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Inventory Control Models: © 2007 Pearson Education
Inventory Control Models: © 2007 Pearson Education
Inventory
Any stored resource used to satisfy a current or future need (raw materials, work-in-process, finished goods, etc.) Represents as much as 50% of invested capitol at some companies Excessive inventory levels are costly Insufficient inventory levels lead to stockouts
Finding Q*
Recall that at the optimal order quantity (Q*): Carry cost = Ordering cost (D/Q*) x Co = (Q*/2) x Ch Rearranging to solve for Q*: Q* = (2DCo / Ch)
Select Inventory Models from the ExcelModules menu, then select EOQ
Go to file 12-2.xls
ROP = d x L
Total Cost
Setup cost Carrying cost Production cost = Total cost = (D/Q) x Cs = [ Q x (1- d/p)] x Ch =PxD
As in the EOQ model: The production cost does not depend on Q The function is nonlinear
Finding Q*
As in the EOQ model, at the optimal quantity Q* we should have: Setup cost = Carrying cost (D/Q*) x Cs = [ Q* x (1- d/p)] x Ch Rearranging to solve for Q*: Q* = (2DCs /[Ch(1 d / p)]
go to file 12-5.xls
Calculating SS
From the standard Normal Table, Z = 1.645 = X 350 10 so X= 366.45
Go to file 12-7.xls
ABC Analysis
Recognizes that some inventory items are more important than others A group items are considered critical (often about 70% of dollar value and 10% of items) B group items are important but not critical (often about 20% of dollar value and 20% of items) C group items are not as important (often about 10% of dollar value and 70% of items)
Go to file 12-8.xls