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311_Session24 - Session24:InventorySystems PreviousLectures...

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Operations Management Session 24:  Inventory Systems
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 Session 24 Operations Management 2 Previous Lectures EOQ Model Known demand, multi-periods Newsvendor Model Uncertain demand, but only 1 period The tension between setup cost and inventory holding cost is  not relevant. How do we handle uncertain demand and multiple  periods?  
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 Session 24 Operations Management 3 Today’s Lecture Inventory systems Inventory turns/turnover Briefing on the simulation game
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 Session 24 Operations Management 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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 Session 24 Operations Management 5 Inventory Systems Continuous (perpetual) system:  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 require; (3) Time of delivery is  random.
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 Session 24 Operations Management 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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 Session 24 Operations Management 7 Safety Stock Safety Stock: Safety Stock:   Stock that is held in excess of expected  demand due to variable demand rate  and/or lead time. An  expense  of doing business.  Necessary to ensure good  customer service . Safety stock is determined by demand variability and  target service level.
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 Session 24 Operations Management 8 Example Daily demand for a certain product is normally distributed  with a mean of 60 and a standard deviation of 7. The 
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