inventory eoq model
TRANSCRIPT
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Chapter 13
Inventory Systems for Independent Demand
This section explores:
The definition and purpose ofinventory
Inventory costs
Independent vs. dependent demand
Types ofinventory systems
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What is Inventory?
Inventory is the stock of any item or resource used
in an organization, such as:
Raw materials
Finished products
Component parts
Supplies
Workin process (or progress)
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Why Carry Inventory? (Pros)
1. To maintain independence of operations
2. To meet variation in product demand
3. To allow flexibility in production scheduling
4. To provide a safeguard for variation in raw
material delivery time
5. To take advantage of large purchase discounts
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Inventory Carrying and
Changing Costs (Cons)
Carrying costs (most significant)
Interest (capital opportunity cost)
Setup (or production c
hange) costs
Tooling
Ordering costs
Shortage costs
Difficult to evaluate e.g. loss of goodwill.
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E(1)
Independent vs. Dependent Demand
Independent Demand
(Demand not related to otheritems)
Dependent Demand(Derived from other
higher level items)
....
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Inventory Systems and Models
Inventory systems provide the organizational
structure and the operating policies for controlling
materials to be stocked
Two general types of system models:
Fixed-Order Quantity (or Economic Order Quantity,
EOQ orQ) Models: Event triggered
Fixed-Time Period (or periodic system fixed-order
interval orP) Models: Time triggered
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Comparison of Q and P Inventory Systems
Feature
Order quantity
When to order
Recordkeeping
Inventory size
Labor to maintain
Types ofitems
Fixed-Order Quantity (Q)
Constant: same amount order-
ed each time.When quantity on hand drops to
reorder level
Each time items removed or
added
Less than fixed-time period
Higher due to continuous record-
keeping
High-priced and critical items
Fixed-Time Period (P)
Variable: different each time
orderis madeWhen the review period
arrives
Inventory counted only at
review period
Larger than fixed-order
quantity
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Fixed-Order Quantity (Q) System
Idle state
Waiting for demand
Demand
occursUnit withdrawn from
inventory orback ordered
Compute inventory status
Status = On hand + On order- Back order
Is status