SCM 345 EXAM 2 STUDY GUIDE
Inventory Management Approaches (key factors of difference) - Answers -Managing
inventory involved four fundamental questions:
1. How much should inventory be ordered?
2. When should inventory be ordered?
3. Where should inventory be held?
4. What specific line items should be available at specific locations?
Cost vs. Service Tradeoff Considerations: Regardless of the approach selected,
inventory decisions must consider the basic tradeoff between cost and service.
DEPENDENT VS. INDEPENDENT DEMAND
Independent demand is unrelated to the demand for other items, while dependent
demand is directly related to, or derives from, the demand for another inventory item or
product.
PULL VS. PUSH
The "pull" approach relies on customer orders to move product through a logistics
system, while the "push" approach uses inventory replenishment techniques in
anticipation of demand to move products.
SYSTEM-WIDE VS. SINGLE-FACILITY SOLUTIONS
A system-wide approach plans and executes inventory decisions across multiple nodes
in the logistics system. A single-facility approach does so for shipments and receipts
between a single shipping and receiving point.
Types of Modeling approaches - Answers -OPTIMIZATION MODELS
Designed to find the "best," or optimum solution, while recognizing relevant constraints.
SIMULATION MODELS
Designed to develop a computer representation of supply chain network & observe
changes as cost structures, constraints, and other factors are varied.
HEURISTIC MODELS (e.g. grid technique)
Designed to reduce a problem to a manageable size and search automatically through
various alternatives in an attempt to find a better solution.
Inventory Management Approaches - JIT, MRP, VMI and DRP - Answers -JIT (JUST IN
TIME)
--JIT commitment to short, consistent lead times and to minimizing or eliminating
inventories is JIT principal differentiator from the more traditional approaches.
--JIT saves money on downstream inventories by placing greater reliance on improved
responsiveness and flexibility.
--Successful JIT applications:
, 1. Place a high priority on efficient and dependable manufacturing processes.
2. Demand effective and dependable communications & information systems, and high-
quality, consistent transportation services.
MRP (MATERIALS REQUIREMENTS PLANNING)
--MRP deals specifically with supplying materials and component parts whose demand
depends on the demand for a specific end product.
--MRP System Goals:
1. Ensure the availability of materials, components, and products for planned production
and for customer delivery.
2. Maintain the lowest possible inventory levels that support service objectives.
3. Plan manufacturing activities, delivery schedules, and purchasing activities.
--An MRP system is designed to translate a master production schedule into time-
phased net inventory requirements and the planned coverage of such requirements for
each component item needed to implement this schedule.
VMI (VENDOR-MANAGED INVENTORY)
--Vendor-managed inventory manages inventories OUTSIDE a firm's logistics network,
specifically inventories held in its customer's distribution centers.
--How VMI Works:
1. The supplier and its customer agree on which products are to be managed using VMI
in the customer's distribution centers.
2. An agreement is made on reorder points and economic order quantities for each of
these products.
3. As these products are shipped from the customer's distribution center, the customer
notifies the supplier, by SKU, of the volumes shipped on a real-time basis.
4. The supplier monitors on-hand i
Inventory Classification - how can we classify? - Answers -Multiple product lines and
inventory control require organizations to focus on more important inventory items and
use more sophisticated and effective approaches to inventory management.
ABC ANALYSIS
ABC classification technique assigns inventory items to one of three groups according
to the relative impact or value of the items that make up the group. A items are
considered to be the most important, B items lesser importance, and C items least
important.
PARETO'S LAW (THE "80-20" RULE)
Pareto's Law "80-20" rule suggests that a relatively small percentage of inventory might
account for a large percentage of the overall impact or value.
In many ABC analyses, a common mistake is to think of the B and C items as being far
less important than the A items. However, all items in the A, B, and C categories are
important to some extent and each category deserves its own strategy to assure
availability at an appropriate level of cost (stockout cost vs. inventory carrying cost).
