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5_Inventory_Management_(Student)

5_Inventory_Management_(Student) - Inventory Management(IM...

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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
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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 placing and receiving an order) Entire order quantities is all received at the same time The order quantity is constant for each order
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