cht 6 inventory

7/24/2019 Cht 6 Inventory

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Inventory Control Models

Chapter 6


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2

Types of Inventory


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Uses of Inventory

As a buffer to decouple

suppliers and users,

manufacturers and customers,

two workstations in a workshop.


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4

Costs elated to Inventory

Carryin! "holdin!# cost

$rderin! cost

%tockout cost

&urchase "material# cost


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5

Carryin! Cost

Includes:

Capital cost

Opportunity costs, Storage space rental, and labor and

facilities for storage,

Cost of obsolescence and damage, Insurance.

aries !it" t"e amount of in#entory.


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$

$rderin! Cost

Includes: S"ipping and "andling cost,

Cost of processing orders, suc" as forms,papers, labor.

%ypically, t"is cost #aries !it" number of

orders, not !it" number of units in an order.


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%tockout Cost

Includes:

'ost profit,

()pediting and bac* ordering e)penses, Cost of reputation and good!ill


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Inventory &rofile


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Avera!e Inventory

In#entory le#el c"anges e#eryday.

-#erage in#entory is often used to

measure in#entory le#el-#erage daily in#entory le#el

22

orderaninunitsofnumber Q==


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/

%ome 'asic Calculations "( of )#

01annual demand in units

Co1ordering cost per order

C"1carrying cost per unit per year1order uantity 1 number of units in an order.

umber of orders reuired in a year

0

orderaninunitsofnumberunitsindemandannual ==


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%ome 'asic Calculations ") of )#

%otal annual "olding cost 1

%otal annual ordering cost

%otal annual in#entory cost

hCQ

2

oC

0=

o" C0C

2 +=


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*conomic $rder +uantity

"*$+#

(O is t"e order uantity at !"ic" t"e

total annual cost annual "olding cost 6

annual ordering cost7 is minimi8ed.


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*$+ Total Costs

%otal annual costs

1 annual ordering costs 6 annual "olding costs


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ormula for *$+

'et 9 be (conomical Order uantity (O7:

h

o

C

DCQ

29=


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%imco &ump *-ample p.&7

-nnual demand 1 ,/// units

Ordering cost 1 / ; order

-nnual "olding cost 1 /.5 ; unit


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$


ith order /uantity +01)22 units,

"a# 3ow many orders would be made

annually4

"b# hat is the total annual orderin! cost4

"c# hat is the avera!e daily inventory4

"d# hat is total annual holdin! cost4"e# hat is the total annual inventory cost4


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&



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+

&urchase Cost, C

>urc"ase cost, C, of in#entory items is not

in t"e (O formula, since t"e order

uantity does not affect t"e annualpurc"ase cost, 0C. %"at is, C is not

rele#ant in determining t"e order uantity.

Sometime, unit carrying cost is a percent, I,

of t"e purc"ase cost of t"e item, i.e., C"1IC.


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eorder &oint

?eorder point is in terms of number of

units on "and, at !"ic" an order s"ould

be placed.?eorder point must be at least t"e

demand during t"e lead time deli#ery

time7.


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%afety %tock

Safety stoc* is t"e e)tra stoc* to "elp

in a#oiding stoc*out, !"en t"ere e)ist

uncertainties in demand and lead time.


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%afety %tock and Uncertainties


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ormula for eorder &oint

?eorder >oint

1 d' 6 SS

!"ere

d 1 a#erage daily demand in units

' 1 lead time in daysSS 1 safety stoc* in units


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*-ample "p.)2( e-tended#

>rocomp@s annual demand is +,///

units. %"ere are 2// !or* days per

year. So, daily demand is 4/ units.'ead time 1 3 days

Safety stoc* 1 2/ units

7=


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3ow oes *$+ ork in

Inventory Control4

Aor eac" item *, calculate its economic

order uantity *9and its reorder point

?O>*.Beep !atc"ing t"e in#entory on "and.

If t"e stoc* of item * drops to ?O>*,

order *9units of item *.


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*$+ Assumptions p.37

0emand rate is constant.

%"e ordered units are deli#ered in a

single s"ipment instantaneous7.o uantity discount is a#ailable

-ll demand is satisfied no s"ortages7


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2$

*$+ without Instantaneous

eceipt Assumption p.2/7 The ordered units arrive piece by piece. Application e-ample7

A company8s finished !ood inventory that issupplied by its production department.

It is called &roduction un Model

The best order /uantity is called $ptimal&roduction +uantity "$&+#.


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2&

$&+ ormula

d 1 daily demand in units,

p 1 daily production capacity in units,

Cs1 setup cost "similar to Co# and Chare defined same as before,

then

7.529

p

dC

DCQ

h

s

=


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2+

Meanin! of +0 in $&+7

+0 here is still the 9order quantity:

"number of units in an order#, but

the order is issued to the productiondepartment of the same company.

Therefore, +0 can also be

understood as the production batchsi;e.


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2

ormulas in &roduction un Model

a)imum In#entory 'e#el

-#erage In#entory 'e#el

7.5

p

dQ =

7.52 p

dQ=


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ormulas in &roduction un Model

%otal annual ordering cost 1

same as for (O7

%otal annual "olding cost %otal annual in#entory cost

sC

0

"C75.2

p

d=

"s C75.

2

C

0

p

d+=


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3

*-ampleof Dro!n anuf. p.2/37

-nnual demand 1 /,/// unitsE

Setup ordering7 cost 1 //;order

Carrying cost 1 /.5/;unit;year0aily production rate 1 +/ units

0aily demand rate 1 $/ units.

Once a unit is finis"ed, it is counted into t"e

in#entory.


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To ind *$+ under +uantity

iscount p.2/$ 2/7

%rialFandFerror met"od in general

ay de#elop a spreads"eet t"at

calculate t"e total cost for eac"possible order uantity. %"en, pic* up

t"e order uantity !it" t"e lo!est total

cost. See class demonstration7


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cht 6 inventory

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