Chapter 12-2 - MSB 354 MSB SPRING 2011 Operations...

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MSB 354 MSB 354 SPRING 2011 Operations Management Lecture Slide 15 Korea Advanced Institute of Science and Technology 12-1
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Operation and Control Operation and Control Quality Control Supply Chain Management Inventory Management Aggregate Planning MRP and ERP JIT and Lean Operations Scheduling Project Management 12-2
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12-3 Inventory Control Inventory Control Objective : achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. Level of customer service : right goods, place, time, quantity Costs of ordering and carrying inventory Inventory Decisions : the timing and size of orders (when to order, how much to order) Measures of performance for effectiveness of IM Customer satisfaction: the number and quantities of backorders and customer complaints Inventory Turnover: ratio of the average cost of goods sold to the average inventory investment. Days of inventory on hand: average days of sales suppied from the existing inventory
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12-4 A system to keep track of inventory A reliable forecast of demand Knowledge of lead times and its variability Reasonable estimates of Holding costs Ordering costs Shortage costs A classification system for inventory items Requirements Requirements for for Effective Inventory Management Effective Inventory Management
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12-5 Order Quantity Models Economic order quantity(EOQ*) model Economic production quantity(EPQ) model Quantity discount model How much to order? How much to order?
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Quantity Discount Quantity Discount Price reduction for large orders, offered to induce customers to buy in large quantities. Buyers must weigh potential benefits of reduced price and fewer orders , against i ncrease in carrying cost. Under Quantity discount, purchasing cost must be considered since total cost depends on the size of order. 12-6 Order quantity Price per Box 1 to 44 $2.00 45 to 69 $1.70 70 or more $1.40
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12-7 Total Costs with Purchasing Cost Total Costs with Purchasing Cost Annual carrying cost Purchasing cost TC = + Q 2 H D Q S TC = + + Annual ordering cost PD + Where P = unit price
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12-8 Total Cost Curves in EOQ Cost EOQ TC with PD TC without PD PD 0 → Quantity Adding purchasing cost doesn’t change the EOQ Figure 12.7
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Total cost curve with quantity discount Total cost curve with quantity discount 12-9
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Comparison of Total cost curve Comparison of Total cost curve 12-10 Total cost curve when carrying costs are constant all curves have minimum point at the same quantity Total cost curve when carrying costs are stated as a percentage of unit price each curve has a different minimum point Figure 12.9
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Procedure for determining the overall EOQ Procedure for determining the overall EOQ for carrying cost are constant for carrying cost are constant 12-11
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Example 5 Example 5 when carrying cost are constant when carrying cost are constant 12-12
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Solution for Example 5 Solution for Example 5 12-13
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Total cost curve for Example 5 Total cost curve for Example 5 Figure 12.10 Figure 12.10 12-14
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This note was uploaded on 12/06/2011 for the course MSB 234 taught by Professor Nam during the Spring '11 term at Korea Advanced Institute of Science and Technology.

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Chapter 12-2 - MSB 354 MSB SPRING 2011 Operations...

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