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KU SCM 305 - inventory_student

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PowerPoint PresentationInventory ManagementTypes of InventorySlide 4Slide 5Inventory-Related CostsGoals of inventory managementWhen to OrderHow Much to ReorderEconomic Order Quantity ModelEOQ ExampleInventory FlowsSummaryInventory ManagementInventory Management•What to order•When to order•How much to order•Where to stockTypes of InventoryRaw materialsPurchased parts and suppliesLaborIn-process (partially completed) productsComponent partsWorking capitalTools, machinery, and equipmentSafety stockJust-in-caseInventory Management•What is Inventory?•satisfy normal demand patterns•Inventory management–Decisions drive other logistics activities–Different functional areas have different inventory objectives–Inventory costs are important to consider•Inventory turnover•Inventory carrying costs•Pull•Push•Just-in-timeInventory Management PhilosophiesInventory-Related Costs•Inventory carrying (holding) costs–Obsolescence–Inventory shrinkage–Storage costs–Handling costs–Insurance costs–Taxes–Interest charges–Opportunity cost•StockoutsGoals of inventory managementWhen to Order•Reorder point (ROP)ROP = DLT x LT under certaintyROP = (DLT x LT) + SS under uncertaintyWhere DLT = demand during lead timeLT = Lead TimeSS = safety stockHow Much to Reorder•Economic order quantity (EOQ) in dollarsEOQ = √2ACO/ICWhereEOQ = the most economic order size, in dollars A = annual usage CO = administrative costs per order of placing the order IC = carrying costs of the inventory (%)Economic Order Quantity ModelEconomic Order Quantity Model•EOQ seeks to minimize inventory cost by determine a fixed optimal order quantity to be placed.•EOQ model: balance the cost of ordering and the cost of holding inventory.1) Cost of Ordering2) Cost of Holding InventoryEOQ ExampleAnnual Usage = 45,000 unitsOrdering costs = $30 per orderCarrying costs = 20%# ORDERS/YEAR = A/Q = 45,000/3675 = 12.24Inventory Flows•Safety stock can prevent against three problem areas–Longer-than-normal _____________–Variability in ________________•When fixed order quantity system is used, time between orders may vary•When reorder point is reached, fixed order quantity is orderedSummary•Why have inventory•Asset or liability•EOQ – purpose and calculation•Inventory Turns•Types of inventory•Purpose of inventory•Safety


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