby the price per unit drops when the order is sufficiently large, is an
incentive to order larger quantities.

Types of Inventory
Accounting Inventories
Raw materials (RM) are the inventories needed for the production of services or goods.

Work-in-process (WIP) consists of items, such as components or assemblies, needed to produce a
final product in manufacturing.

Finished good (FG) in manufacturing plants, warehouses, and retail outlets are the items sold to the
firm’s customers.

Finished goods, which are independent demand items that is, items for which demand in influenced
by market conditions and is not related to the inventory decisions for any other item held in stock or
produced.

Dependent demand items, consisting raw materials and WIP inventories, are those items whose
required quantity varies with the production plans for other items held in the firm’s inventory.

2

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Samenvatting H9 Inventory Management | Operations Management (Twelfth edition)

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