COM 341 Lecture Notes - Lecture 4: Carrying Cost, Lead Time, Finished Good
27 Apr 2018
School
Department
Course
Professor
CHAPTER 12: INDEPENDENT DEMAND INVENTORY SYSTEMS
What are the Inventory Types?
• Raw Materials
• Work in Process
• Finished Goods Inventory
• Maintenance/Repair/Operating Supplies
Inventory Costs:
Three Inventory Costs:
• Holding Costs: Variable costs that will increase proportionately with the volume that is
held
• Ordering Costs: This is associated with costs of placing orders and receiving the goods
• Setup Costs: These costs prepare a machine or process for producing the order
Inventory Expense:
• Inventory is expensive to hold due to issue with shrinkage, obsolescence, interest
payments for the working capital and much more. Expenses can increase with volume
and dependent on the value of inventory items
There are two types of systems to manage independent-demand inventories:
• Fixed order quantity Systems
Information:
- Demand is known, and independent
- You are able to have a specific number for the lead time
- You are unable to have quantity discounts
- Stockouts can be avoided
• Fixed period or periodic systems
EOQ:
EOQ is where it balances the holding costs and ordering costs
How to find the EOQ?
FORMULA: Total Annual Cost = Annual Purchas Cost + Annual Ordering Cost + Annual
Holding Cost
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
What are the inventory types: raw materials, work in process, finished goods inventory, maintenance/repair/operating supplies. Inventory is expensive to hold due to issue with shrinkage, obsolescence, interest payments for the working capital and much more. Expenses can increase with volume and dependent on the value of inventory items. There are two types of systems to manage independent-demand inventories: fixed order quantity systems. You are able to have a specific number for the lead time. You are unable to have quantity discounts. Stockouts can be avoided: fixed period or periodic systems. Eoq is where it balances the holding costs and ordering costs. Formula: total annual cost = annual purchas cost + annual ordering cost + annual. H= holding cost per unit d = demand per year. Order q units every time the inventory level drops to the expected amount needed in the time required for the order to be ordered and received. Rop = d x l d= demand per day.
