12. Inventory Management Flashcards
What are the benefits of holding inventory?
Taking advantage of bulk discounts, to account for uncertain demand, expected shortages in purchase options, avoiding high order costs and avoiding stock outs
What costs are incurred in the purchase of inventories?
Purchase, order and holding costs
What is the calculation for inventory days?
Inventory/Credit Purchases (or COS) x 365
What is the economic order quanitity?
The order quantity that minimises annual stock costs
What is the formula for EOQ?
Sqrt( 2 x Order Cost x Annual Demand / Annual holding cost per unit )
What are the 3 assumptions in the EOQ model?
- Certain and constant demand
- Instantaneous delivery
- Constant purchase costs
What is the formula for total annual cost?
Order Cost x Annual Demand / Order Quantity + Annual holding cost per unit x Order Quantity/2
What is the re-order level system of inventory management?
Inventory is reordered when it falls to a minimum reorder level, allowing for the lead time
What is the equation for reorder level with certain demand?
Annual demand x lead time/365 or 52 or 12
What is the equation for reorder level with uncertain demand?
Maximum demand x maximum lead time
What is the equation for buffer inventory?
Re-order level - Average Usage
What is the equation for maximum inventory level?
Re-order level + re-order quantity - (Minimum demand x minimum re-order lead time)
What is an just-in-time inventory management system?
One which aims to minimise inventory levels by purchasing inventory just before it is required
