An – Najah National University Faculty of Engineering Industrial Engineering Department

1. An – Najah National University Faculty of EngineeringIndustrial Engineering Department Production planning & inventory management at Arab Eastern Company for health diaper Project Group Members: Nour Abu Sharkh TahaniYousufMohammad QubbajTamara Dwaikat Supervised by: Dr. YahyaSaleh

2. agenda • introduction • About the company • Literature Review • Problem Statement • Methodology • ABC Classification • Demand Forecasting • Inventory Costs • Inventory Management Models • Model Formation • Results and discussion • Conclusion • Recommendation

3. introduction • Planning is a success key to any business throughout its existence. • Every successful business regularly reviews its business plans to ensure meeting customer demand. It is sensible to review current performance on a regular basis and identify the most likely strategies for growth and improvement.

4. cont… • Inventory management is primarily concerned about specifying the size and placement of stocked goods. • Inventory management is required at different locations within a facility or within multiple locations of a supply chain network to protect the regular and planned course of production against the random disturbance of running out of materials or goods.

5. cont… • Inventory types can be grouped into three classifications:- 1-Raw materials - materials and components scheduled for use in making a product. 2- Work in process (WIP) - materials and components that have begun their transformation to finished goods. 3- Finished goods - goods ready for sale to customers.

6. About the company • Lucky Baby Company for health diapers was established in 1990 for the purpose of manufacturing products of diapers and marketing of health products. • 1990The company has installed the first productive line of diapers and earning experience and the ability to compete. • At the beginning of the year 1999 the company got the international quality system certification ISO 9002.

7. Cont… • At the end of 2012 it has successfully run the new production line that works with the latest international technology in the manufacture of diapers. • At the beginning of 2013 the company began to supply the Palestinian market known varieties such as Lucky Baby Primo, stretch, and Super Chic Shack of the production of this machine.

8. Literature review

9. Cont…

10. Problem statement • In this project we present a case study in inventory management and production planning of diapers at lucky baby company. • In this project we tackle a serious problem in production planning department being encountered by (Arab _Eastern Company) Lucky Baby Company. More specifically we have problems an inefficient production planning process, which negatively effect on customer need, sales, production quantity and scheduling, productivity, high and low inventory levels with associated cost.

11. objectives 1- Help the company to develop production planning system which enables the company to: • Design a program to forecast the future demand. • Estimate the required amount of raw material needed to cover the expected demand. • Determine the number of products that should be stored in the company’s warehouses.

12. Cont… 2-Help the company to make cost reduction by reducing the holding , ordering cost. 3-Increase the market share of the company as a consequence of increasing the customer confidence.

13. methodology • Determine and classify the diapers by using ABC analysis. • Forecasting the demand by analyzing the historical sales data available. • Collecting Relevant Cost Data ( Holding Cost , Ordering Cost). • Building Inventory Models for each raw material in inventory. • Evaluate the previous conditions and compare them empirically with the new results based on our inventory models.

14. ABC Classification

15. XL XL XL MAXI MAXI MAXI MIDI MIDI MIDI MINI MINI MINI S.MINI S.MINI

16. abc inventory classification • Is away to categorize/group products . • This method helps managers focus on the few significant items that account for the bulk of investment in inventory. Which leads to facilitate instant decision-making • It is also called (80/20 Rule).

17. The classification can be as under: • A items : these are the 20% of the items that tie up 80% of the total inventory money. • B items : these are the 30% of the items the tie up 15% of the total inventory money. • C items : these are 50% of the items that tie up 5% of the total inventory money. • Class A deserve the most attention, with less attention justified for class B and class C items.

18. Cont…

19. Cont…

20. Cont…

21. Demand forecasting • Demand forecasting is often the first critical step in any planning activity especially inventory planning. • The purpose of demand forecasting is for companies to determine the required quantity of parts that need to be ordered. • Forecasts can be made for various timeframes • Short-term • Mid-term • Long-term • We have 3 years data of demand divided in 36 months, for 14 items

22. Forecasting methods • Naïve Approach • Moving Averages • Simple moving average • Exponential Smoothing

23. Criteria for choosing time series methods • Mean absolute deviation (MAD) • Mean absolute percent error (MAPE)

24. Excel sheet

28. Cont… Where; • A : 5 simple moving average method. • A” :3 simple moving average method. • E : Exponential Smoothing Method α=0.1 • E” : Exponential Smoothing Method α=0.2 • N : Naïve Method.

29. Inventory cost

30. Inventory costs • inventory is an important role in the organization and requires careful management in terms of cost and performance. • Too much inventory will incur storage charges, burden cash flow, and run a risk of obsolescence. • Too little inventory may result in a loss of sales and opportunities.Thus it’s necessary to measure the performance of the inventory control process.

31. Cont… • Calculating cost of holding inventory and ordering cost. • Inventory cost is generally regarded by the company in terms of annual cost. • Lucky baby storage includes both raw material and finished goods that remains unsold.

32. calculate the inventory holding cost Inv HC = unit price for R.M * weight where; Wi = Wi: the weight of each R.M in the inventory Excel sheet

33. Inventory management models

34. Inventory Management Models • Good management of inventory is required to manage the supply of product and satisfy the customer’s needs. The inventory management is to meet the customer’s demands and requirements at a minimum cost to the supplier. We discusses the inventory review process in order to build an inventory management system. The system should determine how much stock to order and when it should be ordered.

35. Cont… • There are two basic types of inventory system that we used: • I. Continuous review • II. Periodic review • In our project we will be using the continuous review system for all raw materials to insure that we find the most optimal feasible solution.

36. Model Formation • Finding The Optimal ordering quantity : The EOQ formula was used to determine the optimal Q to be ordered. Where: Q = order quantity EOQ = optimal order quantity D = annual demand quantity S = ordering cost H = annual holding cost per unit

37. Cont… • Assumptions using this formula: 1. Demand is known, constant, and independent. 2. Lead time is known and constant. 3. Quantity discounts are not possible. This table shows how to calculate EOQ Excel sheet

38. Cont… • Continuous Review System 1-Reorder point = Average demand during lead time + Safety Stock. 2-Choosing an Appropriate Service -Level Policy (z) :95 percent service level 3-Finding the Safety Stock assuming the demand is normally distributed (Safety stock is the stock which is used when there are delayed deliveries to the organizations). Where: σt= standard deviation of monthly demand. L = Lead time.

39. Model Formation

40. Total cost • Calculating the total costs for the new ordering quantity and current one for the systems. • Total Cost = Annual holding cost + Setup Cost + Safety stock holding cost. Where C = Total cost per year. Q = Lot size, in units for the new and current quantity. H = cost of holding one unit is inventory for a year. D = Annual demand, in units per year. S = ordering cost.

41. Cont… Excel sheet

42. Results &Analysis • The results clearly show that the chosen continuous review system model has marked improvement over the existing method; the inventory cost savings are 155264NIS.

43. Conclusions • The company in this study lacks of expertise in the area of inventory management. This has resulted in severe shortcomings in the business process of their company. • By implementing an inventory management system, Lucky baby Company in this study will be able to save a lot of money.

44. Recommendation • Applying the inventory model successfully depends on the effective implementation of every stage of the framework of inventory management which includes • ABC analysis • demand forecasting • implementation development of an inventory model. • Inaccurate data going into a perfect model will give inaccurate results.

45. Any Questions?