#TM10.060517 Safety Stock
Definition Of Inventory
Inventory may be
defined as material hold in storage for later use or sale. Inventory may take
the form of raw materials held for processing, goods in the process of
manufacture, and finished goods held for sale. Inventories are essential for
the proper functioning of a manufacturing enterprise.
The raw material
inventories are held for later conversion to semifinished of finished goods.
Raw-materisl inventories must exist because generally it is not economically
feasible either to purchase or to schedule the delivery of raw materials as
they are needed in the manufacturing process.
Since
manufacturing or processing always takes time, there are always inventories
comprised of goods in the process of manufacture. In some industries materials
must be process in lots or batches. In other industries the flow of material
may be steady, with the product existing simultaneously in several stages of
completion. In still order types of manufacturing it is desirable, from
economic considerations, to process or schedule material in lots.
The Functions of Inventory
Inventory serve
to isolate the supplier, the producer and consumer. Inventories also permit the
procurement of raw materials in economic lot sized as well as the processing of
these raw materials into finished goods in the most economical quantities. Raw-
material inventories isolate the supplier of the raw materials from the user of
these raw materials. Finished – goods inventories isolate the customer from the producer of the goods.
In – process inventories isolate the departments within the plant. In a plant
where materials are processed in lots, there is a need to have some inventories of semifinished goods
existing between departments.
The Fixed – Order - Sized Inventory Systems
In the ideal
situation, the fixed – order size systems works as follows : a fixed quantity
of materials is ordered whenever the stock on hand reaches zero. With
instantaneous replenishment and zero lead time, the order is received at the
same time it is placed. The order quantity ( inventory ) is used up at constant
rate, and when it again reaches zero another order is placed.
The fixed – Order – Interval Systems
A variation og
the fixed – order – interval systems as follows : order are placed only when
the inventory on hand is less than. The expected result of such a systems some
rather large orders, but as a result such a system one rather large orders will
be placed. However, the incremental costs of the large orders are probably not
as great as those of small orders.
Safety Stock
Safety Stocks or
fluctuation stocks are held to meet variations of actual demand from forecast
demand, of actual production from planned production, and of actual lead times
from expected lead times. Safety stock levels should be set to provide economic
protection against being out of stock. Thus, it is necessary to know the
desired level of customer service, the distribution of production variations
and the distribution of lead – time variations.
The level of
customer service is difficult to determine. It can be expressed in many ways :
the number of times we are out of stock, the number of units back – ordered,
the number of customer orders delayed, etc. For the above mentioned measures of
customer service to be a value, they
must be expressed as functions of time. An appropriate level of customer
service might be to permit back – ordering once in a year.
Resource :
Biegel, J.E ( 1987,90-97 ) Production Control :
A quantitative approach. ( 2nd ed.) New Delhi : Prentice – Hall
of India
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