1-Describe the role of inventory management within the context of operations management.
2-Compare and contrast the three inventory models for independent demand featured by Heizer, Render, and Munson (2017, p. 496).
1) In the context of operations management, inventory management is to manage inventory in an effort to satisfy customer demand without exposing the company to unnecessary cost and risk. When a company maintain a finished goof inventory, the company can in no time fulfil the demand of consumers. Inventory management protect against supply shortages and delivery delays. Work in process inventory allows other operations to continue even when a failure exists in another part of the process. It reduces peak period capacity needs to meet higher customer demands. Through inventory management the company is able to take advantage of quantity discounts and in turn supplier can gain economies of scale in their own production process.
2) Independent demand means the demand for an item is independent of demand for any other item.inventiry models given by Heizer, Render, and Munson are as follows:
- Fixed order quantity models: economic order quantity, production order quantity and quantity discount
- Probabilistic models
- Fixed order period models
The important assumptions of this model include:
- Demand is known and constant and independent
- Lead time is known and constant
- Quantity discounts are not possible
- Only variable cost are setup and holding
- Stock outs can be completely avoided
The objective of this model is to minimize total cost. It is a robust model. It works even if all assumptions are not met. The economic order quantity answers the “how much” question and reorder point tells us when to order.
Production order quantity model:
It is used when inventory is build up over a period of time when the order is placed. It is applicable when units are produced and sold simultaneously
Quantity discount models:
It is based on the assumption that reduced price are often available when larger quantities are purchased. Herein the tradeoffs are between reduced product cost and increased holding cost.
Probabilistic models and safety stock:
This method is used when demand is not constant or certain. It is based on the assumption that
Safety stock is used to achieve a desired service level and avoid stockouts.when data on demand during lead time is not available ,there are other models available:
- When demand is variable and lead time is constant
- When lead time is variable and demand is constant
- When both demand and lead time are variable.
Fixed order period models:
This model is based on the assumptions that:
- Order is placed at the end of fixed period
- Inventory counted only at the end of period
- Order brings inventory up to target level
- Only relevant cost are ordering and holding
- Lead times are known and constant
- Items are independent form one another