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Inventory_Part_II

Inventory_Part_II - DS 412 Operations Management Inventory...

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DS 412 Operations Management Inventory Management Part II
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When to Order: The Reorder Point ROP If lead time is positive, then an order must be placed before you run out of stock. The amount of inventory on hand when an order is placed is called the re-order point ROP. ROP should be large enough to last for the entire lead time.
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ROP = (Demand rate)*(Lead time) Quantity on hand Receive order Place order Receive order Reorder Point ROP in units Usage rate Time Lead time Example: Demand is 10 units per day and lead time is 5 days. ROP = 50 units Note this is the simple case when demand and lead time are both constant
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Uncertain Demand and /or Uncertain Lead Time Quantity on hand Reorder point Usage rate Time Lead time If demand and/or Lead time are uncertain, there may be a stock-out during the lead time We must hold additional Safety Stock ROP = Expected demand during lead time + Safety Stock
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ROP and Safety Stock LT Time Expected demand during lead time Maximum probable demand during lead time Quantity Safety stock ROP Tradeoffs: cost of holding the Safety Stock vs the cost of a stock-out
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When to Order for EOQ Models ROP = Expected (mean) Demand during the lead time + Safety Stock What determines safety stock? Average demand rate and average lead time Demand and Lead time variability Desired service level
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Service Level & Stockout Risk Service level : probability that demand will not exceed supply Probability that a stockout will not occur during the lead- time Stockout Risk:
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