InventoryModelsIntroduction(1,23)

InventoryModelsIntroduction(1,23) - and holding costs are...

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INVENTORY MODELS Why Inventories? • Economies of scale • Uncertainties in production and demand INVENTORY COSTS • Holding costs - All costs associated with holding a certain amount of inventory for a given time • Penalty costs - Costs incurred due to not having enough inventory on hand to meet demand • Ordering costs
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Example:   A specialty coffee house, sells Columbian coffee at a fairly steady rate of 280 pounds  annually. The beans are purchased from a local supplier for $2.40 per pound. The coffee  house estimates that it costs $45 in paperwork and labor to place an order for the coffee, 
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Unformatted text preview: and holding costs are based on 20 % annual interest rate. a. How much should they order? b. How often should they order? Question:-What if they order very large quantities?-What if they order very frequently? Major Tradeoffs Cost Components 100 200 300 400 500 200 400 600 Lot S ize (O r d e r Q uantity) Costs Fixed Cost Holding Cost Total Cost Objective: minimize long-run average total cost- Total cost = Fixed cost + Holding cost- Fixed cost = $K per order...
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InventoryModelsIntroduction(1,23) - and holding costs are...

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