ch12 - 12 CHAPTER Inventory Management DISCUSSION QUESTIONS...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
12 CHAPTER Inventory Management DISCUSSION QUESTIONS 1. The advent of low-cost computing should not be seen as obviating the need for the ABC inventory classification scheme. Although the cost of computing has decreased considerably, the cost of data acquisition has not decreased in a similar fashion. Business organizations still have many items for which the cost of data acquisition for a “perpetual” inventory system is still considerably higher than the cost of the item. 2. The standard EOQ model assumes instantaneous delivery (delivery of the entire lot is made at one instant of time), whereas the Production Inventory Model assumes that delivery takes place at a constant rate over time. 3. Reasons for an organization to maintain inventory include: n The decoupling function: inventory can be used to decouple stages in the production process within an organization inventory can be used to decouple the production process from instabilities or irregularities in supply of raw materials or labor inventory can be used to decouple the production process from unstable demand and thus (a) allow production scheduling to develop a “smoother” schedule, and (b) avoid shortages or stockouts n Quantity discounts: inventory can be used to enable the organization to purchase goods in larger lot sizes and take advantage of quantity discounts n A hedge against inflation: investing in inventory now assures one that the price will not increase 4. Costs that are associated with ordering and maintaining inventory include: n Initial purchase cost of the item n Holding cost (insurance, space, heat, light, security, warehouse personnel, etc.) n Obsolescence or deterioration cost (particularly important in perishable goods or in a product that is undergoing rapid technological evolution) n Ordering or setup cost (cost of forms, clerical processing, etc., or cost of machine setup) 5. The more important assumptions of the basic EOQ model are: n Demand is known and constant over time. n The lead time, that is, the time between the placement of the order and the receipt of the goods, is known and constant. n The receipt of the inventory is instantaneous; i.e., the goods arrive in a single batch, at one instant in time. Chapter 12: Inventory Management 203
Background image of page 1

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

View Full DocumentRight Arrow Icon
n Quantity discounts are not possible. n The only variable costs are the cost of setting up or placing an order and the cost of holding or storing inventory over time. n If orders are placed at the right time, stockouts or shortages can be completely avoided. 6. The EOQ is relatively insensitive to small changes in demand or setup or carrying costs. If, for example, demand increases by 10%, EOQ will increase by approximately 5%. 7.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/20/2011 for the course ECON 111 taught by Professor Li during the Spring '11 term at Università di Bologna.

Page1 / 19

ch12 - 12 CHAPTER Inventory Management DISCUSSION QUESTIONS...

This preview shows document pages 1 - 3. Sign up to view the full document.

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