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OM Lecture 2 (Inventory)
OM Lecture 2 (Inventory)
OM Lecture 2 (Inventory)
Management
12
PowerPoint presentation to accompany
Heizer, Render, Munson
Operations Management, Thirteenth Edition, Global Edition
Principles of Operations Management, Twelfth Edition
Flow time
95% 5%
Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Figure 12.1
10 20 30 40 50 60 70 80 90 100
Percentage of inventory items
PERCENTAGE PERCENTAGE
ITEM OF NUMBER OF ANNUAL ANNUAL OF ANNUAL
STOCK ITEMS VOLUME UNIT DOLLAR DOLLAR
NUMBER STOCKED (UNITS) x COST = VOLUME VOLUME CLASS
#10286 20% 1,000 $ 90.00 $ 90,000 38.8% A
72%
#11526 500 154.00 77,000 33.2% A
#12760 1,550 17.00 26,350 11.3% B
#10867 30% 350 42.86 15,001 6.4% 23% B
#10500 1,000 12.50 12,500 5.4% B
#12572 600 14.17 8,502 3.7% C
#14075 2,000 .60 1,200 .5% C
#01036 50% 100 8.50 850 .4% 5% C
#01307 1,200 .42 504 .2% C
#10572 250 .60 150 .1% C
8,550 $232,057 100.0%
CYCLE
ITEM COUNTING NUMBER OF ITEMS
CLASS QUANTITY POLICY COUNTED PER DAY
A 500 Each month 500/20 = 25/day
B 1,750 Each quarter 1,750/60 = 29/day
on hand
(maximum Q
inventory
level) 2
Minimum
inventory 0
Time
Total cost of
holding and
setup (order)
Minimum
total cost
Annual cost
Holding cost
Order quantity
= (Holding cost per unit per year)
2
æQö
= ç ÷H
è2ø
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Minimizing Costs D
Annual setup cost = S
Q
Q
Q = Number of pieces per order Annual holding cost = H
2
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year
2DS
Q* =
H
2(1,000)(10)
Q = *
= 40,000 = 200 units
0.50
Expected Demand D
number of = N = =
orders Order quantity Q*
1,000
N= = 5 orders per year
200
250
T= = 50 days between orders
5
D Q
TC = S + H
Q 2
1,000 200
= ($10) + ($.50)
200 2
= (5)($10) + (100)($.50)
= $50 + $50 = $100
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The EOQ Model
When including actual cost of material P
D Q
TC = S + H + PD
Q 2
ROP = d x L
d= D
Number of working days in a year
Q*
Stock is replenished as order arrives
Inventory level (units)
Slope = units/day = d
ROP
(units)
Time (days)
Lead time = L
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Reorder Point Example
Demand = 8,000 iPhones per year
250 working day year
Lead time for orders is 3 working days, may take 4
D
d=
Number of working days in a year
= 8,000/250 = 32 units
ROP = d x L
= 32 units per day x 3 days = 96 units
= 32 units per day x 4 days = 128 units
t Time
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Production Order Quantity Model
Q = Number of units per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand (usage) rate
t = Length of the production run in days
= pt – dt
= pt – dt
However, Q = total produced = pt ; thus t = Q/p
Maximum Q Q d
inventory level =p p –d p =Q 1– p
2DS
Q =*
p æ Annual demand rate ö
H ç1- ÷
è Annual production rate ø
D Q
TC = S + IP + PD
Q 2
2DS
Q* =
IP
TC for Discount 1
530,000 –
Not Feasible TC for Discount 2
520,053 –
517,155 –
Feasible
510,000 –
Not Feasible
Possible Order
500,000 – Quantities
120 1,500
Order Quantity
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Quantity Discount Example
2(5,200)($200)
Q$96* = = 278 drones/order
(.28)($96)
Infeasible – calculate Q*
for next-higher price
2(5,200)($200)
Q$98* = = 275 drones/order
(.28)($98)
Feasible
ROP = d × L + ss
30 .2
40 .2
ROP → 50 .3
60 .2
70 .1
1.0
0 Place Lead
time Receive Time
order order
Cs
Service level =
Cs + Co
Q4
Q2
On-hand inventory
Q1 P
Q3
Time
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Fixed-Period Systems
▶ Inventory is only counted at each
review period
▶ May be scheduled at convenient times
▶ Appropriate in routine situations
▶ May result in stockouts between
periods
▶ May require increased safety stock