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Unformatted text preview: 1 Inventory Management (IM) Chapter 16 2 ¡ To understand the basic structure of inventory models ¡ To learn ¡ E conomic O rder Q uantity Model ( EOQ ) ¡ EOQ with Non-Instantaneous Receipt Model / E conomic P roduction Q uantity Model ( EPQ ) ¡ EOQ with Quantity Discount Chapter Outline 3 ¡ Inventory ¡ A stock of items kept on hand by an organization to use to meet customer demand ¡ Examples ¡ All goods in a department store ¡ Raw materials & final products in a manufacturing firm ¡ Stationary in the general office ¡ and etc. What is Inventory 4 ¡ A level of inventory is maintained that will meet anticipated demand. ¡ If demand is not known with certainty, safety (buffer) stocks are kept on hand. ¡ Additional stocks are sometimes built up to meet seasonal or cyclical demand. ¡ Large amounts of inventory are sometimes purchased to take advantage of discounts. ¡ In-process inventories are maintained to provide independence between operations. ¡ Raw materials inventory is kept to avoid delays in case of supplier problems. ¡ Stock of finished parts is kept to meet customer demand in event of work stoppage. Reasons of Keeping Inventory 5 ¡ To monitor the inventory levels ¡ Determine how much / how many to order ¡ Determine when to order ¡ and etc. What is Inventory Management 6 ¡ Fixed-Order System (our focus) ¡ The order quantity for each time is constant ¡ Order is made when inventory level falls to a certain level (reorder point) ¡ The time between reordering varies if demand varies ¡ Fixed-Period System (Periodic Review System) ¡ Order is made at a predetermined time ¡ The time between reordering remains constant ¡ The order quantity for each time varies if demand varies Classification of Inventory Control Systems 7 ¡ Ordering Costs – costs of replenishing stock of inventory ¡ Vary with the number of orders made ¡ Include shipping, handling, inspection, etc. ¡ Expressed as dollar amount per order , independent of order size ¡ Carrying Costs – costs of holding items in storage ¡ Vary with level of inventory and sometimes with length of time held ¡ Include facility operating costs, record keeping, interest, etc. ¡ Expressed as dollar amount per unit inventory per time period , or as percentage of inventory value (usually estimated as 10% to 40%) ¡ Shortage / Stockout / Underage Costs – costs associated with insufficient inventory ¡ Result in permanent loss of sales and profits for items not on hand ¡ Sometimes penalties involved; if customer is internal, work delays could result ¡ Expressed as dollar amount per unit of item short or dollar amount per unit of time short ¡ Purchase Costs – costs of inventory items ¡ Cost may vary with quantity discount ¡ Expressed as dollar amount per unit of item Cost Considerations in Inventory Models Cost Purchase Cost Shortage Cost Carrying Cost Ordering Cost Total + + + = 8 ¡ Demand is deterministic and relatively constant over time ¡ Constant lead time (lead time is the time duration between...
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This note was uploaded on 06/17/2010 for the course MS 3401 taught by Professor Sally during the Spring '10 term at City University of Hong Kong.
- Spring '10