BIT 3414 Lecture Notes - Lecture 13: Economic Order Quantity, Purchase Order, Lead Time
7 Feb 2018
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Document Summary
Inventory management attempts to minimize inventory costs over a window (1 yr) of time by optimizing the decisions made when replenishing the inventory. Primary decisions: how much to order, when to order. Inventory costs cost that increases linearly with the number of units in stock (ex. Insurance, lost interest: cost of holding an item in inventory, total carrying cost is proportional to the number of units in inventory, represented as cost per unit per time period 1 yr, Ordering cost cost that increases linearly with the number of orders: cost of placing an order, co = , assume not proportional to order size, inverse relationship to carrying costs. Shortage cost (stock out cost) cost resulting when customer demand cannot be met because of insufficient inventory: temporary or permanent loss of sales, inverse relationship to carrying costs. Annual demand for item x = 1000 units = d. Two ordering scenarios: order 500 units at a time 2 orders/yr.
