flashcardsCh14 - Inventory Management System Goal is to...

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Inventory Management System: Goal is to reduce inventory costs while meeting the firm's targeted service objectives. Independent demand: IMS used when demand is beyone the control of the firm. Used for customer demands of repair parts and end items of tractors because you don' know how many tractors will fall apart. dependent demand: IMS used when demand is derived from demand from some other item. Used for demand of tractors. You can forecast this shit. continuous review model: Independent review model: inventory is constantly monitored to decide when a replenishment order needs replaced. Used in retail stores for large amounts and wide variety with high turnover rate. HOW MUCH AND WHEN TO ORDER. Looks at Total Aquision costs and EOQ. EX: if you sell 10 units a day and you're open 300 days of the year and each unit costs you $20. It also costs you an additional $50 to order a quantity. that is 3000 copies a year. There is no variability and no stockouts: therefore 3000 units per year/500 units per order quantity= 6 orders. Steps to implement a continuous review model 1. determine minimum level of inventory. (the ROP); 2. Determine order quantity: average usage during lead time + desired safety stock. 3. DXetermine maximum inventory on hand: minimum inventory + order quantity. 4. order quantity may be set by judgement, rule of thumb or formula. periodic review model: Independent review model: mgmt system built around checking and ordering inventory at regular intervals. used if you want to place orders for multiple items at the same time. Order Qty varies each time. This model also has an uncertainty period built into it. TO DETERMINE THE ORDER QTY: AVERAGE DAILY DEMAND X (UNCERTAINTY PERIOD, which is the order interval + ave lead time) + standard deviations of safty stock desired x standard deviations of demand during uncerainty period x (the square root of: the uncertainty period) - the amt of inventory on hand. Therefore, 30 days of checking + 9days= 39days. Ave demand for this period is 39 x 10=390. and 39x 1.5(squared)= 9.37. total acquisition costs: sum of all relevant inventory costs in a year. is dependent upon how much you order.EX: Step 1: 6 orders per year x $50 per order= $300 per year in ordering costs. Step 2: Then calculate the Average inventory (500 units/2=250); Step 3: Average inventory (250 units) x unit value of $20 x inventory carrying cost percentage (20%)= 50(3000/500) + $20 (20%) 500/2. TAC= ANNUAL ORDERING COST + ANNUAL CARRYING COST.
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sawtooth diagram: illustration of the pattern of ordering and inventory levels. Annual Average Inventory EX: Say your order quantity is 500 units per order. Say your average inventory is 250 units. No safety stock. Average inventory across the year = 1/2 the order qty. Therefore, 500/2=250 Economic Order Quantity EOQ Use when you're ordering things. Order quantity that minimizes the sum of annual inventory carrying costs and annual ordering costs. Using this formula eliminated trial
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flashcardsCh14 - Inventory Management System Goal is to...

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