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21-2. . Inventory Management: Economic Order Quantity, JIT, and the Theory of Constraints. . 21-3. Three types of inventory costs can be readily identified with inventory:. The cost of acquiring inventory.The cost of holding inventory.The cost of not having inventory on hand when needed.. 21-4.
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1. 21-1 HANSEN & MOWEN Cost ManagementACCOUNTING AND CONTROL
2. 21-2 Inventory Management: Economic Order Quantity, JIT, and the Theory of Constraints
3. 21-3
4. 21-4 1. Ordering Costs: The costs of placing and receiving an order.
Examples: Clerical costs, documents, insurance for shipment, and unloading.
2. Setup Costs: The costs of preparing equipment and facilities so they can be used to produce a particular product or component.
Examples: Setup labor, lost income (from idled facilities), and test runs.
5. 21-5 3. Stock-Out Costs: The costs of not having sufficient inventory.
Examples: Lost sales, costs of expediting (extra setup, transportation, etc.) and the costs of interrupted production.
4. Carrying Costs: The costs of carrying inventory.
Examples: Insurance, inventory taxes, obsolescence, opportunity cost of capital tied up in inventory, and storage.
6. 21-6
7. 21-7
8. 21-8 An EOQ Illustration
9. 21-9 Reorder point = Rate of usage x Lead time
Example: Assume that the average rate of usage is 100 parts per day. Assume also that the lead time is 4 days. What is the reorder point?
Reorder point = 4 x 100 = 400 units
Thus, an order should be placed when inventory drops to 400 units.
10. 21-10
11. 21-11
12. 21-12
13. 21-13 JIT reduces the costs of acquiring inventory to insignificant levels by:
1. Drastically reducing setup time
2. Using long-term contracts for outside purchases
Carrying costs are reduced to insignificant levels by reducing inventories to insignificant levels.
14. 21-14
15. 21-15
16. 21-16 What is the Kanban System? A withdrawal Kanban
A production Kanban
A vendor Kanban
17. 21-17
18. 21-18
19. 21-19
20. 21-20 Discounts and Price Increases: JIT Purchasing versus Holding Inventories Careful vendor selection
Long-term contracts with vendors
Prices are stipulated (usually producing a significant savings)
Quality is stipulated
The number of orders placed are reduced
21. 21-21
22. 21-22
23. 21-23
24. 21-24
25. 21-25
26. 21-26
27. 21-27
28. 21-28 Throughput
Inventory
Operating expenses
29. 21-29 1. Identify an organization’s constraints.
2. Exploit the binding constraints.
3. Subordinate everything else to the decisions made in Step 2.
4. Elevate the organization’s binding constraints.
5. Repeat the process as a new constraint emerges to limit output.
30. 21-30
31. 21-31
32. 21-32
33. 21-33 End of Chapter 21