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24 Cards in this Set
- Front
- Back
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Annual Ordering Cost
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number of orders placed * The cost of placing an order
Total AoC = (D/Q)S |
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Annual Holding Cost
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Q = Order Quantity
Total Annual Holding Cost = (Q/2)H |
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EOQ Symbols
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D = Annual Demand
S = Cost Per Order H = Holding cost per unit ($ to carry one unit of inventory per year) Q = Order Quantity |
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Total Annual Cost (of inventory)
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The total annual inventory cost = sum of annual ordering cost + Annual holding cost
TC = (D/Q)S (Q/2)H |
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EOQ occurs when:
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(D/Q)S = (Q/2)H
a little algebra clean-up on this equation yields the following: Q2 = (2DS)/H and finally ______ Q = √2DS/H (this optimal value for Q is what we call the EOQ) |
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Raw materials:
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The purchased items or extracted materials that are transformed into components or products.
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Components:
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Parts or subassemblies used in building the final product.
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WIP
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Any item that is in some stage of completion in the manufacturing process.
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Finished Goods
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product delivered to customer
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Distribution inventory:
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Finished goods and spare parts that are at various points in the distribution system
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MRO
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Items that are used in manufacturing but do not become part of the finished product.
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Independent demand inventory item
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Inventory item whose demand is not related to (or dependent upon) some higher level item. Demand for such items is usually thought of as forecasted demand. Independent demand inventory items are usually thought of as finished products.
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Dependent demand inventory item:
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Inventory item whose demand is related to (or dependent upon) some higher level item. Demand for such items is usually thought of as derived demand. Dependent demand inventory items are usually thought of as the materials, parts, components, and assemblies that make up the finished product.
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Anticipation Inventory or Seasonal Inventory:
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In anticipation of Expected fluctuations: inventory are often built in anticipation of future demand, planned promotional programs, seasonal demand fluctuations, plant shutdowns, vacations, etc.
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Fluctuation Inventory or Safety Stock:
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Inventory is sometimes carried to protect against unpredictable or unexpected variations in demand.
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Lot-Size Inventory or Cycle Stock:
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Inventory is frequently bought or produced in excess of what is immediately needed in order to take advantage of lower unit costs or quantity discounts.
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Transportation or Pipeline Inventory
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Inventory is used to fill the pipeline as products are in transit in the distribution network.
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Speculative or Hedge Inventory
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Inventory can be carried to protect against some future event, such as a scarcity in supply, price increase, disruption in supply, strike, etc.
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3 Objectives of Inventory Management
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Provide the desired level of customer service.
Achieve cost-efficient operations Minimize inventory investment |
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Inventory decisions
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Lot sizing decision - size of order
Lot timing decision - timing of orders |
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Continuous review system
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continuously checks inventory
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Periodic review system
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It only requires that inventory levels be checked at fixed periods of time.
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Min-max system
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This approach allows both the order size and the time between the placement of orders to vary. Hybrid
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Advantages of continuous review
& Disadvantages of Continuous review |
provides tighter control over inventory items
- less safety stock needed Disadvantages requires constant monitoring (constant scrutiny) - problems with multiple items from same source (many items arrive in separate shipments |
