Lecture 12_Outline - Inventory Management & Inventory Models

Lecture 12_Outline - Inventory Management & Inventory Models

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 12 - Outline 1 Lecture 12: Inventory Management & Inventory Models (Chapter 12 and Supplement D) Objectives Inventory Management across the Organization Economic Order Quantity Inventory Control Systems Continuous Review Periodic Review Quantity Discounts Inventory Management z Inventories are important to all types of organizations ± They have to be counted, paid for, used in operations, used to satisfy customers, and managed ± Too much inventory reduces profitability ± Too little inventory damages customer confidence ± Inventory trade-offs ABC Analysis z Stock-keeping units (SKU) z Identify the classes so management can control inventory levels z A Pareto chart z Cycle counting Economic Order Quantity z The lot size, Q , that minimizes total annual inventory holding and ordering costs z Five assumptions z Demand rate is constant and known with certainty z No constraints are placed on the size of each lot z The only two relevant costs are the inventory holding cost and the fixed cost per lot for ordering or setup z Decisions for one item can be made independently of decisions for other items z The lead time is constant and known with certainty z Don’t use the EOQ z Make-to-order strategy
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 12 - Outline 2 z Order size is constrained z Modify the EOQ z Quantity discounts z Replenishment not instantaneous z Use the EOQ z Make-to-stock z Carrying and setup costs are known and relatively stable Calculating EOQ z Annual holding cost Annual holding cost = (Average cycle inventory) × (Unit holding cost) z Annual ordering cost Annual ordering cost =(Number of orders/Year) × (Ordering or setup costs) z Total annual cycle-inventory cost Total costs = Annual holding cost + Annual ordering or setup cost z Total annual cycle-inventory cost where C = total annual cycle-inventory cost Q = lot size H = holding cost per unit per year D = annual demand S = ordering or setup costs per lot Problem 1 (EXAMPLE 12.1)
Background image of page 2
Lecture 12 - Outline 3 z A museum of natural history opened a gift shop which operates 52 weeks per year. z Managing inventories has become a problem. z Top-selling SKU is a bird feeder. z Sales are 18 units per week, the supplier charges $60 per unit. z Ordering cost is $45. z Annual holding cost is 25 percent of a feeder’s value. z Management chose a 390-unit lot size. z What is the annual cycle-inventory cost of the current policy of using a 390-unit lot size? z Would a lot size of 468 be better?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 The EOQ Formula: Time between orders: Problem 2 (EXAMPLE 12.2) : For the bird feeders in Example 12.1, calculate the EOQ and its total annual cycle-inventory cost. How frequently will orders be placed if the EOQ is used? Managerial Insights
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 20

Lecture 12_Outline - Inventory Management & Inventory Models

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online