BIT 3414 Lecture Notes - Lecture 13: Economic Order Quantity, Stockout, Purchase Order
7 Feb 2018
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Document Summary
Inventory management attempts to minimize inventory costs over a window of time (1 year) by optimizing the decisions made when replenishing the inventory. Carrying cost (holding) cost that increases linearly with the number of units in stock. Insurance lost: 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, cc. Ordering cost cost that increases linearly with the number of orders: cost of placing an order, co ex. Co = : not proportional to order size, inverse relationship to carrying costs processing purchase order. Shortage cost (stockout) 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 order 200 units at a time 5 orders/yr.
