Lecture 10

Lecture 10 - 540:453 Production Control Lecture 10:...

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540:453 Production Control Lecture 10: Inventory Control and Uncertain Demand Prof. T.O. Boucher 1 Effect of Demand on EOQ: Deterministic vs. Stochastic Inv Time Q=600 Order arrives Place Order Reorder Point=300 LT=3 wk Place Order Order arrives Inv Time Q=600 Order arrives Place Order Reorder Point=300 LT=3 wk Place Order Order arrives LT=3 wk Inv Time Q=600 Order arrives Place Reorder Point=400 LT=3 wk 2
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Terminology On-hand stock: Stock that is physically on the shelf Net stock = On-hand stock – Backorders Inventory Position = On-hand + On-order - Backorders – Committed Complete backordering: backordered demand is filled as soon as an adequate-size replenishment arrives Complete lost sales: when out of stock, demand is lost, customers go somewhere else 3 Why Safety Stock? Safety Stock: Amount of inventory above the average demand during a typical lead time. Pressure for higher safety stocks – Increased product variety and customization – Increased demand uncertainty – Increased lead time uncertainty – Increased pressure for product availability Pressure for lower safety stocks – Cost of carrying inventory Inv Time Q=600 Safety Stock=100 Avg. Cycle Inv=300 Avg. Inv =400 4
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Continuous Review Systems • The EOQ and economic production lot size (EPQ) models assume continuous review – demands are recorded as they occur, and the level of on-hand inventory is known at all times – How much should we order? ( Q ), When should we order? ( r ) – Ordering or Setup cost at $A
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This note was uploaded on 11/13/2011 for the course PHY 341 taught by Professor Gawsier during the Spring '11 term at Rutgers.

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Lecture 10 - 540:453 Production Control Lecture 10:...

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