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Operation Management
Operation Management
Operation Management
determining how much inventory to order and when to reorder it. These policies
typically involve factors such as demand forecasting, lead time, economic order quantity,
safety stock levels, and reorder points. The goal is to maintain an optimal balance between
having enough inventory to meet demand without excess stock, which can tie up capital and
increase storage costs. Common inventory ordering policies include Just-in-Time (JIT),
Economic Order Quantity (EOQ), and Periodic Review Systems.
The reorder point is the inventory level at which a new order should be placed to
replenish stock before running out. It's calculated based on factors like lead time (the time
it takes to receive new inventory), average demand, and desired service level (the probability
of not running out of stock during the lead time). Essentially, it's the buffer level (the lowest
amount of stock a business can store on site while still being able to operate
effectively) that ensures there's enough inventory on hand to cover demand during the lead
time for replenishment. When the actual inventory level drops to or below the reorder point, it
signals the need to initiate a reorder to prevent stockouts.
The Single Period Model is an inventory management technique used when businesses
only need to make a one-time purchase of an item to satisfy a specific demand. It's
commonly applied in situations where the item is perishable, seasonal, or has limited
demand visibility. The goal of the Single Period Model is to determine the optimal order
quantity that minimizes the total cost, considering factors such as the cost of
overstocking and the cost of stockouts. This model helps businesses make informed
decisions about how much inventory to purchase for a single period to maximize
profitability.
Operations strategy is a plan of action that defines how an organization will use its
operations function to support the overall business strategy. It involves making
decisions about how resources are allocated, processes are designed, and capabilities are
developed to achieve competitive advantage and meet customer needs. Operations strategy
cover a wide range of considerations, including production processes, supply chain
management, quality management, technology adoption, and capacity planning. A
well-defined operations strategy aligns operational activities with the broader goals of the
organization, ensuring efficiency, effectiveness, and responsiveness to market demands.