2000 by Prentice-Hall, Inc 1 Inventory Management – Chapter 10 Stock of items held to meet Stock of items held to meet future demand future demand Inventory management answers Inventory management answers two questions two questions How much to order How much to order When to order When to order
24
Embed
2000 by Prentice-Hall, Inc1 Inventory Management – Chapter 10 Stock of items held to meet future demand Inventory management answers two questions.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
2000 by Prentice-Hall, Inc 1
Inventory Management – Chapter 10
Stock of items held to meet Stock of items held to meet future demandfuture demand
Inventory management answers Inventory management answers two questionstwo questions
How much to orderHow much to order When to orderWhen to order
2000 by Prentice-Hall, Inc 2
Types of Inventory
Raw materialsRaw materials Purchased parts and suppliesPurchased parts and supplies LaborLabor In-process (partially completed) productsIn-process (partially completed) products Component partsComponent parts Working capitalWorking capital Tools, machinery, and equipmentTools, machinery, and equipment
2000 by Prentice-Hall, Inc 3
Reasons to Hold Inventory
Meet unexpected demandMeet unexpected demand Smooth seasonal or cyclical demandSmooth seasonal or cyclical demand Meet variations in customer demandMeet variations in customer demand Take advantage of Take advantage of
price discountsprice discounts Hedge against price Hedge against price
Price per unit decreases as order Price per unit decreases as order quantity increasesquantity increases
TCTC = + + = + + PDPDCCooDD
QQ
CCccQQ
22
wherewhere
PP = per unit price of the item = per unit price of the itemDD = annual demand = annual demand
2000 by Prentice-Hall, Inc 18
Quantity Discounts
Price per unit decreases as order Price per unit decreases as order quantity increasesquantity increases
TCTC = + + = + + PDPDCCooDD
QQ
CCccQQ
22
wherewhere
PP = per unit price of the item = per unit price of the itemDD = annual demand = annual demand
ORDER SIZE PRICE
0 - 99 $10
100 - 199 8 (d1)
200+ 6 (d2)
2000 by Prentice-Hall, Inc 19
Quantity Discount Model
Figure 10.4Figure 10.4QQoptopt
Carrying cost Carrying cost
Ordering cost Ordering cost
Inve
nto
ry c
ost
($)
Inve
nto
ry c
ost
($)
QQ((dd1 1 ) = 100) = 100 QQ((dd2 2 ) = 200) = 200
TC TC ((dd2 2 = $6 ) = $6 )
TCTC ( (dd1 1 = $8 )= $8 )
TC TC = ($10 )= ($10 )
2000 by Prentice-Hall, Inc 20
When to Order
Reorder Point is the level of inventory Reorder Point is the level of inventory at which a new order is placed at which a new order is placed
RR = = dLdL
wherewhere
dd = demand rate per period = demand rate per periodLL = lead time = lead time
2000 by Prentice-Hall, Inc 21
Safety Stocks
Safety stockSafety stock buffer added to on hand inventory during buffer added to on hand inventory during
lead timelead time
Stockout Stockout an inventory shortagean inventory shortage
Service level Service level probability that the inventory available probability that the inventory available
during lead time will meet demandduring lead time will meet demand
2000 by Prentice-Hall, Inc 22
Variable Demand with a Reorder Point
Figure 10.5Figure 10.5
ReorderReorderpoint, point, RR
QQ
LTLT
TimeTimeLTLT
Inve
nto
ry le
vel
Inve
nto
ry le
vel
00
2000 by Prentice-Hall, Inc 23
Reorder Point with a Safety Stock
Figure 10.6Figure 10.6
ReorderReorderpoint, point, RR
QQ
LTLT
TimeTimeLTLT
Inve
nto
ry le
vel
Inve
nto
ry le
vel
00
Safety Stock
2000 by Prentice-Hall, Inc 24
Reorder Point With Variable Demand
RR = = dLdL + + zzdd L L
wherewhere
dd == average daily demandaverage daily demandLL == lead timelead time
dd == the standard deviation of daily demand the standard deviation of daily demand
zz == number of standard deviationsnumber of standard deviationscorresponding to the service levelcorresponding to the service levelprobabilityprobability