Inventory

Inventory - Inventory Management with Reordering EOQ...

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1 Inventory Management with Reordering EOQ formula Lead time and Reorder point Service level and Safety stock
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2 Inventory Management for a Retailer A retail shop has observed a stable demand for its line of floor lamp on the order of 100 per week. The retail shop incurs a fixed cost of $200 every time it places an order to the warehouse for stock replenishment. The marginal cost of a lamp is $400, and the shop’s cost of capital is approximately 25%. What order size would you recommend? retailer warehouse
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3 Inventory Control with Constant Demand R : Annual demand rate , Q : order quantity Number of orders per year = R / Q Average inventory = Q /2 Time between orders = Q / R Q Time t R = Demand rate Inventory
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4 Inventory level R = 5200/year # of order/year = 52 Avg. inventory = 50 Time Q = 100 R = 5200/year # of sessions/order = 104 Avg. inventory = 25 Time Q = 50 Time between sessions Inventory Build-Up Diagram
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5 Economic Order Quantity EOQ R : Demand per year, S : Setup or Order Cost ($/setup; $/order), H : Marginal annual holding cost ($/per unit per year), Q : Order quantity. 2 Q H Q R S z + = Batch Size Q Total cost per year H Q/2: holding cost per year S R /Q: setup cost per year EOQ
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6 Economic Order Quantity EOQ R : Demand per year, S : Setup or Order Cost ($/setup; $/order), H : Marginal annual holding cost ($/per unit per year), Q : Order quantity. H SR Q EOQ 2 = Batch Size Q Total cost per year H Q/2: holding cost per year S R /Q: setup cost per year EOQ
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7 EOQ R = 52*100 lamps/ year, S = $ 200 / order C = $ 400 / unit, r = Cost of capital = 25%, H = r x C = Optimal order quantity = Number of orders per year = R / Q = Time between orders = Q / R = Annual order cost = ( R / Q ) S = Average inventory I = Q /2 = Annual holding cost = ( Q /2) H = Average cycle time T = I/R = Inventory turns = R/I = 1/T =
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8 EOQ: A Summary The optimal batch size trades off setup cost and holding cost. To reduce batch size, one has to
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Inventory - Inventory Management with Reordering EOQ...

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