Class Blogging Assignment

Being forced into blogging, did not sit well with me at the start of this assignment. However, I am finding more and more interest in attempting to discuss some points that are being raised. However, I am having problems remembering which posts I comment on, and which team had the post to begin with. I believe there are two main flaws with the assignment. Difficulty in monitoring reactions to comments, and the amount of effort needed to monitor past posts.

First, while it is easy to see new posts, it is not easy to see new comments. While I think that there is a way to get notification when a new comment has been posted by subscribing to comments. I have been unsuccessful in finding it. (I did a search in help and it talked about subscribing to the comment by selecting a "subscribe to comment" button on the original post, but I have not seen it. Any help in this matter would be greatly appreciated.)

Second, I do not believe that groups are constantly looking back at their previous posts to see if new comments have been added. As I am sure that I am not the only one who was trying to do the minimum to complete the requirement, looking back at previous posts to check for comments has not been a priority.

If we were to assume that the average student wants to be interested in the work that was assigned, but perhaps due to time constraints is still trying to minimize the amount of effort to do an assignment, I think that if blogging assignment were structured differently the amount of discussion would dramatically increase.

I propose that there be only one blog, it have weekly posts, and the groups would be responsible to enter comments. Since weekly posts are still made, there should be ample variation in post topics to allow for diverse discussion. This would allow for easy monitoring of new comments by all groups. The blog posts could be restricted to talk about a specific topic designated by the professor or the posts could be completely open, I would recommend that the group responsible for a post be required to inform the professor what the post topic will be to ensure ample variation in topics. Either way there would be more focus on discussion, since only one post would be made a week.

In addition I think that the original post be made by the professor. This would direct the initial discussion to a class related topic and would provide a good post example. The first week's comments could be quickly reviewed and improvement tips could be made prior to the next post, while comments could be made by an individual the post should be a group activity. This should foster the team environment, while still letting individuals express their thoughts. It might be a good idea to have two or three groups make a post the first week following the professors initial post to immediately have diverse discussion, but the number of posts should be kept relatively low. As new comments decrease on older posts, or marginally good posts, it may be necessary to again assign multiple groups to post in any one week. I think that a target of 4 or 5 actively discussed posts should be kept.

I am very interested in hearing what some of you think about the blogging exercise.

Jason

How to Modify an Inventory Policy

Recently, I was able to here a presentation put on by Greg H. Parlier, PhD, PE. Greg works for a company that does a considerable amount of work for the government and presented on a project that he is working on with the Army. The project is to revamp the inventory policies that Army is currently using. One aspect of the presentation that is related to our most recent class is the use of the exchange curve. Greg's company developed an exchange curve that showed an example where the Army was currently misallocating $1 million worth of inventory. This was just an example and if applied to all of the armed forces the misallocation would be in the billions. This means that to have the same results the armed forces could get by on billions less. This evidence was the compelling information that has now launched a major overhaul of inventory practices. After the presentation I asked Greg, how his company was able to get approval for their work, since at this point he had only talked about reporting to a 2 star general in Huntsville. He then informed me that his boss had to present to a 4 star and after a consensus with other 4 stars the approval was given.

I believe that this is a very important detail. Often times the people in an organization that have the knowledge to make a difference do not have the authority to do so. As Greg told me the only way to get the attention of those with authority is to gather a compelling argument. However, this takes time, and then after approval is gained additional investigation is needed, then considerable time is needed to implement the changes, finally results will be measured and hopefully some continuous improvement will be made.

This brings me to my final thought, I have been hearing a lot of talk about how the current economic conditions are going to change inventory policy. I am not sure that this is true. I believe that good companies are always evaluating their policies and working on improvement regardless of the current economic conditions. Other companies I feel will not effectively change policies, either they will make a change without doing the proper research and get marginal results at best (ex. companies trying JIT without understanding what that means), or they will simply stick with what they know.

If companies are in a crisis and must have the reduced expenses that would come with an optimization of inventory policies, that realization of reduced expenses is a considerable amount of time away, I am not sure that those companies will survive to implement those policy changes. Instead, I see companies using old tactics to cut costs, not new policies to gain efficiencies.

Jason

Calculating Holding Costs

One very important component of the EOQ formula is the holding cost. In many situations, the calculation of carrying cost is just a guess and is often much lower than the real value.

Some questions are raised in the article “Why Buyers Need to Calculate the Real Cost of Carrying Inventory” from the Supplier Selection and Management Report Issue 04-07. The author claims that many of the costs associated with carrying inventory are overlooked. This results in a deflated cost of holding inventory, which allows managers to hold larger amounts of inventory thus masking underlying problems in the system.

The author suggests that inventory holding costs should be split into both variable and fixed costs. Most traditional systems attempt to account for variable costs such as the cost of money, taxes, insurance, and obsolescence. The costs that are often not included are the fixed costs such as the cost of storage space, capital equipment, and personnel. Often these fixed costs increase in a stepwise fashion, which brings another complication into calculating EOQ.

