Lecture 08: Material flow COPY

Question 1

4 Types of Inventory in Manufacturing

Answer 1

• Raw materials
  Direct raw materials
  Indirect raw materials
• Work-in-progress (WIP)
• Finished goods
• Repair inventory
  Maintenance, Repair, Operations (MRO)

Question 2

Name 4 reasons why we carry inventory?

Answer 2

• To meet demand
• To avoid stock-outs
• Financial reasons
• Flexibility

Question 3

Name 4 problems related to holding inventory?

Answer 3

• Space
• Must be managed
• Risk of obsolescence, damage, theft
• Ties up working capital

Question 4

Name two basic inventory reorder systems? Roughly explain! (3)

Answer 4

Reorder Level System

• Economic Order Quantity (EOQ) models
• Two-bin system

Cyclical Review system

• “Order up-to” at set intervals

Question 5

What is EOQ? (2)

Answer 5

• is a basic reorder level system
• where one orders a set number of materials when the reorder point is met

Question 6

Name 5 assumptions of EOQ!

Answer 6

• Known and constant demand
• Known and constant lead time
• No stock-out
• Set-up cost per order and holding cost per inventory unit
• Instantaneous receipt of material
• No quantity discounts

Question 7

What is the formula of EOQ?

Answer 7

EOQ = Order quantity
* 𝐷 = Demand (units)
* 𝐶𝑆 = Set-up cost per order ($)
* 𝐶ℎ = Holding cost per inventory unit ($)

Question 8

What happens with EOQ if, …

• order processing is automated,
• warehouse costs drop,
• competitive product is introduced?

Answer 8

Order processing is automated:

• Cs drops
• making the EOQ smaller

Warehouse costs drop:

• Ch drops
• higher EOQ = higher inventory

Competitive product is introduced:

• demand may drop
• EOQ drops
• many smaller reorders