Inventory – the stock of any item or resource used or produced in an organization, types are raw material, WIP, maintenance/repair/operating,

and finished goods. Often largest asset at any given

time, difficult to convert back to cash.
Inventory Management – objective is to strike balance between inventory investment and customer service.
Inventory Purposes – provide selection of goods for anticipated demand and to separate firm from fluctuations in demand, To decouple or separate various parts of the production process, to take
advantage of quantity discounts, and to hedge against price change/inflation.
Holding Costs – cost of holding or “carrying” inventory over time. Ordering Costs – costs of placing an order and receiving goods.
Setup costs – cost to prepare a machine or process for manufacturing an order, may be highly correlated with setup time.
Independent Demand – demand for item is independent of the demand for any other item in inventory.
Dependent Demand – demand for item is dependent upon the demand for some other item in the inventory.
Single-Period Model – used when making a one-time purchase of an item. Fixed Quantity Model – used when we want to maintain an item “in stock” and when we restock, certain # of units
must be ordered. Fixed Period Model – item is ordered at certain intervals of time
Fixed Quantity Models – inventory remaining must be continually monitored, has smaller average inventory, favors more expensive items, is more appropriate for important items, requires more
time to maintain but usually more automated, is more expensive to implement.
Fixed Period Models – counting takes place only at the end of the review period, has a larger average inventory, favors less expensive items, is sufficient for less important items, requires less to
to maintain, and is less expensive to implement
Fixed Quantity Model Assumptions – demand for product is constant and uniform throughout period, lead time (time from ordering to receipt) is constant, Price per unit of product us constant,
inventory holding cost is based on average inventory, ordering or setup costs are constant, all demands for the product will be satisfied.

Demand (D) / Order Quantity (Q*) = Expected # of Orders (N) Number of working days per year / N = (T) Expected time between orders
Safety Stock – amount of inventory carried in addition to expected demand, determine by keep certain # of weeks supply, or probability
ABC Classification – A is high annual dollar volume, B is medium annual dollar volume, and C is low annual dollar volume
Record Accuracy or Inventory Accuracy – refers to how well the inventory records agree with physical count
Cycle Counting – items are counted and records updated on periodic basis, advantages of eliminating shutdowns and interruptions, eliminates annual inventory adjustment, trained personnel
audit inventory accuracy, allows causes of errors to be identified % corrected

Basis of Good Production System – requires that managers address three issues that are pervasive and fundamental to operations management, being eliminating waste, removing variability, and
improving throughput.
Ohno’s 7 Wastes – Overproduction, Waiting Times (Queues), Transportation, Inventory, Over-processing, Motion, Defective Products
5S Techniques to Eliminate Waste – Sort/Segregate, when in doubt throw it out, Simplify/Straighten methods analysis tool, Shine/Sweep, clean daily, Standardize, remove variations from
processes, Sustain/Self-Discipline, review work, recognize progress
Remove Variability which is any deviation from optimum process, results in less waste. Sources are poor production processes, unknown customer demands, incomplete or inaccurate drawing,
specifications or bill of material
Improve Throughput – the rate at which units move through a production process, rate of output of a process.
Pull System can increase throughput – system where each stage of system is tightly linked, material puled through system with demand.
JIT (Just-In-Time) – Powerful strategy for improving operations, materials arrive where and when they are needed. Identifying problems and driving out waste reduces costs and variability and
improves throughput, requires meaningful buyer-supplier relationship
JIT Partnerships exist when a supplier and purchaser work together to remove waste and drive down costs, goals are to remove unnecessary activities, in-plant inventory, in-transit inventory and
improve quality and reliability
JIT Inventory – inventory is at the minimum level necessary to keep operations running, this gets rid of excess inventory which uncovers underlying problems in the system. Goal is to address
underlying problems in order to have successful JIT system
JIT Inventory Tactics – use pull system to move inventory, reduce lot sizes, develop JIT delivery systems with suppliers, delivers directly to point of use, perform to schedule, reduce setup time,
use group technology
JIT Scheduling Tactics – communicate schedules to suppliers, make level schedules, freeze part of the schedule, perform to schedule, seek one-piece-make and one-piece-move, eliminate waste,
product in small lots, use kanbans, make each operation produce a perfect part.
JIT Level Schedules – process frequent small batches rather than a few large batches, make and move small lots so level schedule is economical, freezing the schedule closest to the due dates
can improve performance
Kanban – Japanese word meaning card, referring to a visual signal, it authorized the production or replenishment of material
Kanban Squares – marked spaces on floor to identify why material should be stores. Container System – container used as a signal device. Colored Golf Balls – appropriate color golf ball signals

