w Elements of Inventory Management

w Inventory Control Systems

w Economic Order Quantity Models
w Quantity Discounts
w Reorder Point
w Order Quantity for a Periodic Inventory
System
w Stock of items kept to meet future
demand
w Purpose of inventory management
n how many units to order
n when to order
w Raw materials
w Purchased parts and supplies
w Work-in-process (partially completed)
products (WIP)
w Items being transported
w Tools and equipment
Inventory and Supply Chain
Management
§ Tires stored at a Goodyear plant are
an example of a dependent demand
item

§ Cars, appliances, computers, and

houses are examples of independent
demand inventory
 Inventory and Quality
Management

w Customers usually perceive quality

service as availability of goods they want
when they want them
w Inventory must be sufficient to provide
high-quality customer service in TQM
 TOTAL % OF TOTAL % OF TOTAL
PART VALUE VALUE QUANTITY % CUMMULATIVE
9 $30,600 35.9 6.0 6.0
8 16,000 18.7 5.0 11.0
2 14,000 16.4 4.0 15.0
1 5,400 6.3 9.0 24.0
4 4,800 5.6 6.0 30.0
3 3,900 4.6 10.0 40.0
6 3,600 4.2 % OF TOTAL
18.0 % OF TOTAL
58.0
CLASS ITEMS VALUE QUANTITY
5 3,000 3.5 13.0 71.0
10 2,400
A 9, 8,2.8
2 12.0
71.0 83.0
15.0
7 1,700
B 1, 4,2.0
3 17.0
16.5 100.0
25.0
C
$85,400 6, 5, 10, 7 12.5 60.0
 Economic Order Quantity
(EOQ) Models

w EOQ
n optimal order quantity that will
minimize total inventory costs
w Basic EOQ model
w Production quantity model
Deriving Qopt Proving equality of
costs at optimal point
CoD CcQ
TC = +
Q 2 CoD CcQ
=
TC CoD Cc Q 2
= +
Q Q 2 2
2CoD
C0D Cc Q2 =
Cc
0= +
Q2 2
2CoD
2CoD Qopt =
Qopt = Cc
Cc
 Production Quantity
Model
w An inventory system in which an order is
received gradually, as inventory is
simultaneously being depleted
w Also known as non-instantaneous receipt
model
n assumption that Q is received all at once is relaxed
w p - daily rate at which an order is received over
time, a.k.a. production rate
w d - daily rate at which inventory is demanded
 D 10,000
Number of production runs = = = 4.43 runs/year
Q 2,256.8

d 32.2
Maximum inventory level = Q 1 - = 2,256.8 1 -
p 150
= 1,772 yards
ORDER SIZE PRICE
0 - 99 $10
100 – 199 8 (d1)
200+ 6 (d2)
Safety Stock
Safety stock
zd L