For in-class activity

1. Chapter 12 Inventory Management McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

14. The Inventory Cycle 12- Profile of Inventory Level Over Time Quantity on hand Q Receive order Place order Receive order Place order Receive order Lead time Reorder point Usage rate Time

15. Total Annual Cost 12-

16. Goal: Total Cost Minimization 12- Order Quantity (Q) The Total-Cost Curve is U-Shaped Ordering Costs Q * Annual Cost ( optimal order quantity) Holding Costs

19. EPQ: Inventory Profile 12- Q Q * I max Production and usage Production and usage Production and usage Usage only Usage only Cumulative production Amount on hand Time

20. EPQ – Total Cost 12-

21. EPQ 12-

23. Quantity Discounts 12-

24. Quantity Discounts 12-

26. Reorder Point: Under Certainty 12-

28. Safety Stock 12- LT Time Expected demand during lead time Maximum probable demand during lead time ROP Quantity Safety stock

31. Reorder Point ROP Risk of stockout Service level Expected demand Safety stock 0 z Quantity z-scale The ROP based on a normal Distribution of lead time demand 12-

32. Reorder Point: Demand Uncertainty 12-

33. Reorder Point: Lead Time Uncertainty 12-

35. Fixed-Quantity vs. Fixed-Interval Ordering 12-

36. FOI Model 12-

37. FOI Model OI * represents the optimal time between orders. Time-frame of interest is an appropriate period (e.g., days or weeks). This is usually based on the time-frame expressed by the average demand rate, d-bar. 12-

40. Stocking Levels 12- Service level S o Balance Point Quantity C s C e S o =Optimum Stocking Quantity