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3 Aggregate Analysis

The document discusses aggregate inventory analysis and introduces the concept of an exchange curve, which suggests a rational inventory policy should balance total inventory and total number of orders. It also discusses dynamic inventory models that optimize total system cost by balancing inventory carrying costs and ordering costs.

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INU-45-Kashish Vinod Wanjari
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50 views12 pages

3 Aggregate Analysis

The document discusses aggregate inventory analysis and introduces the concept of an exchange curve, which suggests a rational inventory policy should balance total inventory and total number of orders. It also discusses dynamic inventory models that optimize total system cost by balancing inventory carrying costs and ordering costs.

Uploaded by

INU-45-Kashish Vinod Wanjari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Aggregate

Analysis
 aggregate macro-view of inventory analysis.
 concept of exchange curve (optimal policy
curve) is introduced which suggests that a
rational inventory policy should strike a trade-
off between total inventory and total number
of orders
 Dynamic inventory models represent a class
of inventory problems with repetitive
purchase decisions of “how much to
purchase” and “when to purchase.”
 The twin conflicting costs are the costs of
having too little and too much reflected
through inventory carrying costs and ordering
(replenishment) costs which need to be
optimized in the total system cost
 It may be a pertinent question to
ask – how well are we doing in managing
inventories at the aggregate level of the
organization, and if we are not following
rational policies at the moment, how can
we rationalize them and what benefits will
accrue, if indeed such a rationalization
study was to be initiated?
 A rational inventory policy is a trade-off
between two opposing costs – cost of
carrying inventory and cost of replenishing
inventory (assuming that shortage costs
are not controllable).
The Exchange Curve: Concept

 The concept of exchange curve is that a


rational inventory policy aims at striking a
rational trade-off between total number of
orders placed per year in the organization
for all the items it produces and the total
value of the cycle inventory it holds.
 Let Di be the annual demand for the ith item
 Cpi is its unit purchase price
 Di Cpi is the annual usage value per year of
the ith item.
 Let Qi be the order quantity for the ith item
 For the (Q, R) inventory policy with no
shortages allowed, the total average
value of cycle stock (TCS) is computed as

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