Chapter 20 part 2 Flashcards
Optimal order quantity (Qopt) =
this order size minimizes total annual cost
TC =
formula
TC =
DC + (D/Q)S + (Q/2)H
an order is placed when inventory drops to this level
Reorder point (R )
R =
formula
R =
dL
d =
average daily demand (constant)
L =
lead time in days (constant)
the amount of inventory carried in addition to the expected demand
Safety stock
The key difference between a fixed order quantity model where demand is known and one where demand is uncertain is in
computing the reorder point
Reorder point is R =
formula
R =
dL + zσꜜL
R =
reorder point in units
z =
number of standard deviations for a specified service probability
σꜜL =
standard deviation of usage during lead time
zσꜜL =
the amount of safety stock
T =
the number of days between reviews
I =
current inventory position
the cost of goods sold divided by the total average value of inventory. A measure of the expected number of times that inventory is replaced each year
Inventory turn
Inventory turn =
formula
cost of goods sold/ average inventory value
Average inventory value =
formula
(Q/2 + SS)C
Inventory turn for an individual item =
formula
DC/(Q/2 + SS)C = D/Q/2 + SS
this model is useful for finding the order quantity of an item when the price of the item varies with the order size
Price break model
divides inventory into dollar volume categories that map into strategies appropriate for the category
ABC inventory classification
(A)
high dollar volume
(B)
moderate dollar volume
(C )
low dollar volume
A items constitute roughly top ___ of the items
15%
B items the next
35%
C includes
50%
Inventory accuracy
how well inventory records and actual physical count agree
Cycle counting
a physical inventory taking technique in which inventory is counted on a frequent basis rather than once or twice a year
Easiest time for stock to be counted is when
there is no activity in the stockroom or on the production floor
The accuracy level often recommended by experts is
±0.2% for A items,
±1% for B items,
±5% for C items
