Chapter 10 Inventory Management – Flashcards
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minimize total inventory related costs to meet the customer needs
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main objective of inventory management
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raw materials, finished goods, work in process, and distribution
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four types on inventory
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item cost, stockout cost, holding cost, ordering cost
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Four costs of inventory
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places inventory in different classes base on inventory cost
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ABC inventory analysis
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how much to order, and when to order
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two most important factors in inventory management
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the quantity ordered in a single order or manufactured in a single production run
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lot size
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order exactly what is needed, quantities change based on needs, use of time phased info(from MRP and MPS), most often used with A items
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lot-for-lot
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order quantity is fixed but period varies, minimal cost of carrying and ordering
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fixed order quantity
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quantity varies, order period fixed, order enough to cover demand overtime period
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fixed period quantity
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1. demand is known and constant 2. lead time is known and constant 3. All inventory received completely 4. Ordering costs are known and constant 5. Holding costs are known and constant 6. stock outs are completely avoided
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Economic Order Model
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annual ordering costs, annual holding costs, as the order quantity increases the average inventory and the cost of carrying increase
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Relevant costs for Economic order model
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buyer time costs, transportation costs, receiving costs, miscellaneous costs
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ordering costs
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handling costs, occupancy cost, obsolescence cost, miscellaneous cost
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holding costs
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number of orders X cost/ order
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Annual ordering cost
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average inventory X cost of carrying one unit per year, or average inventory X unit cost X carrying cost in percent
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annual carrying cost
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a discount is given for orders over a certain volume, must consider the purchase cost, ordering cost and carrying cost
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Quantity discount
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Economic order quantity / average weekly usage
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periodic order quantity
