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BUSI 2301 Lecture Notes - Safety Stock, Economic Order Quantity, Economic Production Quantity

Course Code
BUSI 2301
Inder S Mann

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CHAPTER 12: Inventory Mgmt
A. Intro
- Basic qs
oHow much to order
oWhen to order
- Functions of inv
oTo meet anticipated demand
oWait while being transpo’d
oProtect against stock-outs
oTake advantage of economic lot size and quantity discount
oSmooth seasonal production reqm’s
oDecouple ops
oHedge against price increases
- Inv turnover: ratio of avg COGS to avg inv investment
oInadequate control of inv can result in be either over and under stock
oUnderstock: missed deliveries, lost sales, dissat customer, production
oOverstock: excessive cost of the inv
oObjectives of inv control: have the right goods/place/time/amount, low cost of
ordering and carrying invs
B. Requirements for Effective Inv Mgmt
1. System to safely store and use inv
2. “ to keep track of inv, replenishment model
3. Reliable forecasts of dmd and knowledge of lead times
4. Reasonable est of inv holding, ordering, and shortage costs
5. ABC classification

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Inventory Counting and Replenishment Models
- Periodic and perpetual
- Fixed order quantity/reorder point model
oWhen the inv falls below a certain point they reorder a fixed amount same as
- Two bin system
oTwo containers of inv, reorder when the first is empty
- Lead Time: time interval between ordering and receiving the order
- Point of sale system: perpetual
- Universal bar code: dkm bruh
- Cost in4mation
oHolding costs
oOrdering costs
oSetup costs
oShortage costs
- ABC Classification: classifying inv according to some measure of importance and
allocating control efforts accordingly (A v imp, B med imp, C least imp)
C. Fixed Order Quantity/ Reorder Point Model: Economic Order Quantity
1) The basic economic order quantity (EOQ)
2) Economic production quan (EPQ)
3) The EOQ with quan disc
4) The EOQ with planned shortage
C1. Basic EOQ assumptions
- Only one product involved
- Annual dmd eqms known
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