inventory management Flashcards
What does MRP stand for and what does it do?
- Manufacturing requirements planning
- used in production planning for assembled products
- takes requirements of master schedule for finished goods into production plan for end item
- Lot sizing is of vital importance
Which operations are included in operational management perspective?
- Bill of materials
- Manufacturing requirements planning (MRP)
Define lot sizing
- amount ordered of a product
- important part of inventory management
- Trade-off between carrying/holding costs and setup costs
What is the ABC approach?
Classification of inventory according to importance & allocated efforts accordingly
- A items –> very important (10-20% of inventory with 60-70% of value)
- B items –> moderate importance
- C items –> least important (50-60% of items with 10-15% of value)
What is the Economic order quantity?
- fixed order size that minimizes sum of annual costs of holding & ordering inventory
Which requirements are necissary for Economic order quantity to work?
- only one product
- demand requirements are known
- demand is spread evenly throughout the year
- Lead time = known and constant
- each order = single delivery
- no quantity discounts
Define the newsvendor problem
- Goods lose all or most of their value over time
- can only be sold during a short period of time
Define Stockout and Leftover inventory.
Stockout = not enough units to satisfy demand, could have made more profit
Leftover inventory = too many units, units left in inventory may not be sold at full price
Define Balance point.
cost of underage of additional unit = cost of overage of additional unit
What is the limit value consideration?
F(Q) is probability that additional unit is leftover when ordering one more unit than QQ
When ordering less than Q, (1-F(Q)) is probability that this unit will be in demand
Define critical ratio
- optimal service level to maximize profit
- applicable in newsvendor problem
- ⍺ gives probability that no stockout occurs
