inventory Flashcards
What is EOQ?
Optimal ordering quantity for an item of inventory which minimises inventory related costs
Whata re holding costs?
Warehousing
Opportunity cost of capital
Obsolescence
What are ordering costs?
Administering orders
Delivery costs
What are purchasing costs?
Amount paid for purchases from suppliers
Holding costs and order size
Increases the order size
Ordering costs and order size?
Decreases the order size
Purchasing costs and order size?
Decrease if the order size increases if bulk discounts are offered
Assumption for end of the period?
It has run down to zero
If firm holds zero inventory at start of the period?
Number of orders are determined by annual demand in units and order size
What happens if order size affects the purchase price?
Purchasing costs need to be considered
What is done to minimise total inventory related costs of a company?
An ideal order size throguh the EOQ formula
Issue with EOQ?
Ignores fluctuations in demand and hidden costs of holding inventory
Ignores need to increase order sizes
Assumes zero lead times
What if bulk purchase discounts are available?
Simple EOQ formula cannot be used
Additional steps when there’s a bulk purchase discount?
Calculate inventory related costs at lower boundary of each discount above EOQ
Select order quantity that minimises inventory related costs
What is buffer inventory?
Sets a lower limit for inventory levels
