311_session_17_inventory

311_session_17_inventory - Inventory Management Economies...

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1 Inventory Management Economies of Scale BUAD311 Session 17
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2 Objectives Why do we want inventory? Why do we not want inventory? Questions: When to order How many to order Economic Order Quantity (EOQ)
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3 Why Hold Inventories Smoothing production (capacity) Producing and storing inventory in anticipation of peak demand helps to alleviate the disruptions caused by changing production rates and workforce level. Coping with uncertainties (responsive) Uncertainty in demand Uncertainty in lead time Uncertainty in supply For economies of scale It may be economical to produce/acquire a relatively large number of items
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4 A Basic Inventory Model Inventory Time Month 1 Month 2 Month 3 Amount  to order Month 4 Assumptions: Demand is known, and there is a constant demand rate. Deliveries are instantaneous, and all demand is satisfied. How much should we order? ( how often to order?)
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5 Throughput time and frequency of deliveries A Gap store has: Known demand for 10,000 T-shirts per month Suppose the 10,000 units are delivered once at the beginning of the month What is the average inventory level? What is the average throughput time of a T- shirt? What is the average holding cost? It costs $1/unit/year to store one unit of T-shirt
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6 Throughput time and frequency of deliveries Time Quantity 1 5 30 10000 . . . .
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7 Throughput time and frequency of deliveries Average WIP = (10000 + 0)/2 = 5,000 Average Throughput time = (Average WIP)/(Average Throughput rate) Average throughput rate = 10,000 per month Average throughput time = 5000/10000 =0.5 month A T-shirt spends 2 weeks (on average) in the store
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8 Throughput time and frequency of deliveries Assume that T-shirts are delivered twice a month: on the 1 st and on the 16 th . What is the average throughput time? What is the average holding cost?
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9 Throughput time and frequency of deliveries Time Quantity 1 5 15 30 5000 . . ..
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10 Throughput time and frequency of deliveries Average WIP = (5000 + 0)/2 = 2,500 Average Throughput time = (Average WIP)/(Average Throughput rate) Average throughput rate = 10,000 per month Average throughput time = 2500/10000 =0.25 month A T-shirt spends 1 week (on average) in the store
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This note was uploaded on 02/15/2011 for the course BUAD 311 at USC.

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311_session_17_inventory - Inventory Management Economies...

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