311_session_23_inventory_management

311_session_23_inventory_management - Inventory Management...

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1 Inventory Management Economies of Scale BUAD 311 Session 23
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Announcements Hand Back Exams / Take Attendance. Littlefield Game 2 If you have changed teams, I need you to let me know, so that I can re-register you. We will do this at the end of class. The default is that you are on the same team. The observation period for Littlefield Game 2 starts Sunday evening at 7:00 pm. 2
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3 Objectives Revenue Management Review Teaching note posted for the example we are going over. Why do we want inventory? Why do we not want inventory? Questions: When to order How many to order Cycle Inventory Economic Order Quantity (EOQ)
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Revenue Management Review (1) You own a hotel. You have 210 rooms available for March 29. It is the end of February, and you begin to take reservations for March 29. There are two market segments: business customers and leisure customers. Leisure customers are more price- sensitive, and will only pay $105 per 4
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Revenue Management Review (2) You would like to sell all possible rooms to the business customers, at the higher price, and then sell the remaining rooms to the leisure customers, at the lower price. BUT, the leisure customers book earlier then the business customers. Hence, you must first determine how many rooms to sell to the leisure customers; equivalently, how many rooms to protect for the later-arriving business customers. In order to do this, you must know the business class customer demand 5
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Revenue Management (3) 6 In order to maximize revenue, we reserve 79 rooms for the business customers. Hence, we sell up to 210-79=131 rooms to the leisure customers.
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7 Objectives Revenue Management Review Teaching note posted Why do we want inventory? Why do we not want inventory? Questions: When to order How many to order Cycle Inventory Economic Order Quantity (EOQ)
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8 Why Hold Inventories Build Smooth production Cycle Scale economies, Setup time/cost Safety Uncertainty in supply/demand/cost/process Pipeline Transportation time
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9 Why Holding Inventory is Bad? Inventory cost Opportunity cost/financing cost Spoilage cost Shrinkage cost Storage cost Handling and maintenance cost Annual inventory cost/holding cost is estimated to be approximately 15%- 35% of the purchase cost
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The Fundamental Tension Holding inventory is expensive Nevertheless, it may be economical to produce/acquire a relatively large number of items How do we trade-off the cost of holding inventory with the cost of acquiring items? 10
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This note was uploaded on 09/11/2011 for the course BUAD 311 taught by Professor Vaitsos during the Spring '07 term at USC.

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311_session_23_inventory_management - Inventory Management...

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