Inventory Management OT Flashcards
EOQ?
Economic order quantity
What is EOQ ordering?
We order in fixed batch quantities
Cost of ordering a year?
Will be higher the more orders there are in a year
What is holding cost?
Rent of the warehouse
Heating and lighting
Money used in inventory
One order of 12000 in a year?
Start year at 12000. At end of year is 0. Average inventory is 6000
1000 order every month?
Goes 1000 to 0 then 1000. Repeats monthly
The lower the order quantity?
The lower the average inventory. Average inventory is 500
When order quantity increases?
The inventory costs increase but fewer orders needed in year therefore ordering costs decreases
Total cost per year?
Holding cost + reordering cost
Re order cost calculation?
(Number of order / units) * cost of placing each order
Holding cost calculation?
Average inventory * cost per unit per year * (discount if relevant)
Holding cost when more quantity
Increases
Reordering cost when more quantity
Decreases
C_0 in EOQ?
Order costs each time
D in EOQ?
The total demand
C_H in EOQ?
Cost of holding one unit in one year
Calculate total inventory cost/
Reorder + holding cost
Why is purchase price ignored in total inventory?
It was always the same, not relevant. Unless discounts
What happens with purchase cost?
Added to the inventory cost
When there is a discount?
Inventory cost increases but purchase cost decreases
What is buffer/safety inventory?
Hold extra units in inventory throughout the year to stop inventory going to zero
EOQ and buffer inventory?
It is not relevant
Holding cost and buffer inventory?
It is relevant. Add on holding costs of buffer inventory
