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21 Cards in this Set
- Front
- Back
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5 assumptions of the basic EOQ Model
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1. Demand is constant
2. Lead Time is Constant 3. No constraints on Lot Size 4. only 2 costs are inventory holdup and fixed cost per lot for ordering/setup 5. Decisions for one item can be made idependently of other items. |
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what are 2 key questions to ask about inventories?
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How much to order?
when to order? |
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As you order more frequently what cost goes up?
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Ordering cost goes up, but holding cost goes down.
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As you order less frequently, what cost goes up
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Holding cost goes up, ordering cost goes down.
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whats the correlation between holding cost and lot size
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Direct positive relationship between lot size and holding cost. so it is a straight line. .
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Ordering cost explained graphically.
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It drops at a higher frequency because you order daily vs weekly vs montly and they are different perportions. Graphically it is presented as a curve.
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Total cost
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Holding Cost + Ordering cost.
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EOQ
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The economic order quantity. the point where HC meets OC marks the lowest totatl cost. minimizes both costs
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Stock Keeping Unit
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An individual item or product that has an identifying code and is held in inventory somewhere along the supply chain.
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ABC analysis
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the process of dividing STOCK KEEPING UNITS (SKU) into three classes according to their dollar usage so management can focus on items that have the highest dollar value.
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Class A items
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represent about 20% of the SKUs but account for 80% of the dollar usage.
SKU are reviewed frequently to reduce the average lot size and to ensure timely deliveries from suppliers. The valuble few |
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Class B items
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Account for 30% SKU but account for only 15% dollar usage
Require less inventory control. less frequent monitoring of suppliers and adequate safety stocks. w/e middle |
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Class C
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50% of the SKU but only 5% of the dollar usage
Much looser control is appropriate. Holding cost is low. higher inventory levels are tolerated Worthless majority. |
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How do you determine SKU dollar usage?
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Multiply Annual Demand rate by the cost the item (one unit of the item)
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Independent demand items
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Demand is influenced by market conditions and is not related to the inventory decisions for any other item held in stock or produced.
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Examples of Items that are independent demand items
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Wholesale/Retail merch
Service support inventory Product and replacement-part distribution inventories Maintenance, repair and operating supplies. |
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Service support inventory
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independent demand item
Such as Stamps and mailing labels for a post office Office supplies for a law firm Laboratory supplies for research universities. |
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Maintenence, repair and operating (MRO) supplies
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items that do not become part of the final service or product, such as employee uniforms, paint, and machine repair parts.
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Dependent demand items
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required as components or inputs to a service or product.
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Continuous review(Q) system
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Fixed order quantity system, tracks the remaining inventory of a SKU each time a withdrawal is made to determine whether it is time to reorder.
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Inventory Position equation
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Inventory Position= On hand inventory+ Scheduled receipts- Backorders
IP=OH+SR-BO |
