H_Inventory_Management

H_Inventory_Management - Reading Pages Inventory Management...

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BIT 3414 Copyright 2011 p. 1 Inventory Management Inventory: stock of items held to meet future demand Inventory management attempts to minimize inventory costs by optimizing the decisions made when replenishing the inventory. Inventory Costs Carrying Cost cost of holding an item in inventory total carrying cost is proportional to the number of units in inventory Ordering Cost cost of placing an order not proportional to order size Shortage Cost temporary or permanent loss of sales when demand cannot be met Example Annual Demand for item X = 1000 units Two ordering scenarios: order 500 units at a time order 200 units at a time Inventory Control Systems Continuous Inventory System (fixed-order-quantity) constant amount ordered when inventory declines to predetermined level Periodic Inventory System (fixed-time-period) order placed for variable amount after fixed passage of time Reading Pages 557 – middle 560 (no ABC) 564 – 569, bottom 573 – 576
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BIT 3414 Copyright 2011 p. 2 First Question How much to order ? What is the most economic order quantity ? Economic Order Quantity Model Model Assumptions: • Demand is known with certainty • Demand is relatively constant over time • No shortages are allowed • Lead time for the receipt of orders is constant • The order quantity is received all at once • The order is received just as inventory is depleted Time Reorder Point, R Inventory Level 0 Maximum Inventory level
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BIT 3414 Copyright 2011 p. 3 Order Quantity, Q Cost, $ Minimize Total Annual Inventory Cost Total Annual Ordering Cost Total Annual Carrying Cost Total Annual Shortage Cost = + +
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BIT 3414 Copyright 2011 p. 4
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This note was uploaded on 11/21/2011 for the course BIT 3134 taught by Professor Clark during the Fall '11 term at Virginia Tech.

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H_Inventory_Management - Reading Pages Inventory Management...

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