production
Lean Production – integrated activities designed to achieve high-volume production using minimal inventories. Involves elimination of waste and timing of production resources. Waste is
anything that does not add value from the customer’s perspective. Customer Value – something for which the customer is willing to pay. Value Chain – each step in the supply chain should create
value, if it doesn’t create value, should remove
Building a Lean Organization – use JIT techniques, build systems that help employees product perfect parts, reduce space requirements, educate suppliers, eliminate all but value-added activities,
develop employees, make jobs challenging, build worker flexibility
Lean Sustainability – two sides of the same coin, maximize resource use and economic efficiency, focus on issues outside immediate firm, driving out waste is the common ground
Lean Operations in ServiceJIT techniques used in manufacturing are used in services (Suppliers, layouts, inventory, and scheduling)

Supply Chain – global network used to deliver products and services to end customers through engineered flow of physical distribution, information, and finances. There are physical and market
mediation functions. Objective is to coordinate activities within the supply chain to maximize supply chains competitive advantage and benefits to the ultimate consumer. Coordination of all
supply chain activities is imperative for satisfying the end customer
Make Or Buy – choosing between obtaining products and services externally as opposed to producing them internally. Outsourcing is the transfer of traditional internal activities and resources to
outside vendors, efficiency in specialization, focuses on core competencies
How to Structure a Supply Chain – selection of partners, location and capacity of warehouse and production facilities, modes of transportation, supporting systems and information systems
Efficient Supply Chains – utilize strategies aimed at creating the highest cost efficiency.
Responsive Supply Chains – utilize strategies aimed at being responsive and flexible.
Functional Products include staples that people buy in a wide range of retail outlets such as grocery stores and gas stations, life cycle more than two years, 10-20 product variations, predictable
demand, lead time for make to order six months to a year
Innovative Products include technology products and fashion goods, life cycle few months, high variety, high contribution margin, demand unpredictable, lead time for make to order is from one
day to two weeks
Many Suppliers – common for commodity products, purchasing based on price, suppliers compete + are responsible for tech, expertise, cost
Few Suppliers – buyer forms longer term relationships with suppliers, creates value through economies of scale and learning curve improvements, more willing to participate in JIT programs
contribute design and tech expertise, cost of changing suppliers big, trade secrets
Vertical Integration – developing the ability to produce goods or service previously purchased. Integreation may be forward towards customer, or backwards towards suppliers, can improve cost,
quality, and inventory but requires capital, management, demand. Risky with growing tech
Joint Ventures – formal collaboration, enhances skills, secures supply, reduces costs, cooperation without diluting brand or conceding comp adv
Keiretsu Networks – middle ground between few supplier and vertical integration, supplier becomes part of company coalition, provide financial support for suppliers through ownership or
loans, members expect long term relations, may extend through several supply chain levels
Virtual Companies – rely on variety of supplier relationships to provide services on demand, fluid organizational boundaris that allow the creation of unique enterprises to meet changing market
demands, relationships may be short or long term, exceptionally lean performance, low capital, investment, flexibility, and speed
Bullwhip Effect – phenomenon of variability magnification as we move from customer to producer in supply chain
Practices Include – Continuous replenishment, Vendor managed inventory, Single Stage control of replenishment, Collaborative planning forecasting and replenishment, postponement withholds
modification, electronic orders and pay speed transactions and reduce paperwork
Risk – more reliance on supply chains means more risk, fewer suppliers increase dependence, compounded by globalization and logistical complexity, vendor reliability and quality risks,
political and currency risks
Supplier Evaluation – finding potential suppliers, determine likelihood of their becoming good suppliers. Supplier certification based on qualification, education, and certification
Supplier Development – integrates supplier into system, quality requirements, product specification, schedules and delivers, procurement policies, training, engineering and production help,
information transfer procedures
Negotiation – significant element in purchasing based on highly values skills: Cost-based price – supplier opens books. Market Based Price Model – based on published, auction, or indexed
prices. Competitive Bidding – common policy for many non -long-term relationship buys