UML Ops Analysis Don Sutton

Functions of Inventory Decoupling Storing resources Irregular supply and demand Quantity discounts Avoiding stock outs

Key Inventory Questions How much to order When to order

Cost Factors Relevant Costs Cost of items Cost of Ordering Cost of Holding Cost of Stock outs Cost Trade off Ordering vs Holding

Economic Order Quantity Assumptions Constant demand Lead time in known Instantaneous receipt of inventory Constant purchase cost No stock out Holding cost and ordering cost are constant

EOQ Equation Reorder Point ROP = d x LT Ordering Cost = Holding Cost Holding Cost = (Q/2)C h Ordering Cost = (D/Q) C o

Quantity Discounts Holding cost is dependent upon purchase price ( C h = IC) Purchase cost is now a factor in analysis Methodology Compute EOQ for each discount price If EOQ < min for discount, adjust the Q to minimum for discount For each EOQ or adjusted Q, compute total cost Choose the lowest cost quantity