Materials
Management
and
Inventory Systems
Richard J.Tersine
Old Dominion University
•'C
&
North-Holland
PUBLISHING COMPANY
NEW YORK • AMSTERDAM
Contents
Preface
Chapter 1 INTRODUCTION
Inventory
Types of Inventory
Organizational Categories and Inventory Problems
Functions of Inventory
Inventory Problem Classifications
Properties of Inventory
Inventory Costs
Conflicting Goals
Financial Considerations
Business Cycle Influence
Conclusion
Questions
Chapter 2
FORECASTING
Time Series Analysis
1
4
5
6
8
10
13
15
17
20
22
24
25
27
29
Last Period Demand, 31. Arithmetic Average, 32. Moving
Average, 32. Regression Analysis, 35. Exponentially
Weighted Moving Average (EWMA), 39. EWMA with Trend
Correction, 44. EWMA with Seasonal Correction, 46. EWMA
with Trend and Seasonal Corrections, 48. EWMA Overview, 52.
Soliciting Opinions
Economic Indicators
Econometric Models
The Forecasting Function
Conclusion
Questions
Problems
Nomenclature
54
55
60
61
63
65
66
69
Chapter 3
PURCHASE ORDER QUANTITIES
Fixed Order Size System (Q-System)
71
72
Economic Order Quantity (EOQ)—Single Items, 72. Economic
Order Quantity (EOQ)—Multiple Items, 77. Quantity Discounts, 78. Backordering, 81. Known Price Increases, 85.
Fixed Order Interval System (T-System)
88
Economic Order Interval (EOI)—Single Items, 90. Economic
Order Interval (EOI)—Multiple Items, 93. Quantity Discounts
on Individual Items, 95. Quantity Discounts on Joint Orders, 99.
Sensitivity
101
EOQ Sensitivity, 102. EOI Sensitivity, 106. Sensitivity Overview, 109.
Variable Demand Order Size Systems
110
Lot-for-Lot Ordering, 111. Wagner-Whitin Algorithm, 111.
Silver-Meal Heuristic Algorithms, 112. Part-Period Algorithm,
117.
Conclusion
Questions
Purchase Order Quantity Problems
Nomenclature
Appendix A Determination of Single Variable Maximum
and Minimum Points
Appendix B EOQ Quantity Discount Approximation
Appendix C Derivation of EOQ with Backordering
Chapter 4
PRODUCTION ORDER QUANTITIES
Independent versus Dependent Demand
Continuous and Independent Demand Items
122
123
124
129
130
131
132
135
136
138
Economic Production Quantity (EPQ)—Single Items, 139.
Economic Production Quantity (EPQ)—Multiple Items, 143.
Make or Buy Decisions, 146. Critical Ratio Scheduling, 148.
Aggregate Production Planning, 152.
Discrete and Dependent Demand Items
156
Material Requirements Planning (MRP) Systems, 157. Time
Cycle Charts, 169.
In-Process Inventory
172
An Isolated Incident
Conclusion
Questions
Production Order Quantity Problems
Nomenclature
Chapter 5 INVENTORY SYSTEM CHANGES
AND LIMITATIONS
Inventory System Redesign
Inventory System Constraints
174
175
176
176
182
185
186
189
Working Capital Restrictions, 191. Storage Space Restrictions,
194. Working Capital and Storage Space Restrictions, 197.
Overview of Constraints, 200.
Questions
Problems
Nomenclature
Appendix A Optimizing Constrained Functions
Chapter 6 RISK AND UNCERTAINTY:
FIXED ORDER SIZE SYSTEMS
Safety Stock
Statistical Considerations
201
202
202
203
209
210
214
Normal Distribution, 217. Poisson Distribution, 218. Negative
Exponential Distribution, 218.
Known Stockout Costs
219
Constant Demand and Constant Lead Time, 219. Variable
Demand and Constant Lead Time, 220. Constant Demand
and Variable Lead Time, 236. Variable Demand and Variable
Lead Time, 238.
Unknown Stockout Costs
240
Service Level: Service per Order Cycle, 242. Service Level:
Service per Year, 247. Service Level: Fraction of Units Demanded, 248. Service Level: Fraction of Operating Days, 251.
Imputed Service Level Stockout Costs, 252.
Conclusion
Questions
Risk and Uncertainty Problems
Nomenclature
Appendix A Chl-Square Goodness-of-FIt Test
254
255
256
261
262
vii
Appendix B
Appendix C
Appendix D
Order Quantity and Reorder
Point Dependency
Probability Distribution
Convolutions
Joint Probability Distributions
Chapter 7 RISK AND UNCERTAINTY:
FIXED ORDER INTERVAL SYSTEMS
Known Stockout Costs
266
272
274
283
287
Backordering Case: Stockout Cost per Unit, 288. Backordering
Case: Stockout Cost per Outage, 292. Lost Sales Case: Stockout
Cost per Unit, 294. Lost Sales Case: Stockout Cost per Outage,
295. Variable Demand and Variable Lead Time, 297.
Unknown Stockout Costs
300
Service Level: Service per Order Interval, 301. Service Level:
Service per Year, 302. Service Level: Fraction of Units Demanded, 303. Service Level: Fraction of Operating Days, 305.
Imputed Service Level Stockout Costs, 306.
Conclusion
Questions
Risk and Uncertainty Problems
Nomenclature
307
309
309
312
Chapter 8
313
SINGLE ORDER QUANTITIES
Known Demand, Known Lead Time
Known Demand, Variable Lead Time
Variable Demand, Known Lead Time
315
315
317
Marginal Analysis, 320. Cost Analysis, 322.
Variable Demand, Variable Lead Time
Conclusion
Questions
Problems
Nomenclature
Chapter 9
INVENTORY VALUATION
Flow of Costs
FIFO, 338. LIFO, 340. Average Cost, 342. Specific Cost,
345.
viii
327
327
327
328
333
335
337
Inventory Records
347
Periodic Count Method, 349. Cycle Count Method, 350.
Inventory Security
Questions
Problems
Chapter 10
352
353
353
SIMULATION
Simulation Categories
Monte Carlo Simulation
Perpetual Inventory Simulation Problem
Periodic Inventory Simulation Problem
Simulation of Joint Probability Distributions
Length of Simulation Run
Conclusion
Questions
Simulation Problems
Nomenclature
Chapter 11
INVENTORY CONTROL SYSTEMS
Types of Control Systems
357
358
359
363
368
370
373
374
376
376
380
381
383
Perpetual Inventory System, 384. Two-Bin Inventory System,
386. Periodic Inventory System, 386. Optional Replenishment
Inventory System, 388. Material Requirements Planning Inventory System, 390. Overview of Inventory Systems, 390.
Selective Inventory Control
Inventory System Development
Surplus Materials
Inventory System Improvement
Aggregate Inventory Measurement
Conclusion
Questions
Inventory Control System Problems
Nomenclature
393
397
401
402
405
406
408
409
409
Bibliography
410
Index
417
ix