Scribd
Upload
79 views15 pages

Chap017 Inventory Control

Explain the different purposes for keeping inventory. Calculate the appropriate order size when a one-time purchase must be made. Summarize fixed-order quantity and fixed-time period models. Discuss why inventory turn is directly related to order quantity and safety stock.

Uploaded by

Sjamsuddin Pontoh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
79 views15 pages

Chap017 Inventory Control

Explain the different purposes for keeping inventory. Calculate the appropriate order size when a one-time purchase must be made. Summarize fixed-order quantity and fixed-time period models. Discuss why inventory turn is directly related to order quantity and safety stock.

Uploaded by

Sjamsuddin Pontoh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 15

Chapter 17

Inventory Control

McGraw-Hill/Irwin

Copyright 2011 The McGraw-Hill Companies, All Rights Reserved

Learning Objectives
1. 2. Explain the different purposes for keeping inventory. Understand that the type of inventory system logic that is appropriate for an item depends on the type of demand for that item. Calculate the appropriate order size when a one-time purchase must be made. Describe what the economic order quantity is and how to calculate it. Summarize fixedorder quantity and fixedtime period models, including ways to determine safety stock when there is variability in demand. Discuss why inventory turn is directly related to order quantity and safety stock.

3. 4. 5.

6.

17-2

Purposes of Inventory

1. To maintain independence of operations 2. To meet variation in product demand 3. To allow flexibility in production scheduling 4. To provide a safeguard for variation in raw material delivery time 5. To take advantage of economic purchase-order size
LO 2
17-3

Inventory Costs

1. Holding (or carrying) costs


Costs for storage, handling, insurance, and so on

2. Setup (or production change) costs


Costs for arranging specific equipment setups, and so on

3. Ordering costs
Costs of placing an order

4. Shortage costs
Costs of running out
LO 3
17-4

Inventory Systems

Single-period inventory model


One time purchasing decision (Example: vendor selling t-shirts at a football game) Seeks to balance the costs of inventory overstock and under stock

Multi-period inventory models


Fixed-order quantity models
Event triggered (Example: running out of stock)

Fixed-time period models


Time triggered (Example: Monthly sales call by sales representative)
LO 2
17-5

A Single-Period Inventory Model

Consider the problem of deciding how many newspapers to put in a hotel lobby Too few papers and some customers will not be able to purchase a paper and they will lose the profit associated with these sales Too many papers and will have paid for papers that were not sold during the day, lowering profit
LO 3
17-6

Single-Period Inventory Model Formulas


Cu P Co Cu Where : Co Cost per unit of demand over estimated Cu Cost per unit of demand under estimated P Probabilit y that theunit will be sold

We should increase the size of the inventory so long as the probability of selling the last unit added is equal to or greater than the ratio of Cu/Co+Cu
LO 3
17-7

Multi-Period Models

There are two general types of multiperiod inventory systems


1. Fixedorder quantity models
Also called the economic order quantity, EOQ, and Q-model Event triggered Also called the periodic system, periodic review system, fixed-order interval system, and P-model Time triggered
17-8

2. Fixedtime period models

LO 5

Key Differences

To use the fixedorder quantity model, the inventory remaining must be continually monitored In a fixedtime period model, counting takes place only at the review period The fixedtime period model

LO 5
17-9

Has a larger average inventory Favors more expensive items Is more appropriate for important items Requires more time to maintain

Fixed-Order Quantity Model Models

Demand for the product is constant and uniform throughout the period Lead time (time from ordering to receipt) is constant Price per unit of product is constant Inventory holding cost is based on average inventory Ordering or setup costs are constant All demands for the product will be satisfied
LO 4
17-10

Basic Fixed-Order Quantity (EOQ) Model Formula


TC = DC + D Q S+ H Q 2

TC Total annual cost D Demand C Cost per unit Q Order quantity S Cost of placing an order or setup cost R Reorder point L Lead time H Annual holding and storage cost per unit of inventory
LO 4
17-11

Establishing Safety Stock Levels


Safety stock: amount of inventory carried in addition to expected demand
Safety stock can be determined based on many different criteria

A common approach is to simply keep a certain number of weeks of supply A better approach is to use probability
Assume demand is normally distributed
Assume we know mean and standard deviation To determine probability, we plot a normal distribution for expected demand and note where the amount we have lies on the curve
LO 4
17-12

FixedOrder Quantity Model with Safety Stock


R d L z L R Reorder point in units d Average daily demand L Lead time in days z Number of standard deviations for a service probabilit y L Standard deviation of usage during lead time

LO 5
17-13

Fixed-Time Period Models


q = d(T + L) + Z T + L - I

Where : q = quantitiy to be ordered T = the number of days between reviews L = lead time in days d = forecast average daily demand z = the number of standard deviations for a specified service probabilit y T + L = standard deviation of demand over thereview and lead time I = currentinventory level (includes items on order)
LO 5
17-14

Price Break Models


Price varies with the order size To find the lowest-cost, need to calculate the order quantity for each price and see if the quantity is feasible
1. Sort prices from lowest to highest and calculate the order quantity for each price until a feasible order quantity is found 2. If the first feasible order quantity is the lowest price, this is best, otherwise, calculate the total cost for the first feasible quantity and calculate total cost at each price lower than the first feasible order quantity
LO 4
17-15

You might also like