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14 Cards in this Set

  • Front
  • Back
What are the
Functions of Inventory?
To meet anticipated demand
To smooth production requirements
To decouple o p pperations
To protect against stock-out

To take advantage of order cycles
To help hedge against price increases
To permit operations
To take advantage of quantity discount
What are the
Types of Inventories?
Raw materials & purchased parts
Partially completed goods called
work in progress
Finished-goods inventories
 (manufacturing firms)
or merchandise
(retail stores

Replacement parts, tools, & supplies
Goods-in-transit to warehouses or
customer
What are the
Objective of Inventory Control?
To achieve satisfactory levels of customer
service while keeping inventory costs
within reasonable bounds
 Level of customer service
 Costs of ordering and carrying inventor
How do you perform
Effective Inventory Management?
A system to keep track of inventory
A reliable forecast of demand
Knowledge of lead times
Reasonable estimates of
 Holding costs
 Ordering costs
 Shortage costs
A classification system
What are the types of 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 understock
 Multi-Period Inventory Model
 Fixed-Order Quantity Models
 Event triggered (Example: running out of stock)
 Fixed-Time Period Models
 Time triggered (Example: Monthly sales call by sales
representative)
What is Lead time?
: time interval between ordering
and receiving the order
What is Holding (carrying) cost?
cost to carry an
item in inventory for a length of time,
usually a year
what is Ordering cost
cost of ordering and
receiving inventory
What is Shortage cost
cost when demand
exceeds supply
What are the
Multi-Period Inventory Models FixedOrder Quantity Model
- Basic EOQ Mode
- Price Break Mode
- Fixed-Order Quantity Model with Specified
Service Level
Basic EOQ Model: Assumptions
 Annual demand (D) is known and constant.
 Lead time (L) is known and constant.
 Price per unit of product is constant.
 The only significant costs are setup or ordering
(S), carry ) i ( ing (HH) costs and P ) t d P h i ( urchasing (CC) ) t costs.
 Inventory holding cost is based on average
inventory.
 Ordering or setup costs are constant.
 All demands for the product will be satisfied
price break model
 Under quantity discounts, a supplier offers
a lower unit price if larger quantities are
ordered at one time
 This is presented as a p pprice or discount
schedule, i.e., a certain unit price over a
certain order quantity range
 This model differs from the basic EOQ
Model because the purchasing cost (C)
varies with the quantity ordere
Describe the
Fixed-Order Quantity Model with
Specified Service Level
 In the fixed order quantity model, the ordering
process is triggered when the inventory level
drops to a critical point, the Reorder Point (ROP).
 This starts the lead time for the item.
 Lead time is the time to complete all activities
associated with placing, filling and receiving the
order.
 During the lead time, customers continue to draw
down the inventory
 It is during this period that the inventory is
vulnerable to stockout (run out of inventory
define Customer service level
the probability that a stockout will not occur during
the lead time.