Lecture9 - MBAC6080 Decision Modeling and Applications...

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1 MBAC6080 Thomas Vossen Assistant professor of Operations Management Leeds School of Business University of Colorado Boulder, CO 80309-0419 Decision Modeling and Applications
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Lecture 9, 3-12-2008 2 MBAC6080 Agenda Inventory Management Effect of Demand Uncertainty Supply Contracts Multi-period models Case: Sport Obermeyer
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Lecture 9, 3-12-2008 3 MBAC6080 Inventory Management
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Lecture 9, 3-12-2008 4 MBAC6080 Inventory Management Where do we hold inventory? Suppliers and manufacturers warehouses and distribution centers Retailers Types of Inventory WIP raw materials finished goods
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Lecture 9, 3-12-2008 5 MBAC6080 Why do companies hold inventory? Why might they avoid doing so? WHY? To meet anticipated customer demand To account for differences in production timing (smoothing) To protect against uncertainty (demand surge, price increase, lead time slippage) To maintain independence of operations (buffering) To take advantage of economic purchase order size WHY NOT? Requires additional space Opportunity cost of capital Spoilage / obsolescence
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Lecture 9, 3-12-2008 6 E(1) Independent vs. Dependent Demand Independent Demand (Demand not related to other items or the final end-product) Dependent Demand (Derived demand items for component parts, subassemblies, raw materials, etc.) Ford Taurus Body Assy. Wheel Assy. (4) Wheel (1) Tire (1)
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Lecture 9, 3-12-2008 7 MBAC6080 Two Decisions in Inventory Management When is it time to reorder? If it is time to reorder, how much ?
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Lecture 9, 3-12-2008 8 MBAC6080 Understanding Inventory The inventory policy is affected by: Demand Characteristics Lead Time Number of Products Objectives Service level Minimize costs Cost Structure
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Lecture 9, 3-12-2008 9 MBAC6080 The Effect of Demand Uncertainty
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Lecture 9, 3-12-2008 10 MBAC6080 The Effect of Demand Uncertainty Most companies treat the world as if it were predictable: Production and inventory planning are based on forecasts of demand made far in advance of the selling season Companies are aware of demand uncertainty when they create a forecast, but they design their planning process as if the forecast truly represents reality Recent technological advances have increased the level of demand uncertainty: Short product life cycles Increasing product variety
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Lecture 9, 3-12-2008 11 MBAC6080 SnowTime Sporting Goods Fashion items have short life cycles, high variety of competitors SnowTime Sporting Goods New designs are completed One production opportunity Based on past sales, knowledge of the industry, and economic conditions, the marketing department has a probabilistic forecast The forecast averages about 13,000, but there is a chance that demand will be greater or less than this.
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Lecture 9, 3-12-2008 12 MBAC6080 SnowTime Demand Scenarios Demand Scenarios 0% 5% 10% 15% 20% 25% 30% 8000 10000 12000 14000 16000 18000 Sales Probability
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Lecture 9, 3-12-2008 13 MBAC6080 SnowTime Costs Production cost per unit (C): $80 Selling price per unit (S): $125 Salvage value per unit (V): $20 Fixed production cost (F): $100,000
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This note was uploaded on 06/01/2008 for the course MBAC 6080 taught by Professor Vossen during the Spring '08 term at Colorado.

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Lecture9 - MBAC6080 Decision Modeling and Applications...

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