Inventory Management: Principles, Concepts and Techniques

226 Pages·2000·13.05 MB·English

by  John W. Toomey (auth.)

INVENTORY MANAGEMENT:
Principles, Concepts and Techniques
Materials Management I Logistics Series
Eugene L. Magad, Series Editor
Previouslyvublishedby Chavman & Hall
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INVENTORY MANAGEMENT:
Principles, Concepts and Techniques
by
John W. Toomey
l1li...
"
Springer Science+Business Media, LLC
Library of Congress Cataloging-in-Publication
Toomey, John W., 1932-
Inventory management: principles, concepts and techniques / by John W. Toomey.
p. cm. -- (Materials management/logistics series)
Includes bibliographical references and index.
ISBN 978-1-4613-6961-5 ISBN 978-1-4615-4363-3 (eBook)
DOI 10.1007/978-1-4615-4363-3
1. Inventory control. 1. Title. ll. Series.
TS160.T662000
658.7'87--dc21
00-025875
Copyright © 2000 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers, New York in 1998
Softcover reprint ofthe hardcover Ist edition 1998
Ali rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, mechanical, photo
copying, recording, or otherwise, without the prior written permission of the
publisher, Springer Science+Business Media, LLC.
Printed an acid-free paper.
CONTENTS
PREFACE / ix
1. OVERVIEW / 1
Inventory Management Defined /
Inventory Functions / 3
Inventory Goals / 4
Functional Classifications / 5
Independentand Dependent Demand / 7
Inventory Systems / 8
Case Study / 9
2. COST CONCEPTS / 13
CostAccounting / 13
Variance Analysis / 14
Activity-Based Costing / 15
LIFO and FIFO / 17
InventoryValuation / 19
Inventory-Profit Relationship / 21
Accounting-Based Decisions / 22
Case Study / 23
3. FORECASTING / 29
ForecastReasoning / 29
PrinciplesofForecasting / 29
Demand Patterns / 30
Forecasting Methods / 31
System Design / 32
ForecastingTechniques / 33
ErrorMeasurement / 38
Tracking Signal / 40
Demand Filter / 41
Case Study / 41
VI
4. INVENTORY RELIABILITY / 45
ServiceLevels / 45
Cause andEffect / 46
SafetyStockand SafetyLeadTime / 47
SafetyStockCalculation / 48
CostOfSafetyStock / 51
Cycle Counting / 52
Case Study / 55
5. ORDERQUANTITIES / 61
Lot Size Considerations / 61
TheEconomic Lot Size / 64
FixedOrderQuantities / 66
FixedPeriodQuantities / 67
Lot-For-LotQuantities / 67
Economic OrderQuantityVariations / 68
NoninstantaneousReceipt Lot Sizes / 70
Case Study / 72
6. REPLENISHING INDEPENDENT DEMAND / 77
IndependentDemandDefined / 77
TheReorderPoint / 78
Time-Phased OrderPoints / 79
PeriodicReview Systems / 80
VisualReview Systems / 82
Replenishment Variations / 83
Joint Replenishment Systems / 86
Case Study / 87
7. REPLENISIDNG DEPENDENT DEMAND / 91
DependentDemand Characteristics / 91
TheBill ofMaterial / 93
MaterialRequirements Planning(MRP)Logic / 95
InputToMRP / 97
MRP Output / 99
RegenerationandNet Change MRP / 101
Manufacturing Resource Planning(MRPII) / 101
Case Study / 102
vii
8. MASTERPRODUCTION SCHEDULING / 107
Master Scheduling / 107
MPS Calculations / 108
UtilizingPlanningBills / 110
Managingthe MPS / 113
CapacityPlanning / 114
Case Study / 117
9. DISTRIBUTION MANAGEMENT / 123
DistributionNetworks / 123
CostsofDistribution / 125
Site LocationPlanning / 126
Modes ofTransportation / 127
DistributionCenterControl / 128
Freight Control / 130
Case Study / 131
10. DISTRIBUTION RESOURCE PLANNING / 135
ReorderPoint Pull Systems / 135
CentralizedDRP System / 136
DRPUse ofMRP Logic / 138
Integrating DRP with MRP / 141
Managingthe DRP System / 142
Case Study / 145
11. PURCHASING MANAGEMENT / 151
TheRole OfPurchasing / 151
PurchasingQuantities / 153
Extensionofthe ManufacturingFunction / 155
SupplierRelationships / 156
Performance Measurements / 159
Case Study / 160
12. MANUFACTURING MANAGEMENT / 165
Job Shop Manufacturing / 165
Process Manufacturing / 167
Repetitive Manufacturing / 171
System Requirements / 174
Case Study / 176
viii
13. SUPPLY CHAIN MANAGEMENT / 181
The Supply Chain / 181
Supply ChainGoals / 183
RequiredCapacities / 186
Supply ChainControl Systems / 187
Performance Measurements / 189
Case Study / 190
