311_session_24_economies_of_scale_and_demand_uncertainty_hiroshi

311_session_24_economies_of_scale_and_demand_uncertainty_hiroshi

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1 Inventory Systems Economies of Scale and Demand Uncertainty BUAD311 Session 24 Hiroshi Ochiumi
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2 Previously. . EOQ Model Known demand, multi-periods Newsvendor Model Uncertain demand, but only 1 period The tradeoff between setup cost and inventory holding cost is not relevant. How do we handle uncertain demand and multiple periods?
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3 Objectives Inventory systems Inventory turns/turnover
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4 Inventory Level in Real Life First lead time, 1 1 Q Amount used during first lead time Safety stock, SS 2 Order 1 placed Order 2 placed Order 3 placed Shipment 1 received Shipment 2 received Time Inventory on Hand Reorder point Order quantity, Q
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5 Inventory Systems Continuous (perpetual) system: System that keeps track of removals from inventory continuously, thus monitoring current levels of each item. Fixed quantity is ordered when a certain level is reached. Good: (1) Keeps constant count of inventory and (2) fixed order quantity. Bad: (1) Higher record keeping cost; (2) Periodic inventory counting is still required; (3) Time of delivery is random.
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6 Continuous System with Positive Lead-time (ROP,Q) policy Order when the inventory reaches the ROP The order size is always Q What is the optimal Q? How do we decide when to order? Should the re-order point be greater than dL?
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Safety Stock Safety Stock: Stock that is held in excess of expected demand due to variable demand rate and/or lead time. An expense
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311_session_24_economies_of_scale_and_demand_uncertainty_hiroshi

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