Stock that is held in excess of expected demand due to variable demand and/or lead time
Solution to lead time variation
Safety time
Disaggregation
Breaking down the current month's aggregate plan into a master schedule
The master scheduling process' three outputs
Projected inventory, master production schedule, and uncommitted inventory
Bill of Materials
A listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product
two-bin system
There are two containers of inventory; reorder when the first is empty
Pure Level Strategy
Always produces the same amount every period, whether through regular time, overtime, or subcontracting
Pure Chase Strategy
There is no inventory; it produces exactly what is needed; quantities and costs fluctuate according to needs
Inventory's two fundamental decisions
customer service level and inventory ordering and carrying cost
Inventory management's objective
To achieve satisfactory customer service levels while keeping inventory costs within reasonable bounds
Methods to modify capacity in aggregate planning
Hiring and laying off workers, overtime/slack time, part-time workers, building up inventories, and subcontracting
Information Required to Do Aggregate Planning
Demand Quantity and Demand Timing
Aggregate Demand's Balance
If demand exceeds capacity, it attempts to alter capacity, demand, or both
Types of units used in aggregate planning
Aggregate units of output per month, customers served, Total monthly output dollar value, total factory output, labor hours and other measures that relate to capacity
Ways to handle demand in level production when it varies
Maintain a certain amount of excess capacity to handle increases in demand, hire temporary workers, use overtime, wait as long as possible before committing to a certain level of supply capacity, postponement
Cycle Counting
A physical count of items in inventory
MRP Inputs
Master schedule, Bill of Materials, and Inventory Records
Quantity Discount's Effect
They improve pricing through larger purchase quantities, but make firms inefficient, so total cost should be examined instead of just inventory cost
Fixed-order-interval (FOI) model
orders are placed at fixed time intervals
Uncommitted Inventory term
Available-to-Promise Inventory
Aggregate Planning's Decisions
What price to set and what strategy to use
Fixed Order Quantities
The quantity ordered never varies, but the timing and type of goods can vary
MRP Primary Outputs
Planned orders, Order releases, and Changes
MRP Secondary Outputs
Performance-control reports, Planning reports, and Exception reports
Positive Ways to Reduce Safety Stock
Reduce lead times, improve supply reliability, order more frequently, and/or forecast more accurately
Negative Way to Reduce Safety Stock
Increase the risk of stockouts
Lot-for-lot
The order or run size is set equal to that period's demand
EOQ Model's Purpose
It identifies the optimal order quantity by minimizing order costs and holding costs
Fill rate
The percentage of demand filled by the stock on hand
Example of how to calculate expected inventory
If you need inventory in Week 4 and the inventory has a two week lead time, order it in Week 2.
Transportation's Objective
to minimize the cost of holding inventory
Reason why twice as much inventory does not provide twice the customer service level
There is a limit to how high service level can go
Reason why it is important to be able to assume that demand will be level during each six-month period
If demand varies, the company will have to calculate EOQ every month
Fact about Level Strategy
It will always have inventory in some, if not all periods
Recommended method for calculating the quantities of each component required to assemble multiple finished product units
Calculate one unit's necessary component quantities, then multiply that by the needed number of units