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Supply Chain ManagementTotal Annual Inventory CostCOMM 449Tom Culham P. Eng, Ph. D. This slide deck is accompanied by an Excel spreadsheetFile Name: HP Annual Average Inventory Cost Calculations
Hewlett Packard 17-2Compute HP’s annual average inventory cost of movement from the FAT to European DC given the case data. This case is accompanied by an Excel spreadsheet File Name: HP Annual Average Inventory Cost Calculations
17-3Fixed Time Period ModelIncluding Safety StockHewlett Packard uses a fixed time period model for ordering inventory. T= the review period (the frequency orders are placed) L = the lead time.
Calculating Annual Average Inventory CostsAnnual Average Inventory Costs = (Safetystock(SS)+Pipeline(PL)+Cycle Stock(CS))x(unit cost) (percent carrying cost).SS= Z value * standard deviation of the exposure period(T+L)Z value for service level of 98%= 2.06PL= Inventory in transitCS = Average weekly order/2