Inventory planning Flashcards
What does inventory planning / management describe?
A system with inputs and outputs.
Input to be able to serve customers. Firms must be able to store the input.
2 basic questions that concerns inventory planning:
How much should be ordered each time?
When should the reordering occur?
What is the objective?
To minimize total variable cost over a specified time period (often assumed to be annual)
4 (5) different inventory costs
Ordering costs: Salaries and expenses of processing an order, regardless of the order quantity
Holding costs: Usually a percentage of the value of the item assessed for keeping an item in inventory
Backorder (Shortage) costs: Costs associated with being out of stock when an item is demanded (including lost goodwill)
Purchase costs: The actual price of the items
Other costs
Vad innebär determinstic models?
Simplest inventory models that assume demand and other parameters of the problem is deterministic, alltså determined.
Three deterministic models:
Economic order quantity (EOQ) model
Economic production lot size
EOQ with quantity discounts
Describe EOQ
Most basic model of the deterministic
Variable costs = annual holding cost and annual ordering costs. They are also equal, dvs exakt lika stora
Assumptions EOQ: 6st
– Demand is constant throughout the year at D items per year.
– Ordering cost is €Co per order.
– Holding cost is €Ch per item in inventory per year.
– Purchase cost per unit is constant (no quantity discount).
– Delivery time (lead time) is constant.
– Planned shortages are not permitted
What does EOQ not consider?
Lead time
Describe economic production lot size moel
A variation of the basic EOQ model
A replenishment order is not received in one lump sum as it is in the basic EOQ model
Inventory is replenished gradually as the order is produced, requires production rate > demand rate
Variable costs = annual holding cost and annual set-up cost (equivalent to ordering cost)
Optimal lot size: annual holding = set-up costs
(Set-up costs är väldigt likt Co och därför används det i formeln)
Assumptions EOQP:
– Demand occurs at a constant rate of D items per
year.
– Production rate is P items per year (and P > D)
– Set-up cost: €Co per run
– Holding cost: €Ch per item in inventory per year
– Purchase cost per unit is constant (no quantity
discount).
– Set-up time (lead time) is constant.
– Planned shortages are not permitted
Describe EOQ with quantity discounts:
Used where a supplier offers a lower purchase cost when an item is ordered in larger quantities, in other words when discount is offered
Variable costs = Annual holding costs, ordering costs and purchase costs
Optimal order quantity: Annual holding and ordering costs are not necessarily equal
Assumptions:
– Demand occurs at a constant rate of D items/year
– Ordering Cost is €Co per order
– Holding Cost is €Ch = €CiI per item in inventory per year (note holding cost is based on the cost of the item, Ci)
– Purchase Cost is €C1 per item if the quantity ordered is between 0 and x1, €C2 if the order quantity is between x1 and x2, etc
– Delivery time (lead time) is constant.
– Planned shortages are not permitted
What is the goal with inventory planning?
To minimize costs of our inventory
Hur ser Ch, Co och Tc ut i en graf?
Cost of holding = upward sloping (often linear)
Cost of ordering = downward sloping
Total cost = Glad smile ovanför Co och Ch
