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CHAPTER. 8. Inventory Management. Independent Demand. Dependent Demand. A. C(2). B(4). H(2). E(1). F(2). D(3). Independent demand is uncertain. Dependent demand is certain. Inventory : a stock or store of goods. A. C(2). B(4). H(2). E(1). D(3). F(2).

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  1. CHAPTER 8 Inventory Management

  2. Independent Demand Dependent Demand A C(2) B(4) H(2) E(1) F(2) D(3) Independent demand is uncertain. Dependent demand is certain. Inventory: a stock or store of goods

  3. A C(2) B(4) H(2) E(1) D(3) F(2) How many items of C, D, and E should be requested if Quantity of A = 100 units Answer Q of C = 100 x 2 = 200 units Q of D = 100 x 2 x 3 = 600 units Q of E = 100x 4 x 1 = 400 units

  4. Types of Inventories • Raw materials • Partially completed goods called work in progress • Finished-goods inventories • Replacement supplies such as spare parts • Goods-in-transit to warehouses or customers

  5. Functions of Inventory • To meet demand • To smooth production • To protect against stock-outs • To help hedge against price increases • To take advantage of quantity discounts

  6. Economic Order Quantity

  7. EOQ = = 400 units 2(16000)(2000) 400 EOQ = 2DS H EOQ Example 1 When Order cost = $ 2000 per order Semi-annual quantity = 8000 units Holding cost = $ 400 per unit Find EOQ

  8. EOQ Example 2 Based on the previous problem Find • No. of orders No. of orders = D/EOQ = 16000/400 = 40 orders b) Order cost Order cost = No. of Orders x Order Cost = 40 x $ 2000 = $ 80000 c) Holding cost Holding cost = EOQ/2 x Holding cost 400/2 x $ 400 = $ 80000 d)Total cost Total cost = Order cost + Holding cost = $ 80000 + $ 80000 = $160000

  9. Assumptions of Basic EOQ Model • Demand is known with certainty and is constant over time • No shortages are allowed • Lead time for the receipt of orders is constant • Order quantity is received all at once

  10. Inventory Order Cycle Order quantity, Q Average inventory Demand rate Inventory Level Q 2 Reorder point, R 0 Time Lead time Lead time Order placed Order receipt Order placed Order receipt

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