inventory management chapter 20 Flashcards
all firms keep a supply of inventory for the following reasons
to maintain independence of operations
T omeet variation in product demand
to allow flexibility in production scheduling
To provide a safeguard for variation in raw material delivery time
To take advantage of economic purchase order size
Many other domain specific reasons
Different types of inventory costs
Holding (or carrying) costs
Setup (or production change) costs
Ordering costs
shortage costs (there is a tradeoff between carrying stock to satisfy demand and the cost resulting from stock outs and backorders
Single period inventory model problem
Answers the question of how much to order when an item is purchased only one time and is expected that it will be used and then not reordered. The optimal stocking level, using marginal analysis, occurs at the point where the expected benefits derived from carrying the next unit are less than the expected costs for that unit
Marginal cost equation
P(Co) <= (1-P)*Cu
Therefore
P<= Cu/Co+Cu
Fixed order quantity model (q model)
an inventory control model wehere the amount requisitioned is fixed and the actual order is triggered by inventory dropping to a specific level of inventory
Perpetual system
requires that every time a withdrawal from inventory or an addition to inventory is made, records must be updated to reflect whether the reorder point has been reached
Inventory position
the amount at hand plus on-order minus backorder quantities. In the case there inventory has been allocated for special purposes, the inventory position is reduced by these allocated amounts
Total annual cost formula
TAC = Annual purchase cost + annual ordering cost + annual holding costs
TC = DC + D/Q S + Q/2 H
Where TC = total annual cost
D = demand
C = cost per unit
Q = quantity to be ordered
S = Setup cost of cost of placing an order
R = reorder point
L =lead time
H = annual holding costs per unit of average inventory
Qopt = sqr(2cd/H)
optimal order quantit
Reorder point formula
R = dL
where L = lead time
d = average daily demand
order quantity formula
d(T+L)+zomega = l
where
q = quantity to be ordered
T = the number of days between reviews
L = lead time in days
d = forecast average daily demand
z = number of standard deviations for a specified service prob
omega = standard deviation of demand over the review and lead time
l = current inventory level (includes items on order
inventory turn
a measure of the expected number of times inventory is replaced over a year
Cost of goods sold/average inventory value
Average inventory value formul
(Q/2 + SS) *C
Where
SS = safety sock
Q/2 average inventory
C = cost per unit
price break model
model is useful for finding the order quantity of an item when the price of teh item varies with the order size
Price break model steps
sort the prices from lowest to highes tand then, beginning with the lowest price, calculate the economic order quantity for each price level until a feasible economic order quantity is found
If the first feasible economic order quantity is for the lowest price, this quanittiy is best and you are finished. Otherwise, calculate the total cost for the first feasible economic order quantity (you did these from lowest to highest price) and also calculate the total cost at each price break lower than the price associated with the first feasible economic order quantity
