Professional Documents
Culture Documents
Raw materials
Purchased parts and supplies
Work-in-process (partially completed)
products (WIP)
Items being transported
Tools and equipment
Inventory and Supply Chain
Management
Bullwhip effect
demand information is distorted as it moves away
from the end-use customer
higher safety stock inventories to are stored to
compensate
Seasonal or cyclical demand
Inventory provides independence from vendors
Take advantage of price discounts
Inventory provides independence between
stages and avoids work stop-pages
Two Forms of Demand
Dependent
Demand for items used to produce
final products
Tires stored at a Goodyear plant are
an example of a dependent demand
item
Independent
Demand for items used by external
customers
Cars, appliances, computers, and
houses are examples of independent
demand inventory
Inventory and Quality
Management
Carrying cost
cost of holding an item in inventory
Ordering cost
cost of replenishing inventory
Shortage cost
temporary or permanent loss of sales
when demand cannot be met
Inventory Control Systems
EOQ
optimal order quantity that will
minimize total inventory costs
Basic EOQ model
Production quantity model
Assumptions of Basic
EOQ Model
Reorder point, R
Co D
Annual ordering cost =
Q
CcQ
Annual carrying cost =
2
CoD CcQ
Total cost = +
Q 2
EOQ Cost Model
CoD
Ordering Cost = Q
Maximum
Q(1-d/p) inventory
level
Average
Q inventory
(1-d/p)
2 level
0
Begin End Time
order order
Order
receipt receipt
receipt period
Production Quantity Model
(cont.)
p = production rate d = demand rate
=Q1- d 2CoD
p
Qopt = d
Q d Cc 1 -
Average inventory level = 1- p
2 p
CoD CcQ d
TC = Q + 2 1 - p
Production Quantity Model:
Example
Cc = $0.75 per yard Co = $150 D = 10,000 yards
d = 10,000/311 = 32.2 yards per day p = 150 yards per day
2CoD 2(150)(10,000)
Qopt = = = 2,256.8 yards
Cc 1 - d 0.75 1 -
32.2
p 150
CoD CcQ d
TC = Q + 2 1 - p = $1,329
Q 2,256.8
Production run = = = 15.05 days per order
p 150
Production Quantity Model:
Example (cont.)
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
Quantity Discounts
where
TC (d2 = $6 )
Inventory cost ($)
Carrying cost
Ordering cost
2CoD 2(2500)(200)
Qopt = = = 72.5 PCs
Cc 190
R = dL
where
d = demand rate per period
L = lead time
Reorder Point: Example
Safety stock
buffer added to on hand inventory during lead
time
Stockout
an inventory shortage
Service level
probability that the inventory available during
lead time will meet demand
Safety Stocks