To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights.

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Inventory and Materials Management A. A. Elimam

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. The Materials Management Cycle Acquisition of raw materials Distribution StorageConversion Storage

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Cost of Goods Sold - 1990 Energy18% Materials66%

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Cost of Goods Sold - 1990 Labor12% Energy18% Materials66%

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Cost of Goods Sold - 1990 Labor12%Capital4%Energy18% Materials66%

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Profit Potential of Materials AlternativePercentage Change

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Profit Potential of Materials AlternativePercentage Change 1.Increase sales by $10 million ( ) $10 million $100 million (100%) = 10%

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Profit Potential of Materials AlternativePercentage Change 1.Increase sales by $10 million 2.Reduce labor costs by $1 million ( ) $10 million $100 million (100%) = 10% ( ) $1 million $15 million (100%) = 7%

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Profit Potential of Materials AlternativePercentage Change 1.Increase sales by $10 million 2.Reduce labor costs by $1 million 3.Reduce materials costs by $1 million ( ) $10 million $100 million (100%) = 10% ( ) $1 million $15 million (100%) = 7% ( ) $1 million $60 million (100%) = 2%

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Manufacturing(36%) Where Inventories Are Held

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Manufacturing(36%) Retail trade (25%) Where Inventories Are Held

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Manufacturing(36%) Retail trade (25%) Wholesale trade (23%) Where Inventories Are Held

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Manufacturing(36%) Farm(8%) Retail trade (25%) Wholesale trade (23%) Where Inventories Are Held

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Manufacturing(36%) Other(8%)Farm(8%) Retail trade (25%) Wholesale trade (23%) Where Inventories Are Held

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. The Acquisition Process  Recognize a need  Select suppliers  Place the order  Track the order  Receive the order

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Inventory at Successive Stocking Points

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Types of Inventory Cycle Inventory Average cycle inventory = Q + 0 2

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Types of Inventory Cycle Inventory Safety Stock Average cycle inventory = Q + 0 2

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Types of Inventory Cycle Inventory Safety Stock Anticipation Inventory Average cycle inventory = Q + 0 2

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Types of Inventory Cycle Inventory Safety Stock Anticipation Inventory Pipeline Inventory Average cycle inventory = Pipeline inventory = D L = dl Q + 0 2

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Inventory Measures Average inventory = $2 million Cost of goods sold = $10 million

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Inventory Measures Weeks supply = = 10.4 weeks ($2 million)(52 weeks) $10 million Average inventory = $2 million Cost of goods sold = $10 million

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Inventory Measures Inventory turnover = = 5 turns/year $10 million $2 million Weeks supply = = 10.4 weeks ($2 million)(52 weeks) $10 million Average inventory = $2 million Cost of goods sold = $10 million

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. ABC Analysis 102030405060708090100 Percentage of items Percentage of dollar value 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 —

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. ABC Analysis 102030405060708090100 Percentage of items Percentage of dollar value 100 — 90 — 80 — 70 — 60 — 50 — 40 — 30 — 20 — 10 — 0 — Class C Class A Class B

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Independent Demand Inventory Time Aggregate demand

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Independent Demand Inventory Average demand Time Aggregate demand

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Independent Demand Inventory Average demand Time Demand averaged over all customers is relatively smooth Aggregate demand

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity On-hand inventory (units) Time

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity On-hand inventory (units) Time Receive order Q

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity On-hand inventory (units) Time Receive order Q 1 cycle

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity On-hand inventory (units) Time Receive order Inventory depletion (demand rate) Q 1 cycle

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity On-hand inventory (units) Time Average cycle inventory QQ—2QQ—2 1 cycle Receive order Inventory depletion (demand rate)

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity Annual cost (dollars) Lot Size (Q)

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity Annual cost (dollars) Lot Size (Q) Holding cost (HC)

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity Annual cost (dollars) Lot Size (Q) Holding cost (HC) Ordering cost (OC)

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity Annual cost (dollars) Lot Size (Q) Ordering cost (OC) Holding cost (HC) Total cost = HC + OC

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 —

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity Annual cost (dollars) |||||||| 50100150200250300350400 3000 — 2000 — 1000 — 0 — Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Lot Size (Q) Birdfeeder costs C = (H) + (S) Q2Q2 DQDQ D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 390 units

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity Annual cost (dollars) |||||||| 50100150200250300350400 Lot Size (Q) 3000 — 2000 — 1000 — 0 — Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs C = (H) + (S) Q2Q2 DQDQ D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 390 units C = $2925 + $108 = $3033

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs C = (H) + (S) Q2Q2 DQDQ D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 390 units C = $2925 + $108 = $3033

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = EOQ C = (H) + (S) Q2Q2 DQDQ EOQ = 2DS H

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 75 units C = (H) + (S) Q2Q2 DQDQ EOQ = 2DS H

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 75 units C = $562 + $562 = $1124 C = (H) + (S) Q2Q2 DQDQ EOQ = 2DS H

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 75 units C = $562 + $562 = $1124 C = (H) + (S) Q2Q2 DQDQ EOQ = 2DS H Lowest cost Best Q (EOQ)

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 75 units C = $562 + $562 = $1124 C = (H) + (S) DQDQ Q2Q2 EOQ = 2DS H Lowest cost Best Q (EOQ) Time between orders TBO EOQ = (12 months/year) EOQ D TBO EOQ = (52 weeks/year) EOQ D

