Inventory Control Guide Page 4
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402.1 Control Systems
Motivation for holding inventories
Here we summarize all the reasons which could justify the creation of an inventory.
1.
economy of scale
The first motivation is related to the notion of setup discussed on the previous page.
2.
uncertainty of demand, of delivery, of price
The second main reason is related to the notion of shortage risk also discussed above.
3.
smoothing demand over time
Building inventory is a possible solution to meet a demand which varies over time with a
constant production force. The aggregate planning is a clear illustration of this concept.
4.
flexibility in planning !!!
An inventory of finished goods allows you to modify the production plan as needed. However
the same flexibility can most often be reached by a more efficient way.
Motivation for not holding inventories
The two first aspects were discussed on the previous page.
1.
capital
2.
depreciation - obsolescence - quality
3.
flow time
This last aspect is very important. A large inventory can be seen as a large buffer. Considering
the production plant as a whole, this large buffer increases the flow time and has therefore
many disadvantages.
Decisions
Here are the questions we will try to solve in this chapter.
When to order?
How much - how many to order ?
We will consider different control policies.
Types of control
The first control policy assumes that the inventory is checked permanently. When the
inventory level hits a predefined value (the reorder point R), an order of fixed size Q is then
launched. These policy are usually referred to (Q,R) policies.
With a periodic review, the inventory is checked only at predetermined instants. At these
times, either a fixed (when the review period is short) or a variable quantity can be ordered.
order quantity: Q
Fixed
Variable
Review
Continuous
X
time
Periodic
x
X
Prod 2100-2110
Inventory Control
3
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