Transcript Inventory Management

UML
Ops Analysis 63.210
Don Sutton
Functions of Inventory
 Decoupling
 Storing resources
 Irregular supply and demand
 Quantity discounts
 Avoiding stock outs
Key Inventory Questions
 How much to order
 When to order
Cost Factors
 Relevant Costs
 Cost of items
 Cost of Ordering
 Cost of Holding
 Cost of Stock outs
 Cost Trade off
 Ordering vs Holding
Economic Order Quantity
 Assumptions
 Constant demand
 Lead time in known
 Instantaneous receipt of inventory
 Constant purchase cost
 No stock out
 Holding cost and ordering cost are constant
EOQ Equation
Ordering Cost = Holding Cost
Holding Cost = (Q/2)Ch
Ordering Cost = (D/Q) Co
2 DCo
EOQ 
Ch
Reorder Point
ROP = d x LT
Quantity Discounts
 Holding cost is dependent upon purchase price ( Ch =
IC)
 Purchase cost is now a factor in analysis
 Methodology
 Compute EOQ for each discount price
 If EOQ < min for discount, adjust the Q to minimum for
discount
 For each EOQ or adjusted Q, compute total cost
 Choose the lowest cost quantity