INVENTORY DECISION MAKING

INVENTORY DECISION MAKING

1. Fundamental Approaches to Managing Inventory

   • Pull vs push
   • Dependent vs. Independent Demand
   • Systemwide vs. Single-Facility Solution
   • Principal Approaches and Techniques for Inventory Management
     • models devel- oped to aid in the decision process are frequently abstract or represent a simplified reality. In other words, models generally make simplifying assumptions about the real world they attempt to represent.

2. Fixed Order Quantity Approach (Condition Of Certainty)

   • Inventory Cycles
   • Simple EOQ Model
     • 1. A continuous, constant, and known demand rate 2. A constant and known replenishment or lead time 3. The satisfaction of all demand 4. A constant price or cost that is independent of the order quantity or time (e.g., purchase price or transport cost) s. No inventory in transit 6. One item of inventory or no interaction between items 7. Infinite planing horizon 8. No limit on capital availability.
   • Reorder Point
     • THE WHEN
   • A Note Concerning the Min-Max Approach
     • applies when demand may be larger and when the amount on hand may fall below the reorder point before the firm initiates a replenishment order.

3. Fixed Order Quantity Approach (Condition Of Uncertainty)

   • Reorder Point-A Special Note
     • The reorder point under the basic model is the inventoty level suffi- cient to satisfy demand until the order arrives and becomes the average daily demand during lead time plus the safety stock,
   • Uncertainty of Demand
     • In a fixed quantity model with an established reorder level, introducing uncertainty into the analysis initially affects the inventory level needed to cover sales during lead time.
   • Uncertainty of Demand and lead Time length
     • This section considers the possibility that both demand and lead time may vary.

4. Fixed Order Interval Approach

5. Additional Approaches To Inventory Management

   • The Just-in-Time Approach
   • Materials Requirements Planning
   • Distribution Resource Planning

6. Inventory At Multiple locations-The Square Root law

   • is based on several reason- able assumptions: (1) inventory transfers between stocking locations at the same level are not common practice; (2) lead times do not vary, and thus inventory centralization is not affected by rebound supply uncertainty; (3) customer service level, as measured by inventory availability, is constant regardless of the number of stocking locations and (4) demand at echolocation is normally distributed

7. Demand Pull Approaches To Managing Inventory

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