MGT 302 FINAL Study Guide

# MGT 302 FINAL Study Guide - Management 302 FINAL Study...

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Management 302 FINAL Study Guide! Chapter 13 Purpose of Inventory Maintain independence Meet variation of product demand Allow flexible scheduling Variation in material delivery time Economic purchase order size Types of Inventory Raw Materials o Not yet undergone transformation WIP o Undergone some transformation but not completed Finished Goods o Ready to be passed on to customer Maintenance, Repair, and Operating Inventory o “Supplies” Pipeline o “In Transit” Inventory Costs Holding Costs o Costs for storage, handling, insurance, opportunity cost, obsolescence Setup Costs o Costs for arranging specific equipment setups Ordering Costs o Managerial/clerical time to purchase and order items. Includes cost of counting inventory Shortage Costs o Costs of not satisfying an order Single Period Model Demand is uncertain o “Understock” Demand > Inventory C U (unit cost of over-stocking) o “Overstock” Inventory > Demand C O (unit cost of over-stocking) o Inventory Model – Single Period P < C U o C O + C U Multi-Period Models Fixed Order Quantity (FOQ) models

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o How much to order to meet demand while minimizing total costs Holding Inventory Placing Orders Purchasing Orders o SawTooth Diagram Total Costs per Period, T o T = Ordering Costs + Purchasing Costs + Holding Costs D = Demand Q = Order Quantity S = Ordering Costs C = Unit Cost H = Holding Cost o Ordering costs = (D/Q)*S o Purchasing Costs = D*C o Holding Costs = (Q/2)*H o How much to Order? T = (D/Q)* S + (D*C) + (H/2)*Q How much to order – Optimal Order Quantity Q = (2DS/H) When to order When level gets to predetermined “Reorder Point” – R o R = d * L If you know demand with certainty , you can calculate the reorder point as the expected demand during lead time Establishing Safety Stock Levels Safety stock: amount of inventory carried in addition to expected demand o Cushion of inventory Typically determined using probabilities o Assume demand is normally distributed o Assume we know mean and standard deviation o To determine probability, we plot a normal distribution for expected demand and note where the amount we have lies on the curve Uncertain Demand: Reorder Point As safety stock increases the probability of a stock out decreases So the safety stock level directly affects the service level and the reorder profit o R = d*L + SS o R = d*L + ZÓ
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## This note was uploaded on 11/15/2011 for the course MGT 302 taught by Professor Baker during the Fall '09 term at Miami University.

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MGT 302 FINAL Study Guide - Management 302 FINAL Study...

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