Page 242 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes Control systems sometimes combine regular review cycles and order points. In such systems,
stock levels are reviewed on a periodic basis, but orders are placed only when inventories have
fallen to a predetermined reorder level. Such systems combine the advantages of ‘event’ triggered
and ‘time’ triggered review systems. These have the lowest total costs.

Prepare a study note on the concept of inventory control system.

9.6 Summary

The manufacturing business environment, in most cases, is inherently unstable and
turbulent. Change is the rule. The solution to minimizing inventory costs lies not in
methods to stabilize and freeze the system but rather in an enhancement of the ability
to accept change and to respond to it promptly and correctly. MRP systems backed by
availability of computers provide just a unique such ability to respond to change. This idea
has been incorporated in all ERP packages. These packages allow access to other databases
or, ideally, the use of one common database.

Separate databases create problems and delays in appropriate actions. Suppose we need to
know the status of an order. The marketing database will probably show only information
specific to marketing, such as the date the order was entered. If that order is in production,

then production would be able to provide the status because that information would
ordinarily not be in the marketing database. If the order has been completed and shipped,
the shipping information would be with distribution or logistics.

9.7 Keywords

Fixed Order Quantity Systems: These are multiple period inventory models that are “event
triggered”, at an identified level of the stock the fixed-order quantity model initiates an order.

Functions of Inventory: It is essential to keep some inventory in order to promote smooth and
efficient running of business.

Inventory Holding Costs: Costs involved in holding inventory, i.e., storage, handling, interest,
breakage and pilferage etc., are called inventory-holding costs.
Single-Period Inventory Models: Single-period inventory models are a special case of periodic
inventory systems based on how much risk we are willing to take for running out of inventory.
These models are useful for a wide variety of service and manufacturing applications.

9.8 Self Assessment

State whether the following statements are true or false:

1. A group of people, that have been given leave to rest for a few days so that they can work
effectively on next project, are a part of firm’s inventory.

2. Goods that are kept at the port for boarding into the ships to send them off to the suppliers
are also the part of inventory.
3. The need for inventories can be eliminated if the production rate is increased.
4. Inventories can also be a source of sales promotions.

5. Inventories don’t allow flexibility in the production system as what is in stock only that has
to be produced.

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