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BusM 361 Inventory Control Fall 11_1

BusM 361 Inventory Control Fall 11_1 - BusM 361 Inventory...

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BusM 361: Inventory Control “When will all these calamities strike? We do not know the exact time, but it appears it may be in the not-too-distant future. Those who are prepared now have the continuing blessings of early obedience, and they are ready. Noah built his ark before the flood came, and he and his family survived. Those who waited to act until after the flood began were too late.” Elder Ezra Taft Benson, Jan 1974 Ensign
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Nature of Inventory According to Tim Cook, Apple CEO (and many others): “Inventory is fundamentally evil”
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Inventory Control Examples In the mid 1980’s instituted continuous replenishment VMI In 2003 instituted pay-on- scan program Consignment
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Inventory Control Examples Strategy of build-to-order manufacturing JIT Inventory (postponement) Customized items held by supplier due to warehousing constraints Reverse Consignment
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Establishing an Inventory Strategy Buyer Supplier B uy e r Sup p l ie r Buyer Supplier Location of Inventory Managemen t of Inventory O wn er s h i p o f I nve n t o r y
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Management of Inventory Purpose is to specify How much to order When to order Determine the appropriate model One-time or multi-period order(s)? Type of review system for multi-period orders? Periodic Continuous
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General Model of Inventory Policies General Model: average demand ( ) μ + an adjustment related to the variability of demand to meet a target service level (z score * ) σ
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Single Period Inventory Model Target service level: this model states that we should continue to increase the size of the inventory so long as the probability of selling the last unit added is equal to or less than the ratio of: Cu/Co+Cu u o u C C C P + sold be not unit will y that the Probabilit estimated under demand of unit per Cost C estimated over demand of unit per Cost C : Where u o = = = P
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Single Period Inventory Model Suppose you open a kiosk at the mall every October to sell Halloween costumes. The most popular costume historically has been a skeleton costume. You can buy the costume for $10 and sell it for $30. Any costumes not sold have to be
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