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Essential Inventory Management Models and Costs

Learn about key categories of inventory models, such as deterministic vs. probabilistic, and factors like internal vs. external demand. Understand different cost components and dive into the Economic Order Quantity (EOQ) model assumptions.

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Essential Inventory Management Models and Costs

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  1. Inventory Planning & Control: Categories of Inventory Models • Deterministic vs. Probabilistic models • External vs. Internal demand • Ordering vs. Production • Continuous vs. Periodic review • Single-product vs. Multiple-product models.

  2. Costs involved in Inventory Models • Ordering (Setup) cost • Unit purchasing (Production) cost • Holding (Carrying) cost • Shortage (Penalty) cost • Revenue (Selling price)

  3. Basic EOQ Model • EOQ: Economic Order Quantity • Assumptions of EOQ models: • Demand is constant (unvarying ), expressed as annual demand (units per year ). • Models use continuous review, not periodic review. • Lead time is constant & known.

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