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Notes 6_Inventory

Notes 6_Inventory - Inventory Management IELM120 1 Learning...

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IELM120 Inventory Management 1
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IELM120 Learning Objectives Understand the importance of inventory management in general. Understand the ABC Classification. Describe the basic EOQ model, its assumption and solve problems related. Describe the Newsboy model, its assumption and solve problems related. 2
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IELM120 Importance of Inventory Control Inventory control is an important part of cost control as well as maximization of capital utilization This is especially true for business involves heavily with materials such as supermarket Since a lot of business, the profit margins is less than 10%, inventory control can make or break a business 3
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IELM120 Why we want to hold inventory? 4
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IELM120 Why we don’t want to hold inventory? 5
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IELM120 Inventory Management 6 Objectives Achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. Two fundamental decisions How many items to order (lot size)? When to order (Reorder point)?
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IELM120 Costs in Inventory Management 7 Holding cost - costs proportional to the quantity of inventory held Ordering cost (or setup cost) A fixed component : order processing, delivery, production setup Shortage (stock-out) cost Lost sales Back orders Category Cost as a Percent of Inventory Value Housing costs Insurance, tax 5% 3% Opportunity loss 12% Pilferage obsolescence 2% Overall carrying cost 22%
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