Lecture 6 Annual Inventory Cost Calculation - Supply Chain Management Lecture 6 Total Annual Inventory Cost COMM 449 Tom Culham P Eng Ph D 17-2 Hewlett

Lecture 6 Annual Inventory Cost Calculation - Supply Chain...

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Supply Chain Management Lecture 6 Total Annual Inventory Cost COMM 449 Tom Culham P. Eng, Ph. D.
Hewlett Packard Case 17-2
NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT 0 5,000 10,000 15,000 20,000 25,000 DeskJet Demand from Europe A AB AU AA AQ AY
17-4 Fixed Time Period Model Including Safety Stock
Hewlett Packard Case Criteria Two criteria you want to satisfy in this case are: 1. Minimize annual inventory costs = (Safetystock(SS) +Pipeline(PL)+Cycle Stock(CS))x(unit cost) (percent carrying cost). 2. Meet service level requirement of 98% SS= Z value * standard deviation of the exposure period (T+L) Z value for service level of 98%= 2.06 PL= Inventory in transit CS = Average weekly order/2
Calculating Annual Average Inventory Costs Annual Average Inventory Costs = (Safetystock(SS)+Pipeline(PL)+Cycle Stock(CS))x(unit cost) (percent carrying cost). 1. SS= Z value * standard deviation of the exposure period (T+L) Z value for service level of 98%= 2.06 2. PL= Inventory in transit 3.

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