At the end of this lecture, students should be able to define quality and total quality management, understand why manufacturers care about quality, understand the six basic concepts TQM.
Logistics Management LSM 730 Lecture 26 Dr Khurrum S Mughal 1-1 Inventory Management Philosophies • Pull - Draws inventory into the stocking location - Each stocking location is considered independent - Maximizes local control of inventories • Push - Allocates production to stocking locations based on • demand - Encourages economies of scale in production Just-in-time - Attempts to synchronize stock flows so as to just demand as it occurs - Minimizes the need for inventory CR (2004) Prentice Hall, Inc 9-2 overall meet Inventory Management Philosophies (Cont’d) • Supply-Driven - Extensive Forecasting needed - All supply must be accepted and processed - Inventories are controlled through demand • Aggregate Control - Classification of items: › Groups items according to their sales level › the 80-20 principle Allows different control policies for or more product groups CR (2004) Prentice Hall, Inc 9-3 based on broad Costs Relevant to Inventory Management • Procurement Costs • Carrying costs • Out-of-stock costs CR (2004) Prentice Hall, Inc 9-4 Relevant Costs (Cont’d) • Procurement costs (A significant economic force that determines the reorder quantities) - Cost of preparing the order - Cost of order transmission - Cost of production setup if appropriate - Cost of materials handling or processing at the dock - Price of the goods CR (2004) Prentice Hall, Inc 9-5 receiving Costs Relevant to Inventory Management • Carrying costs - Cost for holding the inventory over time - The primary cost is the cost of money tied up in inventory, but also includes obsolescence, insurance, personal property taxes, risk costs, space costs, and storage costs CR (2004) Prentice Hall, Inc 9-6 Relevant Costs (Cont’d) • Out-of-stock costs - Lost sales cost › Profit immediately foregone › Future profits foregone through loss of goodwill - Backorder cost › When order not lost but delayed › Costs of extra order handling › Additional transportation and handling costs › Possibly additional setup costs CR (2004) Prentice Hall, Inc 9-7 Inventory Management Objectives Good inventory management is a careful balancing act between stock availability and the cost of holding inventory Customer Service, i.e., Stock Availability Inventory Holding costs • Service objectives - Setting stocking levels so that there is only a • probability of running out of stock Cost objectives - Balancing conflicting costs to find the most replenishment quantities and timing CR (2004) Prentice Hall, Inc specified economical 9-8 Inventory’s Conflicting Cost Patterns Minimum cost reorder quantity Cost Total cost C yin r r a ost c g Procurement cost Stockout cost CR (2004) Prentice Hall, Inc Replenishment quantity 9-16 ... stocking locations based on • demand - Encourages economies of scale in production Just-in-time - Attempts to synchronize stock flows so as to just demand as it occurs - Minimizes the need for inventory... Prentice Hall, Inc 9-2 overall meet Inventory Management Philosophies (Cont’d) • Supply-Driven - Extensive Forecasting needed - All supply must be accepted and processed - Inventories are controlled... the order - Cost of order transmission - Cost of production setup if appropriate - Cost of materials handling or processing at the dock - Price of the goods CR (2004) Prentice Hall, Inc 9-5 receiving