RSM270H1 Lecture Notes - Lecture 7: Safety Stock, Carrying Cost
Document Summary
Lecture 7: cycle stock and economic order quantity. Stock of any item resource used in organization. Tradeoff between too much inventory and bad service due to too little inventory. Produce throughout the year to have enough to meet peak periods. Apple makes people wait for iphone to create more desire for product. Hold inventory and buy in anticipation of price increase. Order of q placed each time inventory position falls below reorder point r. Every p days, current inventory levels are obtained and ordering decision is made. Order quantity q depends on current inventory level. Eoq balances inventory holding costs and inventory ordering costs via economies of scale. Amount on hand plus on order minus backordered quantities. Account for lead time to find reorder point. In optimal solution, ordering cost and holding cost are equal. Typical when supplier has more power than buyer. Cost of not having item when there is demand.
