The Economic order quantity or EOQ is the ideal, or most “economic” quantity of units that should be purchased or ordered, to meet demand while simultaneously attempting to minimize the costs of carrying inventory, ordering inventory and stocking out of inventory.
A baseline refers to a measurement that establishes a basis for other future state measures. The baseline is usually the initial set of measurements, observations or data collected which is used for a comparison or a benchmark for improvements. It is sometimes referred to as as a current state.
The future state is a reference to the aim of an individual, team or organization. It can be seen as technical, organizational or philosophical.
This type of Kanban is probably one of the most used and the most basic types of kanban. The card is used in manufacturing and software development to trigger production.
Internal Move kanbans are essentially permission to retrieve or move materials or information. The move kanban authorizes one point of a process to get what they need from a previous process.
Job rotations allow employees to experience different jobs and their responsibilities. They are oftentimes used to help people develop their skill set and advance. Rotations can be temporary assignments or an employee may rotate for longer periods of times as their skills develop.
Order Cost is defined as; a direct labor cost that is incurred when an order is placed. Ordering costs are different from the “Order Costs”.
Inventory shrinkage occurs when actual inventory levels are less than what is recorded. In general, this means something has gone wrong. Formally defined, inventory shrinkage is the depletion of the actual quantities of inventory that is on hand, in process or in transit. This may be caused by regular reductions, scrap, deterioration or even theft.
Ordering costs can skyrocket when managing inventory. On one hand you want to keep your inventory levels low so that you don’t tie up cash and on the other hand you want to have inventory on hand so that you are placing a high volume of orders. Both have their positives and negatives. One of the more common ways to go about lowering ordering costs is to use an approach known as joint replenishment.
A gemba walk is the term used to describe a walk where employees go to observe work at the gemba, which is where the work is done.
Cellular layouts are the optimal flow based layout. A cell is a close arrangement or setup of people, machines or workstations. The purpose of a cellular layout is to fulfill a processing sequence while simultaneously reducing wait times, transportation and other forms of muda. In addition to removing various forms of waste, cells are very effective and promote and facilitate effective flow. Cells can be in many different shapes and attempt to spread work evenly amongst the resources.
Material Requirements Planning is best defined by The Apics Dictionary which is noted below. A set of techniques that uses the bill of material data, inventory data and the master production schedule to calculate requirements for materials.
One element of holding costs is risk. Risk costs are the risk that is assumed when inventory is acquired. In addition to this risk costs refer to loss of inventory value. This is often referred to as the shrinkage that occurs within inventory.
Storage costs are another important element of your holding costs. When you think of storage costs you should think of any of the resources that you use to handle and store your inventory. These costs may be direct or indirect money spent on the storage of your goods. Storage costs can include costs for warehousing, warehouse equipment, space, rent, electricity, software, depreciation and warehouse personnel.
Have you ever wanted something to snack on really bad, so you jump up head to the store and when you get there they are fresh out of inventory? Have you ever made the decision to purchase a new vehicle and you go to the dealer and the vehicle you want isn’t there so you go home and order it online? Inventory stock out costs. These are both examples of inventory stock out costs. Stockouts occur when the inventory you have on hand is not enough to fulfill the customers demand needs. Likewise a stock out might be when there is inventory, but the inventory is not what you wanted.
Capital costs are the costs required to purchase raw material or inventory items along with financing fees, loan maintenance fees, and interest. They refer to the money that is invested in your inventory.
Like many other areas that lean is applied to a company's supply chain or "extended value stream" is a tightly linked set of processes. These processes extend beyond one's organization and connect the entire system together.
Holding costs are all of the expenses a company incurs to hold inventory items over a period of time before they are used to fill orders. Generally speaking, Inventory carrying/holding costs are the costs you incur as a result of holding inventory. It is most often described as a percentage of your inventory value. The percentage is often unique to organizations and includes the amount of capital invested in inventory as well as depreciation, space occupied, insurance and opportunity costs. Inventory carrying or holding costs generally account for 15-30% of a business’s total inventory value.
Opportunity costs are the opportunities that you may have missed out on as a result of a purchase you made. In other words it is the return on your investment that could have occurred had you chosen to invest in something else.
This is one of the basic costs that is associated with your inventory. When thinking of item level inventory, item cost typically includes the price that you pay to acquire the item as well as any costs that you may incur when purchasing. Some examples of extra costs that may be incurred as part of your item costs are taxes, duties, fees, packing and even transportation fees. Unit costs generally change based on the size of your order.
ABC inventory classification is one of the most fundamental concepts of inventory management. Many organizations use ABC inventory classification to assist with inventory management, sales of inventory and purchasing of inventory. This classification system works by placing inventory into different categories.
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Poka-yoke (ポカヨケ) is a Japanese term that means "mistake-proofing". It is derived from poka o yokeru (ポカを除ける), a term in shogi and igo referring to avoiding an unthinkably bad move.
Zero Quality Control is a method/approach for achieving zero defects in an organization. Zero gives reference to the objective of ZQC which is to produce products/services with zero defects.
The DMAIC Method is a problem solving methodology used within a six sigma strategy. The methodology focuses on improving business processes, specifically through the improvement of quality and reducing variation. It is an Integral part of six sigma.
Single minute exchange of die is a concept developed by Shigeo Shingo which seeks to perform all setup/changeover times under ten minutes (single minute).
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