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Determining Order Quantities and Inventory LevelsThe application of these models depends on whether the demand or usage of the inventory is dependent or independent.Dependent demand. The item is part of a larger component or product, and its use is dependenton the production schedule for the larger component. (a derived demand内内内内)
Independent demand.The usage of the inventory item is not driven by the production schedule.It is determined directly by customer orders, the arrival of which is independent of production scheduling decisions.Fixed-Quantity ModelsThe objective of the modelis to minimize the total annual costs.Perpetual inventory system内内内内内Event triggered: Initiates order when stock depleted to a specific level.Reorder pointInventory replaced in fixed amountsEconomic order quantitiesIssues: visual signals, IT applicationsSafety StockSafety stock is held because of uncertainty in supply and/or demandThe trade-off is the cost of stocking out versus the cost of holding inventorySafety stock levels can be calculated using statistical techniques.e.g., Take into account standard deviation of demandfixed-period modelsIn fixed-quantity models, orders are placed when the reorder point is reached, but infixed-period models, orders are placed only at review time.The inventory level, therefore, must be adjusted to prevent stockouts during the review period and lead time.Inventory on-hand counted at specific time intervalsand replenished to a desired levelOnly the passage of time triggers the modelWhich System is better?Fixed order quantity systemHigher maintenance costsEvery transaction loggedInventory controlled preciselyFixed time period
Minimal recordkeeping Higher average inventoriesto protect against stock-outsHigher stock-out ratesDifferent orderquantities for each cycleAbility to batch orders tosuppliers内内内内内内supplierProbabilistic Models (综综quantity and time)It is far more common to have some variability in demand, lead times, supply and so on. Modelsare more complex than the deterministic ones above, but the probabilistic approach gives more information on likely outcomes.The service coveragecan be defined as the portion of user requests served.Service coverage also can be defined as the portion of demand serviced immediately.Setting service coverage requires managers to make explicit evaluations of these costs so that the appropriate balance between carrying and stockout can be achieved.The complexity of probabilistic models increases greatly when lead times, usable quantities received, inventory shrinkage rates, and so on, also vary under conditions of uncertainty, when nonnormal distributions are observed, and when the variations change with time. Simulation models and other more advanced statistical techniquescan be used to solve these complex situations.