costs receiving costs administrative expenses number of orders X costorder

Costs receiving costs administrative expenses number

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costs, receiving costs, administrative expenses; number of orders X – cost/order Holding Cost –how much you want to keep on-hand; warehouse handling/rents; capital investment; amount of inventory X – holding cost/unit/year INVENTORY MODELS: MULTI PERIOD (EOQ, ROP, MRP & SSTK ) Economic Order QTY (EOQ) : determines best, optimal QTY in multi period ordering Annual holding costs = ( Avg. # of units in inventory)(Hold cost per unit per year ) Avg. # of units in inv. = Q/2; Q = order size , units; H = hold cost/unit/year Annual Hold costs = HQ/2 Annual ordering costs = (# of orders placed per year)(cost per order ) # of orders placed per year = Annual Demand/Order Size (D/Q); S = cost per order annual ordering cost = DS/Q total inventory costs = holding costs + ordering costs Re-order Point (ROP)- constant demand and lead time = D (same daily units as LT) x LT + SafetyS (Zσ) Uses safety stock (excess for variable D rate; ROP = average demand during lead time x SS - Total Inventory Cost = Ordering Costs + Holding Costs - Without Safety Stock: o Total Inventory Cost = Ordering Costs + Holding Costs o Total Inventory Cost = (D/Q)*S + (Q/2)*H - Including Safety Stock: o Total Inventory Cost = Ordering Costs + Holding Costs o Total Inventory Cost = (D/Q)*S + (Q/2 + SS)*H PRODUCTION PLANNING AND CONTROL SYSTEMS: Materials Requirements Planning (MRP)- determines # of parts, components & materials to produce products also helps with scheduling info – supports D/forecasts for end item – driven by dependent D Bills of Materials (BOM)- complete product description of materials, parts, components, and relationships between parts & assemblies; product structure or tree; depicts relationship between )-incorporates non- manufacturing functions; integrates all components of business model; organized around business processes valuable/critical items; managed by individuals B -mass produced items (valuable together) Consumables like bolts, lubricants, bulk purchases INVENTORY MODELS: SINGLE PERIOD (news) Demand is uncertain; normal distribution of D Two major costs : Excess (overage) costs: cost of excess stock: price at which the product was bought, adjusted for “salvage” value (C e ) = inventory cost – salvage value (what other is willing to pay back); Ce = cost per unit – salvage value per unit Shortage (underage) costs: lost profit (P-C) + any good will lost; C s = Selling price – inventory cost; Cs = revenue – cost want excess cost = shortage cost impact of increasing stock level by one
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