lect7 - Fundamental Concepts & EOQ Chris Caplice...

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Chris Caplice ESD.260/15.770/1.260 Logistics Systems Oct 2006 Inventory Management: Fundamental Concepts & EOQ
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© Chris Caplice, MIT 2 MIT Center for Transportation & Logistics – ESD.260 Agenda Wrap up of Demand Forecasting Fundamentals of Inventory Management Economic Order Quantity (EOQ) Model
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© Chris Caplice, MIT 3 MIT Center for Transportation & Logistics – ESD.260 Wrap Up Of Demand Forecasting What did we learn? 1. 2. 3. 4. How do you think this will influence our inventory policy?
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© Chris Caplice, MIT 4 MIT Center for Transportation & Logistics – ESD.260 Why Hold Inventory?
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© Chris Caplice, MIT 5 MIT Center for Transportation & Logistics – ESD.260 Three Levels of Inventory Decisions Supply Chain Decisions (strategic) ± What are the potential alternatives to inventory? ± How should the product be designed? Deployment Decisions (strategic) ± What items should be carried as inventory? ± In what form should they be maintained? ± How much of each should be held and where? Replenishment Decisions (tactical/operational) ± How often should inventory status be determined? ± When should a replenishment decision be made? ± How large should the replenishment be?
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© Chris Caplice, MIT 6 MIT Center for Transportation & Logistics – ESD.260 What makes a cost relevant? Four Standard Cost Components ± Purchase (Unit Value) Cost ± Ordering (Set Up) Cost ± Holding (Carrying) Cost ± Shortage Cost Total Relevant Costs (TRC) TC = Purchase + Order + Holding + Shortage
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© Chris Caplice, MIT 7 MIT Center for Transportation & Logistics – ESD.260 Relevant Costs Purchase (Unit Value) Costs v ± Units? ² ± What does it contain? ² ± How do we determine this number? ² ± When is it relevant? ²
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© Chris Caplice, MIT 8 MIT Center for Transportation & Logistics – ESD.260 Relevant Costs Ordering (Set Up) Costs A ± Units? ² ± What does it contain? ² ² ² ± How do we determine this number? ² ² ± When is it relevant? ²
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© Chris Caplice, MIT 9 MIT Center for Transportation & Logistics – ESD.260 Relevant Costs Holding (Carrying) Costs rv ± Units? ² ± What does it contain? ² ± How do we determine this number? ² ² ± When is it relevant? ²
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© Chris Caplice, MIT 10 MIT Center for Transportation & Logistics – ESD.260 Relevant Costs Shortage (Stock-Out) Costs B # ± Units?
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This note was uploaded on 12/06/2011 for the course ESD 1.260j taught by Professor Chriscapliceesd during the Fall '06 term at MIT.

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lect7 - Fundamental Concepts & EOQ Chris Caplice...

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