Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

OPLOG > Inventory EOQ > Flashcards

Inventory EOQ Flashcards

1
Q

Stock Inventory

A

The stock of any resource used in a business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why should a business hold inventory?

A

To manage demand and supply variability, reduce costs, and ensure smooth operations.
Main reasons include:

Protect against unpredictability →Safety Stock

Prepare for predictable patterns →Seasonal Inventory

Buy in bulk to save money → Cycle Stock

Cover delivery and transport time →Pipeline Inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Safety Stock

A

Protect against - unpredictable variability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Seasonal Inventories

A

Capitalize on predictable variability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Cycle stock

A

Possible discounts of ecnomies of scale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Pipeline Inventories

A

Account for transporation/Flow times

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Why should a business to hold inventory ?

A
  1. Incur carrying costs
  2. Limited Storage
  3. For inventory with short shelf-life, we may waste inventory

4, Shifting consumers preferences may make inventory less desirable

  1. Inventory hides operational problems
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Iventory Hides Problems

A
  1. Quality Problems
  2. Machine Downtime

3, Poor Schedulling

  1. Suppliers Issues
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Ordering Costs

A

Fixed Costs

Fixed Transporation costs , ordering processing costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Holding Costs

A

Carrying costs

Costs for storage, insurance, work , tied up working capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Shortage Costs (Opportunity Costs)

A

Lost sales , etc

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Economic Order Quantity (EOQ)

A

Balances ordering and holiday costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

D

A

Annual Demand Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Q

A

Lot or batch size (the order size)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

S

A

Set-up cost per lot / batch , or average cost of processing/placing an order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

C

A

Unit cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

H

A

Annual holding / storage cost per unit of average inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

i

A

Percent carrying cost (eg. Interest rate)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

H formula

A

H = iC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Annual Total Cost

A

Annual Set up cost + Annual Holding Cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Number of orders per year

A

D/Q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Average cycle inventory

A

Q/2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Annual Set Up Cost or Ordering Cost

24
Q

Annual Holding Cost

25
What is the goal of the EOQ model?
To determine the optimal order quantity (Q) that minimizes total annual inventory cost — including both ordering and holding costs.
26
What is the Optimal Order Quantity (EOQ) formula?
Qopt = √ 2DS/H ​ ​
27
EOQ
The Optical Economic Order Quantity
28
Cycle Time (reorder interval)
Time between sucessive orders
29
How many times per year would you place orders per year ? (Frequency of ordering)
D/Q opt
30
What is the time in years (called cycle time) between succesive order?
Q opt / D
31
As S increases ...
Costs increases, EOQ increases , Frequency decreases
32
As H increases ...
Costs increases , EOQ decreases , Frequency increases
33
As D increases ...
Costs increases , EOQ increases , Frequency increases
34
Lead Time (L)
Time between placing an order and reciving it
35
Reorder Point (ROP)
The level of inventory at which a new order must be replaced to replenish stock When to reorder Reorder Point (inventory level where you place a new order)
36
ROP
D X L *Note use same time units for D and L to calculate ROP
37
Pipeline Inventory
Inventory on route Inventory that is in transit — meaning it's already shipped by the supplier but not yet received by the buyer.
38
Average Pipeliine inventory
D x L * Littles Law
39
Importantion Assumption Pipeline Inventory
If a buyer pays when inventory is received, you do NOT include pipeline inventory. If a buyer pays when inventory is shipped, you MUST include pipeline inventory. ✅ Default exam/test assumption: Only include pipeline inventory if stated!
40
What is pipeline inventory and when should you include it in total inventory?
Pipeline inventory is inventory in transit from the supplier to the buyer. Include it only if the buyer pays when it's shipped. If the buyer pays when inventory is received, you don’t include it. Pipeline Inventory =𝐷 × 𝐿
41
Average Total Inventory
Q/2 + DxL Average + Average Pipeline cycle stock Inventory
42
Standard Inventory Assumptions (for EOQ or Basic ROP)
1. Demand Rate is constant (you know how much you sell/use each day or week) 2. Inventory arrives immediately when ordered (or exactly after a known lead time) 3. These assumptions simplify calculations, but they often don’t match real-life situations.
43
What if the demand rate is uncertain?
You need to add Safety Stock to avoid running out of inventory during demand spikes or supply delays.
44
What is Safety Stock (SS)?
Extra inventory held to protect against variable demand and lead time uncertainty.
45
Case 1: ROP = DLT
Reorder exactly matches demand during lead time Inventory reaches 0 just as the new shipment arrives No shortage Ideal, but risky if demand fluctuates Inventory = 0 Shortage = 0
46
Case 2: ROP > DLT
Reorder earlier than needed → extra inventory left when order arrives Inventory > 0 Inventory = ROP - DLT Still no shortage = 0 This is how you add safety stock to protect against uncertainty
47
Case 3: ROP < DLT
Reorder too late Inventory runs out before the new order arrives. Inventory = 0 Shortage = DLT − ROP You lose sales or must backorder
48
Cycle Service Level (CSL)
CSL is the probability that demand during lead time (DLT) will be less than or equal to the Reorder Point (ROP): It measures how reliable your system is at avoiding stockouts in each cycle.
49
CSL Formula
CSL= Pr(DLT≤ROP)
50
Safety Stock (SS)
ROP - Expected Demand During LT
51
How do we calculate mean and std. deviation of demand during lead time (DLT)?
If lead time = 𝑘 periods: Mean 𝑚𝐿𝑇 = 𝑘 ⋅𝑚 Std. dev. 𝜎𝐿𝑇 = √𝑘⋅𝜎
52
What is the ROP formula when demand is constant?
ROP=μ⋅k
53
𝜇
Average Weekly Demand
54
k
Lead time in weeks
55
If demand increases 4× in the EOQ model, what happens to EOQ?
EOQ increases by √ 4=2 EOQ becomes 2 times larger because demand is inside a square root.

OPLOG (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions