Module+13000+III.+Explanation+and+Examples


 * III. Module 13000 Explanation and Examples wxa**


 * I. Just-In-Time inventory management **

Just-In-Time inventory management  is also called stockless production, zero inventories, one-piece flow or supermarket production. It represents a continual improvement of productivity through the elimination of waste. JIT is a pull system. //The American Production and Inventory Control Society (APICS) has the following definition of JIT: // //"A philosophy of manufacturing based on planned elimination of all waste and continuous improvement of productivity. It encompasses the successful execution of all manufacturing activities required to produce a final product, from design engineering to delivery and including all stages of conversion from raw material onward. The primary elements include having only the required inventory when needed; to improve quality to zero defects; to reduce lead time by reducing setup times, queue lengths and lot sizes; to incrementally revise the operations themselves; and to accomplish these things at minimum //cost."( //http : //www.inventorysolutions.org/def_jit.htm)// A good example would be a car manufacturer that operates with very low inventory levels, relying on their supply chain to deliver the parts they need to build cars. The parts needed to manufacture the cars do not arrive before nor after they are needed, rather they arrive just as they are needed. Two strategic objectives of JIT is to increase profits and to improve a firm’s competitive position Many organizations adopt JIT method want to reach the follow purpose:
 * A. Explanation of JIT **
 * B. Strategic objectives of JIT **
 * * Reducing Cost
 * Improving Quality || *  Improving Delivery
 * Improving Performance || * <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Increase innovativeness
 * <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Adding Flexibility ||


 * <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">C. Comparison of JIT and Traditional inventory method. **

<span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;"> i. Effect on traceability of overhead and product costing <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;"> ii. Reducing the ordering cost by long-term contracts, continuous replenishment, and EDI <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">iii. Reducing setup times <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">iv. Avoidance of shutdown and process reliability
 * <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">D. Effect of JIT method **
 * 1) <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Total preventive maintenance
 * 2) <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Total quality control
 * 3) <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">The Kanban System

<span style="font-family: 'Arial','sans-serif';">Just-In-Case inventory management is a traditional inventory model based on anticipated demand. The purpose of inventory management is reducing inventory costs include: //<span style="font-family: 'Arial','sans-serif'; font-size: 12px;">If the material or good acquired from other supplier, the acquiring cost is called **__ordering costs__** // //<span style="font-family: 'Arial','sans-serif'; font-size: 12px;">If the material or good acquired produced internally, it is called **__setup costs.__** // <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Recent years, due to the global competition and new technology shorter the life cycles for products and increase the product diversity, more organizations begin to use JIT model. <span style="font-family: 'Arial','sans-serif';"> i. EOQ is <span style="color: #000000; font-family: 'Arial','sans-serif';">one of the oldest classical production scheduling models in order to establish the amount that should be ordered (or produced) to minimize the total ordering (or setup) and carrying costs. TC= P*D/Q+C*Q/2
 * <span style="font-family: 'Arial','sans-serif';">II. Just-In-Case inventory management **
 * <span style="font-family: 'Arial','sans-serif';">A.Just-In-Case inventory management **
 * <span style="font-family: 'Arial','sans-serif'; font-size: 12px;">the cost of acquiring inventory
 * <span style="font-family: 'Arial','sans-serif'; font-size: 12px;">The cost of holding inventory**(//__carrying costs__//__)__**
 * <span style="font-family: 'Arial','sans-serif'; font-size: 12px;">The cost of not having inventory on hand when needed(**//__Stock-out costs__//)**
 * <span style="font-family: 'Arial','sans-serif';">B. Traditional reasons for carrying inventory **
 * 1) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">To balance ordering or setup costs and carrying costs
 * 2) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Demand uncertainty
 * 3) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Machine failure
 * 4) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Defective parts
 * 5) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Unavailable parts
 * 6) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Late delivery of parts
 * 7) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Unreliable production processes
 * 8) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">To take advantage of discounts
 * 9) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">To hedge against future price increases
 * <span style="font-family: 'Arial','sans-serif';">C. Economic Order Quantity (EOQ model) **

= Ordering (or setup) cost +Carrying cost

//<span style="font-family: 'Calibri','sans-serif'; font-size: 13.3333px;">*TC=the total ordering (or setup) and carrying cost //

//<span style="font-family: 'Calibri','sans-serif'; font-size: 13.3333px;">*P=the cost of placing and receiving an order (or the cost of setting up a production run) //

//<span style="font-family: 'Calibri','sans-serif'; font-size: 13.3333px;">*Q= the number of units ordered each time an order is placed (or the lot size for production) //

//<span style="font-family: 'Calibri','sans-serif'; font-size: 13.3333px;">*D= the known annual demand //

//<span style="font-family: 'Calibri','sans-serif'; font-size: 13.3333px;">*C= the cost of carrying one unit of stock for one year //

<span style="font-family: 'Arial','sans-serif';">

<span style="font-family: 'Arial','sans-serif';">ii. Reorder Point Illustrated Reorder point= Rate of usage* Lead time

= (Average rate of usage * Lead time) +Safety stock


 * <span style="font-family: 'Arial','sans-serif'; font-size: 14.6667px;">III. Theory of constraints **

<span style="font-family: 'Arial','sans-serif';">The limitations of resources and demand for each product that every firm has to face are called constraints.
 * <span style="font-family: 'Arial','sans-serif';">A. basic concepts of constrained optimization **
 * <span style="font-family: 'Arial','sans-serif'; font-size: 12px;">External constrains
 * <span style="font-family: 'Arial','sans-serif'; font-size: 12px;">Internal constraints
 * <span style="font-family: 'Arial','sans-serif'; font-size: 12px;">Loose constraints
 * <span style="font-family: 'Arial','sans-serif'; font-size: 12px;">Binding constraint

Throughput=(Sales revenue- Unit level variable expenses)/Time

<span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Constrained optimization is adopting a <span style="color: #000000; font-family: 'Arial','sans-serif'; font-size: 13.3333px;">best solution maximizing the total contribution margin given the constraints faced by the companies.
 * <span style="font-family: 'Arial','sans-serif';"> B. ****<span style="font-family: 'Tahoma','sans-serif'; font-size: 14px;"> Constrained optimization **


 * <span style="font-family: 'Arial','sans-serif';">C. Five-Step method for improving performance **
 * 1) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Identify an firm’s constraints
 * 2) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Exploit the binding constraints
 * 3) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">making everything else follow the decisions made in step 2
 * 4) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">promoting the firm’s binding constraints
 * 5) <span style="font-family: 'Arial','sans-serif'; font-size: 13.3333px;">Repeat process: Does a new constraint limit throughput

//<span style="font-family: 'Times New Roman','serif'; font-size: 18.6667px;">References used in this module: //


 * 1) //CMA LEARNING SYSTEM: Strategic Management (version 2.0) ISBN:978-7-5058-6607-2//
 * 2) //[]//
 * 3) //[]//
 * 4) //[|http://en.wikipedia.org/wiki/Just-in-time_(business])//
 * 5) //[]//
 * 6) //[]//