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MGT613 - Production / Operations Management - Lecture Handout 31

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INVENTORY MANAGEMENT

Learning Objectives

Our discussion on Inventory Management would be complete only when we are able to learn and understand the types of Inventories and objectives of Inventory Control. This would ensure that we are able to understand the major reasons for holding inventories. We would be able to differentiate between independent and dependent demand. We will also learn the requirements of an effective inventory management system. We will review both periodic as well as perpetual Inventory systems. We will discuss in detail the ABC approach with a suitable example. Since our discussion would extend over three lectures we will also discuss the objectives of inventory management, describe the basic EOQ model, Economic Run Size, Quantity Discount Model with solved examples.

Types of Inventories

The five common types of inventories are:

  1. Raw materials & purchased parts.
  2. Partially completed goods called work in progress.
  3. Finished-goods inventories:
    • (manufacturing firms) or
    • merchandise, (retail stores)
  4. Goods-in-transit to warehouses or customers.
  5. Replacement parts, tools, & supplies.

Objective of Inventory Control

To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. Operations Managers are well aware of the fact that customer services with respect to Inventory takes into account both the internal customers as well as external customers.

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MGT613 - Production / Operations Management - Lecture Handout 28

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Related Content: MGT613 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Production & Operations Management

ACCEPTANCE SAMPLING

Learning Objectives

Acceptance sampling is an important form of inspection applied to lots or batches of items before or after a process, to judge conformance with predetermined standards. Similarly Sampling plans are the plans that specify lot size, sample size, number of samples, and acceptance/rejection criteria

  • Single-sampling
  • Double-sampling
  • Multiple-sampling

Single Sampling Characteristics

  • One random is drawn from each lot.
  • Every item in the sample is examined
  • Each item after examination is classified good or defective.
  • If the sample contains more than a specified number of defectives say c, then that lot is rejected.

Double Sampling Plan Characteristics

  • Takes care of limitation of Single Sampling Plan by taking another sample if results of the initial sample are inconclusive.
  • If results from second sample also indicate poor quality than the lot is rejected or otherwise decision reached on the basis of both samples.
  • A double sampling plan specifies the lot size, the size of the initial sample, accept/reject criteria for the initial sample, the size of the second sample and a single acceptance number.
  • With double sampling plan, 2 values are specified for number of defective items, a lower level c1 and an upper level c2. E.g. if we have c1 equal to 2 and c2 to 7, if number of defects is smaller than c1 than sampling is terminated and lot is accepted.
  • If defects are greater than c2, than lot is rejected.
  • If it’s between c1 and c2 then second sample is selected and compared to a third value c3 which can be 8 and if the cumulative defects from 1 and 2 does not exceeds c3, the lot is accepted.

  • Read more: MGT613 - Production / Operations Management - Lecture Handout 28