Inventory Management Approaches (key factors of difference) - Answers -Managing
inventory involved four fundamental questions:
1. How much should inventory be ordered?
2. When should inventory be ordered?
3. Where should inventory be held?
4. What specific line items should be available at specific locations?
Cost vs. Service Tradeoff Considerations: Regardless of the approach selected,
inventory decisions must consider the basic tradeoff between cost and service.
DEPENDENT VS. INDEPENDENT DEMAND
Independent demand is unrelated to the demand for other items, while dependent
demand is directly related to, or derives from, the demand for another inventory item or
product.
PULL VS. PUSH
The "pull" approach relies on customer orders to move product through a logistics
system, while the "push" approach uses inventory replenishment techniques in
anticipation of demand to move products.
SYSTEM-WIDE VS. SINGLE-FACILITY SOLUTIONS
A system-wide approach plans and executes inventory decisions across multiple nodes
in the logistics system. A single-facility approach does so for shipments and receipts
between a single shipping and receiving point.
Types of Modeling approaches - Answers -OPTIMIZATION MODELS
Designed to find the "best," or optimum solution, while recognizing relevant constraints.
SIMULATION MODELS
Designed to develop a computer representation of supply chain network & observe
changes as cost structures, constraints, and other factors are varied.
HEURISTIC MODELS (e.g. grid technique)
Designed to reduce a problem to a manageable size and search automatically through
various alternatives in an attempt to find a better solution.
Inventory Management Approaches - JIT, MRP, VMI and DRP - Answers -JIT (JUST IN
TIME)
--JIT commitment to short, consistent lead times and to minimizing or eliminating
inventories is JIT principal differentiator from the more traditional approaches.
--JIT saves money on downstream inventories by placing greater reliance on improved
responsiveness and flexibility.
--Successful JIT applications:
, 1. Place a high priority on efficient and dependable manufacturing processes.
2. Demand effective and dependable communications & information systems, and high-
quality, consistent transportation services.
MRP (MATERIALS REQUIREMENTS PLANNING)
--MRP deals specifically with supplying materials and component parts whose demand
depends on the demand for a specific end product.
--MRP System Goals:
1. Ensure the availability of materials, components, and products for planned production
and for customer delivery.
2. Maintain the lowest possible inventory levels that support service objectives.
3. Plan manufacturing activities, delivery schedules, and purchasing activities.
--An MRP system is designed to translate a master production schedule into time-
phased net inventory requirements and the planned coverage of such requirements for
each component item needed to implement this schedule.
VMI (VENDOR-MANAGED INVENTORY)
--Vendor-managed inventory manages inventories OUTSIDE a firm's logistics network,
specifically inventories held in its customer's distribution centers.
--How VMI Works:
1. The supplier and its customer agree on which products are to be managed using VMI
in the customer's distribution centers.
2. An agreement is made on reorder points and economic order quantities for each of
these products.
3. As these products are shipped from the customer's distribution center, the customer
notifies the supplier, by SKU, of the volumes shipped on a real-time basis.
4. The supplier monitors on-hand i
Inventory Classification - how can we classify? - Answers -Multiple product lines and
inventory control require organizations to focus on more important inventory items and
use more sophisticated and effective approaches to inventory management.
ABC ANALYSIS
ABC classification technique assigns inventory items to one of three groups according
to the relative impact or value of the items that make up the group. A items are
considered to be the most important, B items lesser importance, and C items least
important.
PARETO'S LAW (THE "80-20" RULE)
Pareto's Law "80-20" rule suggests that a relatively small percentage of inventory might
account for a large percentage of the overall impact or value.
In many ABC analyses, a common mistake is to think of the B and C items as being far
less important than the A items. However, all items in the A, B, and C categories are
important to some extent and each category deserves its own strategy to assure
availability at an appropriate level of cost (stockout cost vs. inventory carrying cost).
