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Operations Management > 6 EOQ And Continuous Review (safety Stock) Model > Flashcards

6 EOQ And Continuous Review (safety Stock) Model Flashcards

1
Q

Where do we hold inventory

A

Suppliers
Manufacturers
Warehouses/distribution centers
Retailers

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2
Q

3 types inventory

A
  1. WIP
  2. raw materials
  3. finished goods
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3
Q

Reasons for holding inventory

A
  1. economies of scale
  2. uncertainty in demand
  3. uncertainty in supply
  4. lead time
  5. capacity limitations
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4
Q

Supply chain factors in inventory policy

A
  1. customer demand
  2. lead time
  3. number of different products
  4. length of the planning horizon
  5. costs: order cost/inventory holding cost
  6. service level requirement
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5
Q

Inventory policies + 2 examples

A

Variety of techniques for inventory mgt (e.g. economic lot size model, initial inventory)

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6
Q

Three decision models we learnt

A
  1. economic order quantity (EOQ)
  2. safety stocks (continuous review OR periodic review)
  3. newsvendor
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7
Q

What cost do we consider in the EOQ model? (3)

A
  1. K - ordering cost
  2. c - item cost
  3. h - holding cost
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8
Q

Meaning D

A

Yearly demand

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9
Q

Meaning d

A

Weekly demand

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10
Q

Meaning c

A

Item cost

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11
Q

Meaning k

A

Ordering cost

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12
Q

Meaning h

A

Holding cost

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13
Q

Meaning Lt

A

Lead time: time bw placing order and it arriving

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14
Q

Meaning Q

A

Order quantity

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15
Q

If the holding cost H isn‘t given as a total number, it can be given as h - the fraction of…

A

The item cost c

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16
Q

What part of the TC inv is the cost of placing the orders, explain the two elements

A

D/Q*K
- D/Q: number of orders (demand/order quantity)
- K: ordering cost

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17
Q

What part of the TC inv is the cost of holding inventory + explain

A

Q/2*h
- Q/2: average inventory
- h : holding cost

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18
Q

What part of the TC id purchasing cost

A

cD: item cost*demand

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19
Q

Total cost formula

A

TC=KD/Q+Q/2h+cD

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20
Q

Obsolescence (or spoilage) cost
Handling cost
Occupancy cost
Miscellaneous costs
▪ Theft, security, damage, tax, insurance

-> all examples for

A

Inventory holding costs

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21
Q

Buyer time
Transportation costs
Receiving costs
-> all examples for…

A

Ordering Cost

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22
Q

Deciding optimal lot size is a trade off between….

A
  • setup (order) cost and holding cost
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23
Q

Cycle inventory

A

inventory a business keeps on hand to meet regular sales demand

24
Q

If demand increased by 4
- what should happen to:
Batch size, how often to order, cycle inventory (in units AND days of demand)

A

Batch size: x2
Order twice as often
Cycle inventory (in units): x2, (in days of demand): halves

25
Q

Reorder point

A

Inventory level at which a new order should be placed

26
Q

Lead time

A

Time between order being placed and order arriving

27
Q

Strategies to reduce fixed costs in production

A
  1. Standardization
  2. Simplification
  3. Changing the set-up of the production line
28
Q

Strategies reducing fixed costs in delivery

A
  1. third party logistics
  2. Order multiple products at once
  3. various truck sizes
29
Q

What is the economic order quantity (EOQ)

A

A inventory decision making model, which assumes constant demand

30
Q

What is the safety stocks model? What two types of this model are there?

A

A inventory decision making model where the demand is stochastic (unpredictable, changes in each period)
- continuous review and periodic review

31
Q

What are safety stocks

A

Buffer due to the uncertainty of demand

32
Q

Stock out

A

No more inventory to sell

33
Q

How to you calculate the reorder point R in the EOQ (constant demand)

A

R=D*L

34
Q

How do you calculate reorder point in the continuous review model

A

R= D*L + SS (SS - safety stock)

35
Q

How do you find the service level (CSL)

A

1 - probability of stock out

36
Q

z

A

Safety factor

37
Q

σ

A

standard deviation of demand

38
Q

L

A

lead time

39
Q

Finding z

A

Using service level to find it in table

40
Q

Service level meaning

A

Prob. of no stockout during the lead time

41
Q

When to order

A

When inventory hits R

42
Q

How much to order

A

Order EOQ

43
Q

Is EOQ and Q* the same thing

A

Yes

44
Q

Averaged cycle inventory

A

EOQ/2

45
Q

Pipeline inventory

A

Inventory in transit

46
Q

Formula avg pipeline inventory

A

LD

47
Q

Avg inventory

A

EOQ/2 + SS + (LD) depending on who owns pipeline inventory

48
Q

Two big questions: how much to order, when to order - are answered by what

A

How much to order - order quantity
When to order - reorder point

49
Q

What does the EPQ model assume

A

That production is at a constant rate

50
Q

What is the POQ

A

Production order quantity - optimal production lot size

51
Q

Tp

A

Production time per cycle

52
Q

Td

A

Down-time (non-production) per cycle

53
Q

Q in the EPQ

A

Production quantity

54
Q

S in the EPQ

A

Setup costs

55
Q

P in the EPQ

A

Production rate

56
Q

Imax in the EPQ

A

Max inventory

57
Q

Tp in the EPQ

A

Operations Management (7 decks)

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