Category Archives: Inventory Systems for Independent Demand

for Independent Demand

for Independent Demand

The senior executives of Alpha Numerics were having their annual retreat to review accomplishments of the past year and to discuss major policy issues for the coming year.· As was the norm, the retreat was held at a small hotel in the mountains of eastern Pennsylvania, well removed from the company's actual manufacturing facility. The first day's meeting had gone well, but in the early evening, after dinner, the subject of inventory control and the number of shortages that had occurred over the past year came up for discussion. The vice president of engineering suggested that, as <;I solution to the shortage 'problem, purchasing should order all of the projected material . requirements at the beginning of .  he year. The vice president of manufacturing was taken back by this suggest ton that, to the amazement of the others in the room, he leaped .onto the conference table and shouted out, "Inventory is evil!" He turned to the president and said, "If we were to follow this suggestion, Mr. President, do you have an extra 25,000 square feet of warehouse space where we can store the material?" The president shook his head no. "And do you, Mr. Vice President of Race, have an extra $5 million to buy all this material?" The VP of finance similarly shook his head. "And are you, Mr. Vice President of Marketing, point to provide me with a pertec forecast of the products we expect to sell for the next year?" The VP of marketing said, "No, of course  not. That would be impossible." And turning to the VP of engineering who had made he initially posal, he said, "And you'll keep the same designs in the coming year without making any changes, won't you?" The VP of engineering said, "That would be very unrealistic." All of the individuals in the room then looked up to the VP of manufacturing still standing on the conference table and said, "We see what you mean. Inventory is indeed evil.

Management's view towards inventory has changed significantly over the past several years. Previously, managers
perceived inventory as an asset because it appears as an asset in the firm's financial reports. However, as seen inthe opening vignette, this is no longer the case.  swe have seen, product lifecycles are becoming ever shorter, increasing the likelihood of product obsolescence,  as seen in the accompanying OM in Practice box. As we also have seen, excessive inventories on the manufacturing floor tend to conceal a wide variety of problems. Moreover, inventory storage costs are typically v ry expensive, averaging 30 to 35 percent annually of the.value of the inventory-and in some cases they are much  higher.For all of these reasons, managers now look at inventory as a liability to the firm, something to be reduced or  eliminated wherever possible, as illustrated in the Advertisement. Consequently, no topic in operations is more often discussed by managers or perceived to be more important by them than inventory. There is a continuous effort among managers to reduce inventories in all categories, beginning with raw materials and purchased parts, through to working- process, and ultimately in finished good.

Inventory Systems for Independent Demand

Chapter Objectives

• Introduce the different types of inventories that can exist in an organization and provide a rationale for why companies maintain
• Identify the various costs associated with carrying and maintai ninginventories.
• Define the classical inventory models and the conditions necessary for them to be applicable.
• Show how the economic order quantity IS calculated for each of the different inventory models.
• Introduce the single-period inventory model and the concept of yiel  management with respect to servce operations.
• Present some of the current inventory management trends and issues that exist in companies today.


Moving Assembly Line

Moving Assembly Line

The year 1913 saw the introduction of one of the machine age's greatest technological innovations  the moving assembly line for the manufacture of Ford automobiles. Ford is said to have gotten the idea for an assembly line from observing a Swiss watch manufacturer's use of the technology. Incidentally all Model- T Fords were painted black. Why? Because black paint dried the fastest. Before the-assembly line was introduced in August of that ear each auto chassis was assembled by one worker in about hours. Eight months later when the line was in its final form with each worker performing a small unit of work and the chassis being moved along the line me mechanically the average labor time per chassis was reduced to 93 minutes. This technological breakthrough coupled with the concepts of scientific management  represents the classic application of labor specialization and still exists today in both manufacturing and service operations.