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C H A P T E R 12
INVENTORY CONTROL MODELS
LEARNING
OBJECTIVES
After completing this chapter, students will be able to: 1. Understand the importance of inventory control. 2. Use inventory control models to determine how much to order or produce and when to order or produce. 3. Understand inventory models that allow quantity discounts. 4. Understand the use of safety stock with known and unknown stockout costs.
5. Understand the importance of ABC inventory analysis. 6. Use Excel to analyze a variety of inventory control models.
CHAPTER
12.1 12.2 12.3 12.4 12.5 12.6
Introduction
OUTLINE
12.7 12.8 12.9
Quantity Discount Models Use of Safety Stock ABC Analysis
Importance of Inventory Control Inventory Control Decisions Economic Order Quantity: Determining How Much to Order Reorder Point: Determining When to Order Economic Production Quantity: Determining How Much to Produce
Summary • Glossary • Solved Problems • Discussion Questions and Problems • Case Study: Sturdivant Sound Systems • Case Study: MartinPullin Bicycle Corporation • Internet Case Studies • Bibliography
12-2 12.1
CHAPTER 12 Inventory Control Models
INTRODUCTION
Inventory is one of the most expensive and important assets of many companies, representing as much as 50% of total invested capital. Managers have long recognized that good inventory control is crucial. On one hand, a firm can try to reduce costs by reducing onhand inventory levels. On the other hand, customers become dissatisfied when frequent inventory outages, called stockouts, occur. Thus, companies must make the balance between low and high inventory levels. As you would expect, cost minimization is the major factor in obtaining this delicate balance. Inventory is any stored resource that is used to satisfy a current or future need. Raw materials, work-in-process, and finished goods are examples of inventory. Inventory levels for finished goods, such as clothes dryers, are a direct function of market
INVENTORY CONTROL MODELS
LEARNING
OBJECTIVES
After completing this chapter, students will be able to: 1. Understand the importance of inventory control. 2. Use inventory control models to determine how much to order or produce and when to order or produce. 3. Understand inventory models that allow quantity discounts. 4. Understand the use of safety stock with known and unknown stockout costs.
5. Understand the importance of ABC inventory analysis. 6. Use Excel to analyze a variety of inventory control models.
CHAPTER
12.1 12.2 12.3 12.4 12.5 12.6
Introduction
OUTLINE
12.7 12.8 12.9
Quantity Discount Models Use of Safety Stock ABC Analysis
Importance of Inventory Control Inventory Control Decisions Economic Order Quantity: Determining How Much to Order Reorder Point: Determining When to Order Economic Production Quantity: Determining How Much to Produce
Summary • Glossary • Solved Problems • Discussion Questions and Problems • Case Study: Sturdivant Sound Systems • Case Study: MartinPullin Bicycle Corporation • Internet Case Studies • Bibliography
12-2 12.1
CHAPTER 12 Inventory Control Models
INTRODUCTION
Inventory is one of the most expensive and important assets of many companies, representing as much as 50% of total invested capital. Managers have long recognized that good inventory control is crucial. On one hand, a firm can try to reduce costs by reducing onhand inventory levels. On the other hand, customers become dissatisfied when frequent inventory outages, called stockouts, occur. Thus, companies must make the balance between low and high inventory levels. As you would expect, cost minimization is the major factor in obtaining this delicate balance. Inventory is any stored resource that is used to satisfy a current or future need. Raw materials, work-in-process, and finished goods are examples of inventory. Inventory levels for finished goods, such as clothes dryers, are a direct function of market
Bibliography: Source: H. Lee, et al. “Hewlett-Packard Gains Control of Inventory and Service through Design for Localization,” Interfaces 23, 4 (July–August 1993): 1–11.