Lecture 7 Flashcards
Lot / Batch size
The quantity that a stage of the supply chain produces/purchases at a tim
Cycle inventory
The average inventory in a supply chain
Fixed-order quantity model
Also called EOQ (Economic Order Quantity) and Q-model
Event triggered.
Fixed-time period models
Also called the periodic system, periodic review system, fixed-order interval system and P-model
Time triggered.
6 Characteristics Fixed-Order Quantity
- Inventory remaining must be continually monitored
- Has a smaller average inventory
- Favors more expensive items
- More appropriate for important items
- Requires more time to maintain - but is usually more automated
- More expensive to implement
6 Characteristics Fixed-Time Period
- Counting takes places only at the end of the review period
- Larger average inventory
- Favors less expensive items
- Sufficient for less-important items
- Requires less time to maintain
- Less expensive to implement
Optimal order quantity (Qopt)
Order size that minimizes total annual inventory related costs
Fixed-order Quantity Models
Determine specific point (R) and the size of that order (Q)
6 Assumptions that represent a starting point FOQ
- Demand for the product is constant and uniform throughout the period
- Lead time is constant
- Price per unit of product is constant
- Inventory holding cost is based on average inventory
- Ordering or setup costs are constant
- All demands for the product will be satisfied
Insights EOQ
- There is a direct trade-off between order size and average inventory
- It is a good starting point in most inventory systems
- It helps to focus management attention on process improvement
Safety inventory
Carried to satisfy demand that exceeds the amount forecasted
Safety stock
Amount of inventory carried in addition to expected demand
Fixed-time periods models
- Inventory is counted only at particular times
- Generate order quantities that vary from period to period, depending on usage rates
- Safety stocks must protect against stock outs
Replenishment Policy FOQ
- Inventory is continuously tracked
- Order for a lot size Q is placed when the inventory declines to the reorder point R
- Costly but requires less safety stock
Replenishment Policy FTP
- Inventory checked at regular periodic intervals
- Order is placed to raise inventory level to a specified threshold
- Requires higher level of safety stock