Inventory

management
Definition of inventory
• Inventory is...Item? Resource?

• An inventory system is the set of policies, such as…

• Manufacturing inventory, and the types....

• In services, inventory generally refers to…

• An inventory system is the set of policies:

(1) when items should be ordered?

(2) how large the order should be?

Inventory cost
• Holding cost (carrying cost):
• Storage facilities
• Handling
• Insurance
• Pilferage
• Breakage
• And others…
Inventory cost
• Holding cost (carrying cost):
• Low level of inventoryfrequent replenishment
VS
• High level of inventoryinventory carrying cost

• Setup costs (production change cost):

• Obtaining the necessary material
• Arranging specific equipment setup
• And others...
Inventory cost

• Setup costs (production change cost):

• Obtaining the necessary material
• Arranging specific equipment setup
• Filling out the required papers
• And others...

• Small lots
• Low level of inventoryLow carrying cost
• JIT
Inventory cost

• Ordering cost:
• Managerial cost
• Clerical cost

• Counting item
• Calculating order quantity
• Maintaining the system needed to track order
• Purchase order
Inventory cost

• Shortage cost:
• Stockout?
• Backorder?

• Stockout Stockout cost

• Backorder Backorder cost
• Stockout cost
Backorder cost
VS
High level of inventory  Inventory carrying cost
Independent demand VS dependent demand
• Independent demand:
• The demands for various items are unrelated to each other

• Dependent demand:
• The need for any one item is a direct result of the need for
some other item, usually an item of which it is a part
Inventory system
• Single Period System:
• Person selling T-shirts promoting a championship basketball
• Two Criteria...

• Multi Period System:

• Fixed-order quantity model
• Fixed-time period model
Multi Period System
• Single Period System:
• Person selling T-shirts promoting a championship basketball
• Two Criteria...

• Multi Period System:

•Fixed-order quantity model ***
• Event triggered
•Fixed-time period model
• Time triggered
Multi Period System: Fixed-order quantity model
Multi Period System: Fixed-order quantity model
Multi Period System: Fixed-order quantity model
 Fixed-order quantity model: Assumptions
• Inventory position
Fixed-order quantity model: Total Inventory Cost
Fixed-order quantity model: Total Inventory Cost
Fixed-order quantity model: EOQ
Fixed-order Quantity Model: Reorder Point
Fixed-order quantity model: sample math