VIEWS: 27 PAGES: 41 POSTED ON: 9/16/2011 Public Domain
Inventory Inventory Inventory Too much accountant Inventory Too much overstock accountant accountant Inventory Too little disappointed child accountant Inventory stock outs Too little disappointed child Inventory just right Inventory just right Thanks to quantitative methods! Pressures on Inventory Avoiding stockouts Pressures on Inventory Avoiding stockouts Storing resources Pressures on Inventory Avoiding stockouts Storing resources Irregular demand Pressures on Inventory Avoiding stockouts Storing resources Irregular demand Quantity discounts Pressures on Inventory Avoiding stockouts Storing resources Irregular demand Quantity discounts Decoupling from supply Costs and risks of carrying inventory Cost of capital Costs and risks of carrying inventory insurance Cost of capital Costs and risks of carrying inventory insurance Cost of capital inventory tax Costs and risks of carrying inventory insurance Cost of capital spoilage inventory tax Costs and risks of carrying inventory insurance theft Cost of capital spoilage inventory tax Costs and risks of carrying inventory insurance theft Cost of capital spoilage inventory tax obsolescence Costs and risks of carrying inventory insurance theft Cost of capital warehouse spoilage inventory tax obsolescence Costs and risks of carrying inventory insurance theft Cost of capital warehouse spoilage inventory tax obsolescence warehouse employees Costs and risks of carrying inventory insurance theft But warehouse Cost of capital spoilage watch out inventory tax for . . . warehouse obsolescence ordering employees costs Goal Minimize inventory-related costs spoilage - carrying cost inventory tax order cost - obsolescence The right quantity Inventory: Cost vs Quantity 80 70 60 50 Cost ($) 40 30 20 10 0 .1 42 .4 7 .9 82 .2 45 .5 08 .7 71 .0 34 .3 96 .6 59 .8 22 5 .7 62 18 15 78 13 69 28 70 34 75 39 80 44 84 50 89 55 93 60 98 65 03 23 46 76 80 5 1 8 5 2 9 6 3 1 90 7. Order Quantity (Q) Setup cost Cost of ordering Holding cost Inventory cost Total cost The right quantity Inventory: Cost vs Quantity 80 70 60 50 Cost ($) 40 30 20 10 0 .1 42 .4 7 .9 82 .2 45 .5 08 .7 71 .0 34 .3 96 .6 59 .8 22 5 .7 62 18 15 78 13 69 28 70 34 75 39 80 44 84 50 89 55 93 60 98 65 03 23 46 76 80 5 1 8 5 2 9 6 3 1 90 7. Order Quantity (Q) Setup cost Cost of ordering Holding cost Inventory cost Total cost The right quantity Inventory: Cost vs Quantity 80 Economic Order Quantity 70 60 50 Cost ($) 40 30 20 10 0 .1 42 .4 7 .9 82 .2 45 .5 08 .7 71 .0 34 .3 96 .6 59 .8 22 5 .7 62 18 15 78 13 69 28 70 34 75 39 80 44 84 50 89 55 93 60 98 65 03 23 46 76 80 5 1 8 5 2 9 6 3 1 90 7. Order Quantity (Q) Setup cost Cost of ordering Holding cost Inventory cost Total cost Economic Order Quantity 2DS EOQ = Ci D = Annual demand in units for the inventory item S = Cost per order C = Purchase cost per unit i = Holding cost as a percentage of purchase cost Economic Order Quantity The annual demand for screws at Home Depot is 100,000. Lila estimates that it costs $10 every time she places an order. She estimates that the cost of carrying 1 screw in inventory for a year is .5% Screws cost $1 each. How many screws should Lila order? How many times per year? Economic Order Quantity The annual demand for 2DS screws at Home Depot EOQ = is 100,000. Lila Ci estimates that it costs $10 every time D = Annual demand in units for she places an order. the inventory item She estimates that S = Cost per order the cost of carrying 1 C = Purchase cost per unit screw in inventory for a year is .5% Screws i = Holding cost as a percentage of cost $1. purchase cost Economic Order Quantity The annual demand for 2DS screws at Home Depot EOQ = is 100,000. Lila Ci units for the D = Annual demand in estimates that it costs $10 every time inventory item 100,000 she places an order. S = Cost per order $10 She estimates that C = Purchase cost per unit $1 the cost of carrying 1 i = Holding cost as a percentage of screw in inventory for a year is .5% Screws purchase cost .5% or .005 cost $1. Economic Order Quantity The annual demand for 2 x100000 x10 screws at Home Depot EOQ = 1x.005 is 100,000. Lila D = Annual demand in units for the estimates that it costs $10 every time inventory item 100,000 she places an order. S = Cost per order $10 She estimates that C = Purchase cost per unit $1 the cost of carrying 1 i = Holding cost as a percentage of screw in inventory for a year is .5% Screws purchase cost .5% or .005 cost $1. Economic Order Quantity The annual demand for screws at Home Depot EOQ = 20,000 is 100,000. Lila D = Annual demand in units for the estimates that it costs $10 every time inventory item 100,000 she places an order. S = Cost per order $10 She estimates that C = Purchase cost per unit $1 the cost of carrying 1 i = Holding cost as a percentage of screw in inventory for a year is .5% Screws purchase cost .5% or .005 cost $1. with Excel Economic Order Quantity Take 5 minutes and enter fig 8.6 on page 347. I suggest changing the title because the spreadsheet can be used for any EOQ problem. with Excel Economic Order Quantity Referring to the Home Depot problem, enter the data. x Data goes here with Excel EOQ = 2DS Economic Order Quantity in units for the D = Annual demand Ci inventory item 100,000 Enter a formula to S = Cost per order $10 C = Purchase cost per unit $1 calculate the economic i = Holding cost as a percentage of purchase cost .5% or .005 order quantity. =SQRT(2 *D4*?) with Excel EOQ = 2DS Economic Order Quantity in units for the D = Annual demand Ci inventory item 100,000 A formula that does the S = Cost per order $10 C = Purchase cost per unit $1 job. i = Holding cost as a percentage of purchase cost .5% or .005 with Excel Economic Order Quantity Why? The right quantity Inventory: Cost vs Quantity 80 Economic Order Quantity 70 60 50 Cost ($) 40 30 20 10 0 .1 42 .4 7 .9 82 .2 45 .5 08 .7 71 .0 34 .3 96 .6 59 .8 22 5 .7 62 18 15 78 13 69 28 70 34 75 39 80 44 84 50 89 55 93 60 98 65 03 23 46 76 80 5 1 8 5 2 9 6 3 1 90 7. Order Quantity (Q) Setup cost Cost of ordering Holding cost Inventory cost Total cost with Excel Economic Order Quantity How many orders per year? 100000 5 20000 with Excel Economic Order Quantity Add an orders per year calculation with Excel Economic Order Quantity Analysis questions