Review Sistem Persediaan
Independent Demand
Overview
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What is an inventory system and why hold stock?
Textbook prescriptions versus reality and variety?
Independent versus Dependent Demand
Inventory types, flows, costs
Re-order quantities, EOQ & calculations
Safety stocks & service levels
Review systems
Discounts and staged deliveries
JIT
ABC Analysis
Stock taking
Make or buy
What is an Inventory System?
Inventory
• the stock of any item or resource used in an
organization: raw materials, finished products,
component parts, supplies and work-in-process.
An inventory system
• policies and controls for monitoring levels of
inventory
• Information system that records transactions and
enables analysis of stock requirements and
levels/quantities, costs etc
Organisations, Roles, Methods and
Systems?
• What type of organisations use systematic inventory
management methods?
• How are the methods manifested?
• How is inventory management linked to
– aggregrate planning, buying for MRP, JIT, retail buying,
sales systems, accounting practice?
• Who does it?
– buyers, store keepers, production planners, accountants?
• What manual & IT-based systems are involved?
– Stock cards, orders, delivery notes, GRNs, return advice
notes, inventory module in integrated accounting
packages, stock checks and auditing.
• Are textbook methods really used? How, where?
• What is the clerical burden of inventory analysis and control?
Independent vs. Dependent
Demand
Independent Demand (not related to
other items or final end-product)
Dependent Demand
(derived from component
parts, sub-assemblies,
raw materials, etc.)
E(1
)
Independent demand
- finished goods
- spare parts
Time
Demand/usage
Demand/usage
Independent versus
Dependent Demand
Dependent demand
Work in progress
Components and raw materials
Time
Why hold stock?
• Provide flexibility
– minimum delay in supplying customers
– a good range
• Protect against uncertainties
• Enable economic purchasing
• Anticipate changes in demand or supply
– Buffers to feed processes and enable efficient
scheduling
– Strategic stock holdings
Inventory Types
 Raw-materials, components and sub-assemblies
 Work-in-progress or in-transit
 Finished-goods
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In the warehouse, awaiting shipment, in delivery vehicles,
in tanks, on shelves, in the stores
 Strategic inventory
 Scrap & re-work
Material-Flows Process
Production Processes
Stores
warehouse
WIP
Finished
goods
WIP
Inventory in transit
To Customer
Work in
process
Stock : Input (Flow in), Storage (Holding)
and Flow out (Usage)
Inventory Level
Supply Rate
Stock Level
Rate of Demand (Usage)
Costs of Inventory
• Ordering costs
– purchase order & office, shipping and/or set up
• Holding Costs
– tied up capital (item value), staff & equipment,
obsolescence, perishability, shrinkage, insurance
& security, m2 - m3 (rent/lease), audit.
• Cost of being out of stock, cancelling an order
• Scrap and re-working
annual costs
= holding cost factor %
average value of stockholding
e.g. 25% or 2p in £ per month of stock
Order Quantities & Reorder
Points
Average stock q/2
No. of units
on hand
q
q
safety or
buffer level
R
L
Time
L
R = Reorder point
L = Lead time
Simple inventory system
Orders
MRP
Check stock level
Next
Check point
No
<=ROL?
Yes
No
Outstanding
Order?
Yes
No
Raise order for ROQ
Due
now?
Yes
Receive/inspect.
Accept into stock
Send back?
Part-delivery
Bin systems
Two-Bin - quantity stock in bin 2 = re-order level
Full
Empty
Order one bin
One-Bin (periodic check)
Order enough to
refill bin?
ROQ Options
•Keep order costs to a minimum?
•Order one year's supply in one go? OR
•Hand-to-mouth, once per week?
EOQ Aim = Cost Minimisation
Holding + ordering costs = total cost curve.
Find Qeoq inventory order point to minimise total costs.
Total Cost
Cost
Holding
Costs
Ordering Costs
Qeoq
Order Quantity (Q)
Economic Order Quantity
(EOQ) Assumptions
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Single product line
Demand rate: recurring, known, constant
Lead time: constant , known
No quantity discounts - stable unit cost
No stock-outs allowed
Items ordered/produced in a lot or batch
Batch received all at once
Holding cost is linear based on average stock level
Fixed order + set up cost
Order Point with
Safety Stock
2200
2000
Units
Actual lead
time is 3 days!
(at day 21)
Dip into safety stock
Order
Point
400
200
Safety Stock
0
18
21
Days
Safety Stock and Re-order Levels
–Reserve - buffer - cushion against uncertain demand
(usage) & lead time.
