Lecture Operations and supply chain management: The Core (3/e) – Chapter 11: Inventory management

After reading the material in this chapter, you should be able to: Explain the different purposes for keeping inventory, understand that the type of inventory system logic that is appropriate for an item depends on the type of demand for that item, calculate the appropriate order size when a one-time purchase must be made,...

Inventory Management

Learning Objectives

1. Explain the different purposes for keeping

inventory

2. Understand that the type of inventory

system logic that is appropriate for an item depends on the type of demand for that

item

3. Calculate the appropriate order size when a

one-time purchase must be made

4. Describe what the economic order quantity

is and how to calculate it

5. Summarize fixed–order quantity and fixed–

time period models, including ways to

determine safety stock when there is

variability in demand

6. Discuss why inventory turn is directly

related to order quantity and safety stock

on forklifts, on shelves, and in trucks and planes while

in transit

on the balance sheet at any given time

far as possible

percent of its value

Inventory Models

Purposes of Inventory

Inventory Costs

Demand Types

Inventory Systems -

Comparison

Single Period Inventory Model

Multi-Period Models

Multi-Period Models -

Comparison

 Inventory remaining must

be continually monitored

 Has a smaller average

inventory

 Favors more expensive

items

 Is more appropriate for

important items

 Requires more time to

maintain – but is usually

more automated

 Is more expensive to

 Counting takes place only

at the end of the review period

 Has a larger average inventory

 Favors less expensive items

 Is sufficient for less-important items

 Requires less time to maintain

 Is less expensive to

Fixed-Order Quantity Models -

Assumptions

 Demand for the product is constant and

uniform throughout the period

 Lead time (time from ordering to receipt) is

constant

 Price per unit of product is constant

 Inventory holding cost is based on average

inventory

 Ordering or setup costs are constant

 All demands for the product will be satisfied

Establishing Safety Stock

Levels

Inventory Models with Price

Breaks

quantity for each price and see if the quantity is feasible

order quantity for each price until a feasible order quantity is found

this is best, otherwise, calculate the total cost for the first feasible quantity and calculate total cost at each price lower than the first feasible order quantity

Inventory Management