MGMT 339 Ch. 12

A stock or store of goods

Items that are ready to be sold or used

Components of finished products, rather than the finished products themselves.

Return on Investment- Profit after taxes / total assets

Ratio of annual cost of goods sold to average inventory investment

A physical count of items in inventory is made at periodic intervals (weekly, monthly) in order to decide how much to order of each item

AKA Continual System- Keeps track of removals from inventory on a continuous basis, so the system can provide information in the current level of inventory for each item.

• Once bin #1 items are gone = Reorder time.
• Bin #2 contains enough stock to satisfy expected demand.

Universal Product Code- Bar code on product.

Time interval between ordering and receiving the order

• Record items at the time of sale
• Done electronically... Target

• The cost of physically having the item (inventory) in storage for a length of time (usually a year)
• e.i: Interest, insurance, taxes, depreciation, spoilage, breakage, warehouse (light, heat, rent, security).

• Costs of ordering and receiving inventory
• ei: Shipping, prepare invoices, inspection of quality upon arrival

• Demand exceed supply of inventory
• e.i: cost of not making a sale, loss of customer goodwill, late charges

• Classifies inventory items according to some measure of importance, usually annual dollar value and then by control efforts.
• Annual $ amt (dollar value per unit multiplied by annual usage rate (demand))

Physical count of inventory. To reduce discrepancies btwn records and actual quantities on hand.

Economic Order Quantities- Optimal order quantity that minimizes annual cost

Identify a FIXED order size that will minimize the sum of the annual costs of holding inventory and ordering inventory.

• 1 product is involved
• No discounts
• Demand is known and is constant throughout the year
• Lead time does not vary
• Each order is received in a single delivery

Pg. 559

Is a balance between Carrying and Holding Costs

Pg. 560

• Avg. amt of inventory on hand X Cost of holding 1 item for 1yr. (annual carrying cost per unit)
• (Q/2)(H)

Optimal Order Quantity

Equal

Economic Production Quantity- production in batches

Almost same as EOQ


pg. 564

Inventory rate = Production - Usage rate

• When Production ceases
• (Q_p/p)(p-u)

setup costs- prepare equipment for use, cleaning, adjusting, changing tools & fixtures

D/Q

• # of runs X Setup cost per run
• (D/Q)(S)

(I_max/2) (H)

Q_p=(Square root (2DS/H)) (Square root(p/p-u))

• Time between orders or Time between beginning of runs
• Q_p/u

• Production phase of the cycle
• Q_p/p

I_max/2

Price reductions for large orders

• select an order quantity that will minimize total cost.
• Where total cost = carrying cost + ordering cost + PURCHASING Cost

• 1. Carrying Costs are Constant
• 2. Carrying Costs are expressed as a percentage

• 1. Find EOQ (common min pt) = (Square root (2DS/H))
• 2. Find TC for EOQ as well as the min. EOQ of cheaper options and compare.
• Optimal Order Quantity will be the cheapest TC

• 1. Determine Holding costs for each price range
• 2. Starting with the lowest price first, find the EOQ that matches the price for that range.
• 3. Starting with the EOQ you found in step 2, calculate the TC. Then calc the TC for all the cheaper options avail.
• 4. Lowest TC = Optimal Order Quantity

Reorder Point- When the quantity on hand of an item drops to this amount, the item is reordered. (perpetual inventory is required)

Stock that is held in excess of expected demand due to variable demand and/ or lead time

Probability that demand will not exceed supply during lead time