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12,InventoryManagement,12-2,LearningObjectives,Definetheterminventory,listthemajorreasonsforholdinginventories,andlistthemainrequirementsforeffectiveinventorymanagement.DiscussthenatureandimportanceofserviceinventoriesDiscussperiodicandperpetualreviewsystems.Discusstheobjectivesofinventorymanagement.DescribetheA-B-Capproachandexplainhowitisuseful.,12-3,LearningObjectives,DescribethebasicEOQmodelanditsassumptionsandsolvetypicalproblems.Describetheeconomicproductionquantitymodelandsolvetypicalproblems.Describethequantitydiscountmodelandsolvetypicalproblems.Describereorderpointmodelsandsolvetypicalproblems.Describesituationsinwhichthesingle-periodmodelwouldbeappropriate,andsolvetypicalproblems.,12-4,Inventory:astockorstoreofgoods,Inventory,12-5,InventoryModels,Independentdemand:finishedgoods,itemsthatarereadytobesoldE.g.acomputerDependentdemand:componentsoffinishedproductsE.g.partsthatmakeupthecomputer,12-6,TypesofInventories,RawmaterialsandpurchasedpartsPartiallycompletedgoodscalledwork-in-processFinished-goodsinventories(manufacturingfirms)ormerchandise(retailstores),12-7,TypesofInventories,Replacementparts,tools,andsuppliesGoods-in-transittowarehousesorcustomers,12-8,FunctionsofInventory,TomeetanticipateddemandTosmoothproductionrequirementsTodecoupleoperationsToprotectagainststockouts,12-9,FunctionsofInventory,TotakeadvantageofordercyclesTohelphedgeagainstpriceincreasesTopermitoperationsTotakeadvantageofquantitydiscounts,12-10,ObjectiveofInventoryControl,ToachievesatisfactorylevelsofcustomerservicewhilekeepinginventorycostswithinreasonableboundsLevelofcustomerserviceCostsoforderingandcarryinginventory,Inventoryturnoveristheratiooftheaveragecostofgoodssoldtotheaverageinventoryinvestment.,12-11,AsystemtokeeptrackofinventoryAreliableforecastofdemandKnowledgeofleadtimesReasonableestimatesofHoldingcostsOrderingcostsShortagecostsAclassificationsystem,EffectiveInventoryManagement,12-12,InventoryCountingSystems,PeriodicSystemPhysicalcountofitemsmadeatperiodicintervalsPerpetualInventorySystemSystemthatkeepstrackofremovalsfrominventorycontinuously,thusmonitoringcurrentlevelsofeachitem,12-13,InventoryCountingSystems,Two-binsystem:Twocontainersofinventory;reorderwhenthefirstisemptyUniversalProductCode(UPC):Barcodeprintedonalabelthathasinformationabouttheitemtowhichitisattached,12-14,Leadtime:timeintervalbetweenorderingandreceivingtheorderHolding(carrying)costs:costtocarryanitemininventoryforalengthoftime,usuallyayearOrderingcosts:costsoforderingandreceivinginventoryShortagecosts:costswhendemandexceedssupply,KeyInventoryTerms,12-15,ABCClassificationSystem,Classifyinginventoryaccordingtosomemeasureofimportanceandallocatingcontroleffortsaccordingly.A-veryimportantB-moderatelyimportantC-leastimportant,Figure12.1,12-16,CycleCounting,AphysicalcountofitemsininventoryCyclecountingmanagementHowmuchaccuracyisneeded?Whenshouldcyclecountingbeperformed?Whoshoulddoit?,12-17,Economicorderquantity(EOQ)modelTheordersizethatminimizestotalannualcostEconomicproductionmodelQuantitydiscountmodel,EconomicOrderQuantityModels,12-18,OnlyoneproductisinvolvedAnnualdemandrequirementsknownDemandiseventhroughouttheyearLeadtimedoesnotvaryEachorderisreceivedinasingledeliveryTherearenoquantitydiscounts,AssumptionsofEOQModel,12-19,TheInventoryCycle,Figure12.2,12-20,TotalCost,Annualcarryingcost,Annualorderingcost,Totalcost=,+,TC=,12-21,CostMinimizationGoal,OrderQuantity(Q),TheTotal-CostCurveisU-Shaped,OrderingCosts,QO,AnnualCost,(optimalorderquantity),Figure12.4C,12-22,DerivingtheEOQ,Usingcalculus,wetakethederivativeofthetotalcostfunctionandsetthederivative(slope)equaltozeroandsolveforQ.,12-23,MinimumTotalCost,Thetotalcostcurvereachesitsminimumwherethecarryingandorderingcostsareequal.,D,Q,S,=,12-24,ProductiondoneinbatchesorlotsCapacitytoproduceapartexceedsthepartsusageordemandrateAssumptionsofEPQaresimilartoEOQexceptordersarereceivedincrementallyduringproduction,EconomicProductionQuantity(EPQ),12-25,OnlyoneitemisinvolvedAnnualdemandisknownUsagerateisconstantUsageoccurscontinuallyProductionrateisconstantLeadtimedoesnotvaryNoquantitydiscounts,EconomicProductionQuantityAssumptions,12-26,EconomicRunSize,12-27,TotalCostswithPurchasingCost,12-28,TotalCostswithPD,Figure12.7,12-29,TotalCostwithConstantCarryingCosts,Figure12.9,12-30,WhentoReorderwithEOQOrdering,ReorderPoint:Whenthequantityonhandofanitemdropstothisamount,theitemisreorderedSafetyStock:Stockthatisheldinexcessofexpecteddemandduetovariabledemandrateand/orleadtimeServiceLevel:Probabilitythatdemandwillnotexceedsupplyduringleadtime,12-31,DeterminantsoftheReorderPoint,TherateofdemandTheleadtimeDemandand/orleadtimevariabilityStockoutrisk(safetystock),12-32,SafetyStock,Figure12.12,12-33,ReorderPoint,Figure12.13,12-34,OrdersareplacedatfixedtimeintervalsOrderquantityfornextinterval?SuppliersmightencouragefixedintervalsMayrequireonlyperiodicchecksofinventorylevelsRiskofstockoutFillrate:thepercentageofdemandfilledbythestockonhand,Fixed-Order-IntervalModel,12-35,TightcontrolofinventoryitemsItemsfromsamesuppliermayyieldsavingsin:OrderingPackingShippingcostsMaybepracticalwheninventoriescannotbecloselymonitored,Fixed-IntervalBenefits,12-36,RequiresalargersafetystockIncreasescarryingcostCostsofperiodicreviews,Fixed-IntervalDisadvantages,12-37,Singleperiodmodel:modelfororderingofperishablesandotheritemswithlimitedusefullivesShortagecost:generallytheunrealizedprofitsperunitExcesscost:differencebetweenpurchasecostandsalvagevalueofitemsleftoverattheendofaperiod,SinglePeriodModel,12-38,Continuousstockingleve

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