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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 =
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 +
D = Annual demand quantity of product
ROP = d · L
EOQ Example. You’re a buyer for Express. Express needs 1000 coffee makers per year. The cost of each coffee maker is $78. Ordering cost is $100 per order. Carrying cost is 40% of per unit cost. Lead time is 5 days. Express is open 365 days/yr. What is the optimal order quantity & ROP?
ROP = daily demand x lead time (days) = d x L D= annual demand = 1000 Days/ year = 365 Daily demand = 1000/365 = 2.74 Lead time = 5 days
ROP = 2.74 x 5 = 13.7 —> 14