311_Session22_EOQ

311_Session22_EOQ - OperationsManagement...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Operations Management Session 22:  Inventory Management
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 Session 22 Operations Management                    2 Introduction Definition:  Inventory is the stock of any item or  resource  used in an organization. An  inventory system  is the  set of policies and controls   that monitors levels of inventory or determines what levels  should be maintained. The fundamental problem of inventory management : When to place order for replenishing the stock ?    How much to order?
Background image of page 2
 Session 22 Operations Management                    3 Why Hold Inventories Smoothing production (capacity) Producing and storing inventory in anticipation of peak demand helps  to alleviate the disruptions caused by changing production rates and  workforce level.(seasonal times, so make it during low times and  save it during when demand is higher)  Coping with uncertainties (responsive) Uncertainty in demand (hold items to reduce shortage, but having  excess is a little better than shortage) Uncertainty in lead time (time we have to wait after we place an order  till we receive the product) Uncertainty in supply (your supplier may be out of money so stops  production) Uncertainty in product/material price ( if price change you will not get  same margin, so will hold inventory. ) For economies of scale It may be economical to produce/acquire a relatively large number of 
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 Session 22 Operations Management                    4 Why holding inventory is bad Inventory cost Opportunity cost/financing cost Storage cost Handling and maintenance cost Spoilage cost Shrinkage cost Annual inventory cost/holding cost is estimated to  be approximately 15%-35% of the purchase cost.  
Background image of page 4
 Session 22 Operations Management                    5 Cycle Inventory The Fundamental Tension  Holding inventory is expensive. But it may be economical to produce/acquire a  relatively large number of items How do we trade-off the cost of holding  inventory with the cost of acquiring items? This is not the purchase cost but  the cost of processing the order in the purchasing  context and  the setup cost in the manufacturing context
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Operations Management                    6 A Basic Inventory Model Inventory Time 1 months 2 months 3 months Amount  to order 4 months Assumptions: Demand is known, and there is a constant demand rate. Deliveries are instantaneous, and all demand is satisfied.
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/09/2009 for the course BUAD 311 taught by Professor Vaitsos during the Fall '07 term at USC.

Page1 / 38

311_Session22_EOQ - OperationsManagement...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online