LS Ch 13- Inventory Management

Formula for Annual Ordering Cost in the EOQ model

(D/Q)S

Formula for annual holding cost in EOQ model

(Q/2)H

Formula for Total Annual Cost in EOQ model

(Q/2)H + (D/Q)S

Total Cost formula for quantity discount model

(Q/2)H + (D/Q)S + PD

Maximum Inventory formula for EPQ Model

(Qp/P)(p-u)

1. Lead time is known 2. Annual demand is known

Assumptions of the EOQ model

During the lead time for an order that has been placed

At which point in an order cycle is the risk of a stock out occurring the greatest?

In a fixed-order-interval model, larger-than-expected demand causes which of the following situations to occur?

Larger order size than expected

1. Compute the EOQ 2. Identify the price at which the EOQ is feasible 3. If the feasible point is not in the range with the lowest price, compute the total cost for all price points at or below the feasible point 4. Select the point with the lowest cost

Optimal Order Quantity when H is constant and Quantity Discounts are available

1. Safety stock is required if lead time is variable 2. Safety stock is required if demand is variable

Reorder point ordering

1. State with the lowest price. Compute the minimum point for each price range until you find a feasible point 2. If the minimum point at the lowest cost is feasible, it is the optimal solution. 3. Otherwise, compare total costs at the price breaks for all lower prices with the total cost of the feasible minimum point. 4. The optimal point is the quantity that yields the lowest total cost.

Steps in finding EOQ in a quantity discount model with variable H

Fill Rate

The ____ ____ is the percentage of demand filled by the inventory on hand.

Holding Cost in the EOQ model

The cost to carry a single unit in inventory for a length of time.

Carrying costs per unit decline

When carrying costs are expressed as a percentage of price, what happens to carrying costs as the quantity discount increases?

1. The maximum inventory level is the same as the EPQ. 2. The assumptions are the same as in the EOQ model.

Which of the following statements about the economic production quantity is/are NOT true?

1. It can produce savings in shipping costs. 2. It requires higher levels of safety stock than a fixed-quantity model 3. The order point is fixed

Which of the following statements about the fixed-order-interval model is/are true?

Shortage Cost

___ ___ is the cost resulting when demand exceeds supply

Periodic; Perpetual

___ inventory systems take physical inventory counts. ___ inventory systems continuously keep track of changes to the inventory system.

Reorder point with no variability

d X LT

Formula for the Economic Order Quantity

= square root of [(2 X Total demand X Per order cost) / Per unit carrying cost]