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16 Cards in this Set
- Front
- Back
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Reasons to hold more inventory |
- customer perceptions of availability - reduces potential for stockouts - ordering cost no matter how big order - high bulk = lower transportation cost - discounts from suppliers |
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Reasons to hold less inventory |
- financing inventory - takes up valuable space - high volume = high taxes at end of year - theft |
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ABC Analysis |
divides inventories up into 3 classes based on annual dollar volume annual volume * unit cost = annual $ volume |
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Inventory costs |
ordering/setup holding/carrying receiving/inspection shortage |
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EOQ model |
determines the optimal order size that minimizes the sum of carrying costs and ordering costs |
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Assumptions of EOQ |
- demand is certain and constant - no shortages - constant lead time for orders - order quantity received at once - no discounts |
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The relationship between ordering and holding costs |
inverse |
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EOQ variables: D, H, S, Q, N, T |
D= demand H= holding cost S= ordering cost Q= quantity N= number of orders T= time between orders |
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Annual Ordering Cost (equation) |
Demand x Ordering Cost Quantity per order |
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Annual Holding Cost (equation) |
Quantity x Holding Cost 2 |
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EOQ (equation) |
sq.root( 2DS/H) |
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Expected number of orders (equation) |
Demand EOQ |
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Time between orders (equation) |
# days N |
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Total Annual Cost (equation) |
ordering cost - holding cost D xS Q xH Q 2 |
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EOQ is robust when |
demand and ordering/holding costs are not 100% accurate |
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Uses for ABC Analysis |
to establish policies that focus on the few critical parts and not the many trivial ones |
