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Learning Objectives

Conuct an !"C analysis#

$%plain an use the $O& moel#

Compute a reorer point an e%plainsa'ety stoc(#

!pply the prouction orer )uantity

moel# $%plain an use the )uantity iscount

moel#

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To ,ecouple, or separate various parts o'

the prouction process To provie a stoc( o' goos that -ill

provie a .selection, 'or customers

To ta(e avantage o' )uantity iscounts

To hege against in/ation an up-arprice changes

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The unctions o' Inventory

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Types o' Inventory

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5a- material

+or(6in6progress Maintenance7repair7operating supply

inishe goos

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8igher costs

Item cost 9i' purchase

Orering 9or setup cost Costs o' 'orms; cler(s< -ages etc#

8oling 9or carrying cost "uiling lease; insurance; ta%es

etc#

=i>cult to control

8ies prouction problems

=isavantages o' Inventory

?

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=ivies on6han inventory into 3 classes

! class; " class; C class

"asis is usually annual @ volume @ volume A !nnual eman % nit cost

Bolicies base on !"C analysis

=evelop class ! suppliers more

ive tighter physical control o' ! items

orecast ! items more care'ully

ABC Analysis

D

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Control o' Fervice Inventories

oo personnel selection; training; aniscipline

Tight control o' incoming shipments

$Gective control o' all goos leaving the'acility

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Independent versus DependentDemand

Independent demand6 eman 'or item

is inepenent o' eman 'or any otheritem

Dependent demand6 eman 'or item isepenent upon the eman 'or some

other item

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Inventory Costs

Holding costs6 associate -ithholing or carryinginventory over time

Ordering costs6 associate -ith costso' placing orer an receiving goos

Setup costs6 cost to prepare amachine or process 'or manu'acturingan orer

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Orering Costs

Fupplies

orms

Orer processing

Clerical support

$tc#

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Fetup Costs

Clean6up costs

5e6tooling costs

!justment costs

$tc#

1

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i%e orer6)uantity moels

$conomic orer )uantity

Brouction orer )uantity

&uantity iscount

Brobabilistic moels

i%e orer6perio moels

Inventory Moels

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no-n an constant demand

no-n an constant lead time

Instantaneous receipto' material No)uantity discounts

Only orer 9setup cost an holing

cost o stockouts

$O& !ssumptions

1?

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$O& Moel

8o- Much to OrerJ

-rer /,a!tt#

A!!,al Cost

-rer &et,p* Cost C,r"e

-ptmal-rer ',a!tt# &'(*

+!m,m totalost

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$O& Moel $)uations

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Optimal Order Quantity

Expected Number of Orders

Expected Time et!een Orders "or#ing ays &ear

"or#ing ays &ear

' '( (

' '

' '

'

' (

Q* D S

H

N D

Q*

TN

d D

ROP d L

)

D' emand per year

S' *etup +order, cost perorder

H' -olding +carrying, cost

d' emand per day

L' .ead time in days

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'(

-&!ts*

lope ,!ts)a# d

ea tme

Tme &a#s*

I!

"e!tor#

le"el

&,

!ts*

The 5eorer Boint 95OB Curve

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!ns-ers ho- much to orer an -hen toorer

!llo-s partial receipt o' material

Other $O& assumptions apply

Fuite 'or prouction environment

Material prouce; use immeiately Brovies prouction lot si*e

Lo-er holing cost than $O& moel

Production Order Quantity Model

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Tme

I!

"e!tor#

$e"el

Bot7pro,to!a! ,saetae plae

sae o!l#taes plae+am,

m!"e!tor#

le"el

$O&BO&Moel +hen To Orer

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eorer

o!t&-*

Tme

I!"e!tor# e"el

A"eraeI!"e!tor#

ea Tme

-ptmal

-rer',a!tt#&'(*

$O&BO&Moel +hen To Orer

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Optimal Order Quantity

*etup /ost

-olding /ost

' '0

(

1

Q

H*d

p

Q

D

Q

S

p1

2

&

345 1 - 1 Q 0 d

p2

*0 dp2

& *

)11*

& *6aximum inventory level

D Demand peryear

S !etup cost H "oldin# cost

d Demand perday

p Productionper day

BO& Moel $)uations

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&uantity =iscount Fcheule

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$%$&CI!$!

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