Week 9- Inventory management part 2- EPQ model and Reorder point model Flashcards
why do bulk buying discounts present a new trade off in the EOQ model
Because if you order larger amounts you get a reduced product cost but you wll also incur higher inventory costs
what is the new EOQ model formula in account for volume discounts?
TC= Ordering cost + holding cost + purchasing cost
what is the difference between the EOQ model and the Economic production quantity model?
The EPQ model assumes it takes time to produce order quantity where as the EOQ model assumes that the entire order arrives all at once
what does P stand for in the EPQ model?
Annualised production rate. Quantity that would be produced in a complete year if production were continuous
what does C stand for in the EPQ model?
Unit cots to produce a single product
what is the formula for the production cost in the EPQ model?
cD
what is the formula for inventory holding costs in the EPQ model?
Qh(P-D)/2p
what is the formula for ordering costs in the EPQ model?
Dk/Q
what is the Total cost formula for the EPQ model?
TC= Dk/Q + Qh(P- D)/2P + Dc
what is the formula for Q* in the EPQ model?
Q*= Squareroot of 2DkP/ h(P-D)
what is lead time?
the time between placing order and receiving stock
what is the RE-order point model?
answers when to order
What are the five customer service metrics?
- Availability
- Fill rate
- Expected shortages per replenishement cycle
- Expected length of a stock out
- Expected time between stock out
what is availiability?
Percentage of cycles (periods) in
which a stock-out does not occur aka the chance of having a rainy day
what is fill rate?
Probability item in stock when required. popular in high sales volume industries eg. supermarkets
