Inventory Decision Making

Inventory Decision Making

1. Role and importance

2. Types

   • Batching economies/Cycle stocks
     • *Procurement*Transportation*Production
   • Uncertainty/Safety Stocks
     • Accumulate safety stock to buffer themselves against uncertainty of *supply *Demand *Transportation
   • In-Transit and Work In-Process Stocks
     • Time-related trade-offs from using slower to faster transport modes (cost more but may save a larger amount in inventory).
   • Seasonal Stocks
     • Can occur in the supply of raw materials, in the demand for finished product and can impact transportation
   • Anticipatory Stocks
     • An unusual event might occur that will negatively impact its source of supply

3. Inventory Cost

   • Carrying cost = Capital cost (interest or opportunity cost)
   • Storage Space cost (moving products into and out of inventory)
   • Service cost (insurance and taxes)
   • Risk cost (the possibility of inventory value might decline for reasons beyond firm’s control)
   • Carrying inventory (divide the calculated total cost by the calculated value of the item)
   • Order cost (placing order which may have both fixed and variable components)
   • Setup Costs (each time an organization modifies a production or assembly line to produce a different item for inventory)
   • Expected Stockout cost (incremental variable costs associated with processing the extra shipment)
   • In-Transit costs

4. Approaches to managing inventory

   • EOQ
     • Under certainty
     • Under uncertainty
     • Mathematical formulation
   • Other
     • JIT
       • Just-In-Time
     • MRP
       • Materials Requirements Planning
     • DRP
       • Destribution Requirements Planning (DRP)
   • Approaches vs Managing inventory
     • Dependent versus Independent Demand
     • Pull versus Push

5. Number of stocking points

6. Evaluating inventory Management Performance

   • Quadrant Model

7. Coyle, Langley, Novack, Gibson (2008) Supply Chain Management, EDITORIAL PEARSON

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