The image to the left illustrates a method and template for calculating inventory carrying cost. It also illustrates how carrying costs can be significantly larger than traditional estimates.

Manufacturing situations and EOQ model reliability

In the real – life manufacturing situations are inevitable. Defective items, warehouse capacity overused, run out in raw materials, lack in production capacity and inconstant demands are in some cases uncontrollable issues that can block the pipeline. It is impossible to assume an ideal or constant behavior in a “Real Supply Chain System”, when human, mechanical and logical resources are combined in a cycle which starts when a client places an order and finishes when the product is shipped to this client. Consequently, the model for an inventory is subject to constant and sometimes unpredictable changes than transform the model in a subjective decision.

Some companies have implemented in their facilities as an inventory system the Economic Order Quantity (EOQ). This model was first introduced several decades ago to describe the process of stocking inventory. It is still applied industry wide today to predict the optimal order quantity that minimizes overall inventory expenses using a simple mathematical modeling and analysis [1]. This model though, assume ideal conditions that in a real manufacturing process are not able to keep such as perfect quality items, deterministic and constant demand, zero lead times for each order and no shortages. All these ideal assumptions make the EOQ a subjective model that in some cases needs to be supported by an expert or at least somebody who has the enough experience to decide whether the number that it is showing fits with the real conditions that the company is facing at that point.

Companies need to realize that EOQ is a model based on non-real conditions that make this model a weak tool when manufacturing situations comes up or when it is used without the properly professional support. In a “Real Supply Chain” Companies cannot believe that EOQ is 100% reliable, it has a threshold that needs to be kept under control. Consequently, before implement any kind of Inventory System is necessary to analyze the real conditions at the facility and identify the mean and frequent production, supply and customers service problems. If a facility knows beforehand its weaknesses and constraints is easier to choose the proper model that could fit best in agreement with those conditions and be prepare for unexpected manufacturing situations. Furthermore, the facility can predict the situations where the Inventory System selected can fail or the situations where the system might not be accurate as should be.

Identifying the situations where the experience and the EOQ system needs to be supported by and expert can minimize production and supply errors which it in turn could minimize customer and financial losses. In brief, EOQ and the others Inventories System are not design to run in unpredictable conditions were the phrase “what if” can to be covered by its system. Thereby, is necessary to ask us before that ”what if” in order to convert that subjective model into an analytical and more acquired tool, that could be prepare for any situation with the help of proper support.




[1] Singa Wang Chiu,Optimal replenishment policy for imperfect quality EMQ
model with rework and backlogging. 2007

An Interesting Reading "A comparative analysis of inventory costs of JIT and EOQ purchasing"

The latest reading assignment in OM523 (University of Alabama) contained an article of interest, "A comparative analysis of inventory costs of JIT and EOQ purchasing". While the article develops "a mathematical model to compare the annual cost of inventory for JIT and EOQ purchasing", I can't help but think if this article easily applies to the real world.

It is hard for me to find application for this article for two reasons. First, the article tells me that I am going to underestimate the costs with either holding inventory or not holding inventory, yet the mathematical model that is developed either uses the underestimated cost or does not even account for it (as is the case for not having inventory). Second, the conclusion states "The benefits associated with the proper implementation of a JIT system usually surpass the mere savings in inventory costs." If this is the case, then why would I even consider inventory
costs at all.

In addition to the problems of finding application stated above, I question the statement in the conclusion:


"The model establishes an upper limit for the purchase price of any item under JIT, above which JIT will be more costly than EOQ. Determination of this price level provides valuable information for companies when negotiating a delivery price with their JIT suppliers."

If I have implemented JIT, where am I going to keep the EOQ inventory if all of sudden I am no longer going to use JIT. I assume I am going to rent it, and then pay another trucking company to drop it off at my door. Assuming that I can find space close to my facility which should limit my additional transportation costs enough to make the new h potentially feasible (since I will include the costs of renting and shuttling in my inventory holding costs), am I supposed to do this analysis for every product every time I am negotiating price? This seems like a lot of work, and are the cost benefits worth me spending my time? Probably in some cases, but not any in what I have seen around here.

As with a lot of articles, I do not believe that taken alone any additional insight is provided for a company executive to make decisions concerning annual cost of inventory. I believe the article does a good job of providing a model to evaluate and compare JIT vs. EOQ inventory costs, however, this model must be used in conjunction with a lot of other information that is not provided.

Finally, it seems to me that the article is trying to advise a shift not to JIT, but to Lean. There is a difference, a Lean company has a lean culture, meaning that it is continuously striving to eliminate waste. When this company tries to eliminate the waste of inventory the result is JIT. One of the reasons companies do not successfully implement JIT, is because they do not make the corporate cultural change to lean.