–A basis for a "2-bin" system
–Application to JIT?
EOQ assumes certain demand & lead time. If
uncertain, then:
ROL =
(Avg. lead time x Avg. daily usage)
Average usage in lead time + safety stock
How Much Safety Stock?
Cost vs. safety level
Depends on:
Uncertainty: demand & lead time
cost of
 being out of stock
 carrying inventory
 increasingly better service
Service level policy
% confidence of not hitting a stock-out situation

Cost vs service level
Cost of poor service (out-of-stock)
Loss of
-part order
-future order
-customer goodwill
-buying from non-regular sources
£
0
Service level
Cost of
better and
better service
70 80 90 100 %
Normal Distribution of
Demand over Lead Time
m = mean demand
r = reorder point
s = safety stock
service level
probability
frequency
probability of
stock out
m
s
r
demand over lead time
Service level protection
ROL = Average usage in lead time + Safety stock
(Avg. usage (day/week) x Avg. Lead time)
K x stdev demand x
Confidence of % non –stock out
K = 2 for 97.5 confidence
K = 3 for 99.87
Avg. lead time
ROL AND Service Level Example
ROL = Average usage in lead time + Safety stock
(Avg. usage … day/week x Avg. lead time)
K x stdev demand x Avg. lead time
ROL = (250 per week x 4 weeks) + ( 2 x 50 x (4) ) =
1000 + 200 = 1200
Stock falls to or below ROL & no order is outstanding? Place a new
order for 1200. Service level @ 97.5%  stock-out for 1 in 40 reorder
situations.
Review Systems
• Top-up with regular review
– Stock not to exceed upper limit (perishables, corrosives,
limited capacity)
– use with – regular review (continuous or periodic)
• Continuous review
– relax “constant demand” assumption
– Continuous system to monitor “stock-on-hand”
• Periodic review
– Apply EOQ (demand constant + “no stock-out”)
– orders must be placed at specified intervals.
– Use when multiple, items ordered from same supplier (jointreplenishment)
– inexpensive items
Price discounts and staged deliveries
• Quantity Discounts, buying frequency & Oc, Hc
– more storage space
– different payment terms
– if demand changes – surplus stock
• Staged deliveries & EOQ?
– Extra delivery & handling cost?
– Assumes constant order cost
– Requires reliable deliveries & steady demand
– JIT – collaborative supplier relationships
– Affect on supplier (locate nearer customer?)
U-shaped function
True Qopt values occur at the start of each price-break
interval.The total annual cost function is a “u” shaped function
Total
annual
costs
Price-breaks
0
1826
2500
4000
Order Quantity
Just-in-Time
approach to inventory management & control in which
inventories are acquired & inserted in production at
exact time when needed.
Requirement
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Accurate production & inventory information system
Highly efficient purchasing
Reliable suppliers
Efficient inventory-handling system
ABC - 20/80 Principle and
Inventory Control
“A” items – review frequently
Review “B” & “C” items frequently.
100
Cumulative Percentage
of Inventory Value
Items not of equal importance:
–£ invested & profit potential
–Sales/usage volume
–stock-out penalties
Control expensive items closely.
Pareto - 20/80 Principle
Identify inventory items based on % of total
£ value. “A” items top 20 %, “B” next 40 %,
"C" the lower 20%.
90
70
C
B
A
0
15
45
Cumulative %
100
Annual Usage by £ Value
Item
p3
t6
h8
j23
f45
v33
m88
s32
tt6
b88
Total
Usage p.a.
4800
3400
950
4600
9200
6400
5200
6700
7700
3250
Unit
Cost
1.40
8.00
112.00
3.40
0.85
46.00
0.90
1.78
3.40
2.10
£ Usage
6720
26500
106400
15640
7820
294400
4680
11926
26180
6825
£507,091
% of Total £
Usage
1.3%
5.2%
21.0%
3.1%
1.5%
58.1%
0.9%
2.4%
5.2%
1.3%
100.0%
ABC Chart
A
40%
Percent Usage
120%
B
C
100%
35%
30%
80%
Cumulative %
25%
60%
20%
15%
40%
10%
20%
5%
0%
0%
3
6
9
2
4
1
Item No.
10
8
5
7
Cumulative % Usage
45%
Stock Check
• Book stock vs physical stock
• Stock valuation – wastage &
shrinkage
• Audit stock security systems
• Organising the stock check
• Internal & external audit
– Segmentation of duties