14. INVENTORY MANAGEMENT ORGANIZATION / 195
Basic Functions / 195
MaterialsManagementOrganization / 199
Centralizedand Decentralized Management / 202
Case Study / 204
GLOSSARY / 209
INDEX / 223
PREFACE
While teaching the APICS Certification Review Course for Inventory
Management, Iam reminded ofthe changes inthe field since Itook the exam
over twenty years ago. At that time emphasis was placed on lot sizing, safety
stocks, forecasting methods, and ordering techniques. Material requirements
planning was in its early days and the dependent demand time-phased logic
was covered to a greater degree in the MRP module. The present day review
course, published in 1994, devotes about one-third of its contents to
distribution, manufacturing environments, and Just-in-Time; factors not
considered an important part ofinventory management in the 1970's. These
changes reflect today's business goals calling for efficient lean operations
across the entire supply chainfrom rawmaterial to the final customer.
The goal of this book will be to explain the dynamics of inventory
management's principles, concepts, and techniques as they relate t) the entire
supply chain (customer demand, distribution, and product transformation
processes). The interrelationships ofall functions will be defined. The book
concentrates on understanding the many ramifications of inventory
management. In today's competitive business environment, inventory
managementhas provento be most critical.
This book is directed to inventory management practitioners to assist them
in better understanding the body ofknowledge required to operate in today's
competitive environment. It is also directed to those in related fields ofthe
business world. Almost all functions such as sales, engineering, and
accounting have an impact and are impacted by inventory management. The
book will assist in the training of four year and community college students
as well as APICS CPIM (Certified in Production and Inventory Management)
candidates. As such it will not only be a textbook but also a desk reference
for those employees responsible for controlling inventories, and thereby assist
inreducingcost, improvingcustomer service, and maximizingcapacity.
The book is organized to first overview the basics of inventory
management (Chapter I). Cost concepts which both drive and measure
inventory management decisions are explained in Chapter 2. The basics of
independent demand control are covered with Forecasting (Chapter 3),
Inventory Reliability (Chapter 4), Order Quantities (Chapter 5), and
Replenishing Independent Demand (Chapter 6). Systems controlling
dependent demand are explained in Replenishing Dependent Demand
(Chapter 7) and Master Production Scheduling (Chapter 8). Distribution
Management and Distribution Resource Planning are detailed in Chapters 9
and 10. The activity or execution functions of inventory management
x
(Purchasing and Manufacturing) are spelled out in Chapters 11 and 12.
Supply Chain Management is outlined in Chapter 13. Chapter 14 defines the
many interrelationshipsofall the relatedfunctions.
Eachchapterconcludeswithacase study and suggested solution. The case
studies tell the story ofa growing company, Smith Industries, and the related
inventory management problems it had to address. The problems addressed
relate to the subjectmatterofthe chapter.
I would like to acknowledge the encouragement received from Eugene
Magad of Harper College and Gary Folven and Carolyn Ford of Kluwer
Academic Publishers. After two books I have learned that it can be a long
road to completion. Iwantto also give specialthanks to those who were ofso
much assistance in their technical reviews of the subject matter. They are
Brian Carroll of Engineering Systems Associates, Roger Dykstra of
Manufacturing Management Associates, Robert (Pat) O'Donnell ofHearth &
Home, and Tom Setlik ofTempel Steel Company. The reviewers have been
invaluable intheirsuggestions andcorrections.
Finally, I would like to give special thanks to Joan Toomey, proofreader
extraordinaire.
John W. Toomey