FARE 3310 Lecture Notes - Lecture 10: Carrying Cost, Economic Order Quantity, Lead Time
20 Mar 2018
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Document Summary
What is inventory: physical material that you have. Inventory is both a cost and a source of revenue. Importance of inventory: one of the most expensive assets of many companies representing as much as 50% of total invested capital, operations managers must balance inventory investment and customer service. Dell computers: does not make computer until it is purchased. Inventory management: the objective of inventory management is to strike a balance between inventory investment and customer service. Inventory models for independent demand: need to determine when and how much to order, basic economic order quantity, production order quantity, quantity discount model. Important assumptions: demand is known, constant, and independent, lead time is known and constant, receipt of inventory is instantaneous and complete, quantity discounts are not possible, only variable costs are setup and holding, stockouts can be completely avoided. Q* = optimal number of pieces per order (eoq) D = annual demand in units for the inventory item.
