ITM 601 Lecture Notes - Lecture 12: Opportunity Cost, Carrying Cost, Quality Control

• School: Ryerson University
• Department: Information Technology Management
• Course: ITM 601
• Professor: Selcuk Savas

Document Summary

Talking about inventory management as it relates to resource planning. As soon as we order the q items, we receive them. The inventory gets smaller and smaller everyday all the way until you reach 0. When it goes down to 0, you order to fill the inventory and then, after selling items, you go down to 0. One is ordering cost: every time you order an item. Inventory holding cost: cost of keeping the inventory, warehouse and opportunity cost. Main thing is opportunity cost in inventory holding cost. We are looking at total cost which is sum of ordering cost and inventory holding cost. 100 balances with 0 etc. so the whole thing averages to 50 for example. If q is 100, average cycle inventory is q/2 = 100/2 = 50: total annual cycle-inventory cost. If you decrease order size, less holding and more frequent orders so higher order cost.