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Dependent demand = MRP system (transformation process of inputs/data into outputs/decision support
information)
Independent demand =
- fixed-order quantity model = Q system – or continuous review system or re-order point
system
- ”Q” stands for order size and can be selected at any quantity
- when the inventory reaches “R” (the reorder point), the system triggers an order of size
Q to be placed to vendors
Difference between two systems = lower safety stock requirements for Q System, as well as greater
monitoring efforts and costs required for Q System; P System used for C Items versus A Items
EOQ (or ELS) = square root of (2DS/H) or (2DS/iC), D being the “annual demand” and S being the
“setup cost per order” and H being the “annual unit inventory holding cost”
Cycle Inventory = Q/2 = (Avg Inv/Cycle)
Reorder Point = R = Dl + SS (Dl is expected demand during lead-time and SS is safety stock)
R(b) = Dl + z(ol) (Dl is expected demand during lead-time, z is # of standard deviations from the mean
needed to implement the cycle-service level, and ol is the standard deviation of Dl)
T = D p+l + Z (o p+l)
T = D p+l + Safety Stock