CASE STUDY ON: Barco Projection Systems

Inventory ManagementGroup 9Aviral Bansal (13P135 )Karthic Subramaniam (13P147)Rattan Preet Singh (13P161)Adit Agrawal (13P185)Saurabh Dixit (13P235)Sudeep Khare (13P211)

+InventoryStock of items kept to meet future demand

PurposeMeeting Customer DemandMinimizing Carrying CostsOptimum Investment LevelMinimize Inventory Ordering CostDecisions to be madeWhat to StockWhen to StockHow much to investHow much service to offer+ Inventory TypesRaw materialsPurchased parts and suppliesWork-in-process (partially completed) products (WIP)Items being transportedTools and equipment

Types of DemandDependentDemand for items used to produce final products Tires stored at a Goodyear plant are an example of a dependent demand itemIndependentDemand for items used by external customersCars, appliances, computers, and houses are examples of independent demand inventory

+Reasons for Keeping InventoryBullwhip effectdemand information is distorted as it moves away from the end-use customerhigher safety stock inventories to are stored to compensate

Seasonal or cyclical demand

Independence from vendors

Take advantage of price discounts

Avoids work stop-pages

Customers perceive quality as availability of goods

Inventory Costs+Inventory Control Systems & ABC ClassificationContinuous System (Fixed order quantity)Periodic System (Fixed time period)Constant amount ordered after inventory falls below predetermined levelOrder placed with varying quantity after fixed period of timeInventory Control SystemsABC Classification

Class% Value% QuantityA70-80%5-15%B15%30%C5-10%50-60% Used as a Rule of Thumb, Popularly known as 80-20 rule Focus on Class A items is supposed to be higher, less for B and even less for C (in regards to controls)+Economic Order Quantity Models+Inventory Order CycleDemand rateTimeLead timeLead timeOrder placedOrder placedOrder receiptOrder receiptInventory LevelReorder point, ROrder quantity, Q0+EOQ Cost ModelOrder Quantity, QAnnual cost ($)Total CostCarrying Cost =CcQ2Slope = 0Minimum total costOptimal order QoptOrdering Cost =CoDQOptimum Order Quantity Qopt = (2C0D)1/2 CCQopt =2CoDCc+8Production Quantity Model Q(1-d/p)Inventorylevel(1-d/p)Q2Time0Orderreceipt periodBeginorderreceiptEndorderreceiptMaximuminventory levelAverageinventory level+9Production Quantity Modelp = production rated = demand rateMaximum inventory level =Q - d

= Q 1 -QpdpAverage inventory level = 1 -Q2dpTC = + 1 -dpCoDQCcQ2Qopt =2CoD

Cc 1 - dp+10Quantity Discount ModelSame as the EOQ, except:Unit price depends upon the quantity orderedAssumptionsAdjusted Cost Equation

where, P = per unit price of the itemD = annual demand

Example

Co =$2,500 , Cc =$190 per unit, D =200

+Level of inventory at which a new order is placed R = dLwhered = demand rate per periodL = lead timeReorder PointSafety stockbuffer added to on hand inventory during lead timeStockout an inventory shortageService level probability that the inventory available during lead time will meet demandAssumptionsConstant DemandConstant Lead Time+Reorder Point with a Safety Stock12-13Reorderpoint, RQLTTimeLTInventory level0Safety Stock+Reorder Point With Variable Demandwhere

d=average daily demandL=lead timed=the standard deviation of daily demand z=number of standard deviationscorresponding to the service levelprobabilityzd L=safety stock

R = dL + zd L+Reorder Point for a Service LevelProbability of meeting demand during lead time = service levelProbability of a stockoutRSafety stockdLDemandzd LThe carpet store wants a reorder point with a 95% service level and a 5% stockout probabilityd= 30 yards per dayL= 10 daysd= 5 yards per dayFor a 95% service level, z = 1.65R= dL + z d L= 30(10) + (1.65)(5)( 10)= 326.1 yardsSafety stock= z d L= (1.65)(5)( 10)= 26.1 yards+THANK YOU+