Topic 14. Production System Operation.
Inventory.
Inventory consist of a stock of items, the size of which is called the
inventory level.
Inventory management involves making decisions concerning how much
inventory to order a
nd when.
Inventory control involves process, procedures, and infrastructure to maintain
the inventory
at the desired level.
Optimal Order Quantity =
Expected Number Orders =
Expected Time Between Orders =
d =
PURCHASE COST Annual demand quantity of the product (D) multiplied by the purchase cost per
unit (P)
PD
HOLDING COST
(carrying cost of storage
cost)
The average quantity in stock (Q/2) times the annual holding cost per unit (H). Q
is the order quantity.
H*Q/2
ORDERING COST (the
cost of placing orders)
Each order has a constant cost (S) multiplied by (D/Q) times per year.
S*D/Q
TC = PD +
DS/Q +
HQ/2
D =
Annual
demand
quantity of
product