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ Birdfeeder costs D = (18 /week)(52 weeks) = 936 units H = 0.25 ($60/unit) = $15 S = $45 Q = 75 units C = $562 + $562 = $1124 C = (H) + (S) DQDQ Q2Q2 EOQ = 2DS H Lowest cost Best Q (EOQ) Time between orders TBO EOQ = (12 months/year) EOQ D TBO EOQ = (52 weeks/year) EOQ D TBO EOQ = (75/936)(12) = 0.96 months TBO EOQ = (75/936)(52) = 4.17 weeks

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Economic Order Quantity |||||||| 50100150200250300350400 Annual cost (dollars) Lot Size (Q) 3000 — 2000 — 1000 — 0 — Current cost Lowest cost Best Q (EOQ) Current Q Total cost = (H) + (S) DQDQ Q2Q2 Holding cost = (H) Q2Q2 Ordering cost = (S) DQDQ

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point On-hand inventory Time R Order received Q OH

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point On-hand inventory Order received Q OH Order placed IP TBO L R

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point On-hand inventory Time Order received Order received QQ OH Order placed Order placed IP TBO L L L R

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point Time On-hand inventory Order received Order received Q OH Order placed Order placed IP R TBO 1 TBO 2 TBO 3 L1L1 L2L2 L3L3

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point / Safety Stock Probability of stockout (1.0 - 0.85 = 0.15) Cycle-service level = 85% Average demand during lead time zLzL R

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point / Safety Stock Demand during lead time = 36 units  L = 15 Cycle/service level = 90% Time On-hand inventory R

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point / Safety Stock Demand during lead time = 36 units  L = 15 Cycle/service level = 90% Time On-hand inventory R z = 1.28 Safety stock = z  L = 19.2  19 Reorder point = 36 + 19 = 55

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point / Safety Stock Demand during lead time = 36 units  L = 15 Cycle/service level = 90% Time On-hand inventory 55 z = 1.28 Safety stock = z  L = 19.2  19 Reorder point = 36 + 19 = 55

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point / Safety Stock Demand during lead time = 36 units  L = 15 Cycle/service level = 90% Time On-hand inventory 55 z = 1.28 Safety stock = z  L = 19.2  19 Reorder point = 36 + 19 = 55 When  L is unknown:  L =  t L

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Reorder Point / Safety Stock Lower Florida Keys Health System Basic Surgery Cart Demand During Lead Time (units)100200300400500600 Probability0.100.150.200.250.250.05 Cumulative Probability0.100.25.0450.700.951.00 Desired Cycle-Service Level = 95% Reorder Point = 500 units Safety stock = Reorder point - DDLT DDLT= 100(0.10) + 200(0.15)... 600(0.05) = 355 units Safety stock = 500 - 355 = 145 units

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory PP T

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory PP T Q1Q1 Order placed

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory PP T Q1Q1 L Order placed

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory PP T Q1Q1 L Order placed Order received

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory Order received Order receive d Order placed Order placed Q1Q1 Q2Q2 Q3Q3 LLL PP T

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory IP 1 IP 3 IP 2 Order received Order receive d IP OH Order placed Order placed Q1Q1 Q2Q2 Q3Q3 LLL PP Protection interval T

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory IP 1 IP 3 IP 2 Order received Order receive d IP OH Order placed Order placed Q1Q1 Q2Q2 Q3Q3 LLL PP Protection interval T Q t = T - IP t IP = OH + SR - BO T = 400BO = 5 OH = 0SR = 0 Q = 400 - (-5) = 405

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory IP 1 IP 3 IP 2 Order received Order receive d IP OH Order placed Order placed Q1Q1 Q2Q2 Q3Q3 LLL PP Protection interval T Q t = T - IP t IP = OH + SR - BO T = 400BO = 5 OH = 0SR = 0 Q = 400 - (-5) = 405 T = Average demand during protection interval + z  P+L  t = 15 units L = 3 weeks cycle/service level = 80%

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory IP 1 IP 3 IP 2 Order received Order receive d IP OH Order placed Order placed Q1Q1 Q2Q2 Q3Q3 LLL PP Protection interval T Q t = T - IP t IP = OH + SR - BO T = 400BO = 5 OH = 0SR = 0 Q = 400 - (-5) = 405 T = Average demand during protection interval + z  P+L D = (40 units/week)(52 weeks) = 2080 units  t = 15 units L = 3 weeks cycle/service level = 80% P = = 10 weeks EOQ D  P+L = 15 13 = 54 units

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory IP 1 IP 3 IP 2 Order received Order receive d IP OH Order placed Order placed Q1Q1 Q2Q2 Q3Q3 LLL PP Protection interval T Q t = T - IP t IP = OH + SR - BO T = 400BO = 5 OH = 0SR = 0 Q = 400 - (-5) = 405 T = Average demand during protection interval + z  P+L D = (40 units/week)(52 weeks) = 2080 units  t = 15 units L = 3 weeks cycle/service level = 80% P = = 10 weeks EOQ D  P+L = 15 13 = 54 units T = (40 units/week)(13 weeks) + 0.84(54 units) = 565 units

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights reserved. Periodic Review Systems Time On-hand inventory IP 1 IP 3 IP 2 Order received Order receive d IP OH Order placed Order placed Q1Q1 Q2Q2 Q3Q3 LLL PP Protection interval T

To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights.

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To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights.

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Presentation on theme: "To accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Fourth Edition  1996 Addison-Wesley Publishing Company, Inc. All rights."— Presentation transcript:

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