Professional Documents
Culture Documents
demand
Purpose of inventory management
how many units to order
when to order
Types of Inventory
Raw materials
Purchased parts and supplies
Work-in-process (partially completed)
products (WIP)
Items being transported
Tools and equipment
vendors
Take advantage of price discounts
Inventory provides independence between
stages and avoids work stop-pages
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Independent
Inventory Costs
Carrying cost
cost of holding an item in inventory
Ordering cost
cost of replenishing inventory
Shortage cost
temporary or permanent loss of sales
when demand cannot be met
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ABC Classification
Class A
5 15 % of units
70 80 % of value
Class B
30 % of units
15 % of value
Class C
50 60 % of units
5 10 % of value
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UNIT COST
ANNUAL USAGE
$ 60
350
30
80
30
20
10
320
510
20
90
40
130
60
100
180
170
50
60
120
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ABC Classification:
Example (cont.)
PART
9
8
2
1
4
3
6
5
10
7
TOTAL
PART
VALUE
$30,600
1
16,000
2
14,000
3
5,400
4
4,800
5
3,900
3,600
6
CLASS
3,000
7
2,400
A
8
1,700
B
9
C
$85,400
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%UNIT
OF TOTAL
% OFANNUAL
TOTAL
COST
USAGE
VALUE
QUANTITY
% CUMMULATIVE
35.9
6.0
$ 60
18.7
5.0
350
16.4
4.0
30
6.3
9.0
5.680
6.0
4.630
10.0
4.220 % OF TOTAL
18.0
ITEMS
VALUE
3.510
13.0
12.0
9, 8,2.8
2
71.0
320
17.0
1, 4,2.0
3
16.5
5107
6, 5, 10,
12.5
20
6.0
90
11.0
A40
15.0
130
24.0
30.0
B60
100
40.0
% OF TOTAL
58.0
180
QUANTITY
71.0
170
C
83.0
50 15.0
100.0
25.0
60 60.0
120
Example 10.1
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Assumptions of Basic
EOQ Model
Demand is known with certainty and
is constant over time
No shortages are allowed
Lead time for the receipt of orders is
constant
Order quantity is received all at once
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Production Quantity
Model
An inventory system in which an order is
received gradually, as inventory is
simultaneously being depleted
AKA non-instantaneous receipt model
Safety Stocks
Safety stock
buffer added to on hand inventory during lead
time
Stockout
an inventory shortage
Service level
probability that the inventory available during
lead time will meet demand
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