Inventory Decision Making

Inventory Decision Making

1. Inventory decisions must consider

2. Key differences among approaches to managing inventory

   • 1. Dependent vs Independent Demand
     • Dependent
     • Independent
   • 2. Pull vs Push
     • Pull/Reactive system
     • Push/Proactive system
       • https://www.youtube.com/watch?v=ej7DVIMTJ24
   • 3. Systemwide vs Single-Facility Solution
     • Systemwide
     • Single-Facility Solutions

3. Fixed Order Quantity Approach (Condition of Certainty) / Economic Order Quantity (EOQ)

   • Two-bin system
   • Assumptions of the 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
     • 5. No inventory in transit
     • 6. One item of inventory or no interaction between items
     • 7. Infinite planning horizon
     • 8. No limit on capital availability

4. Replenishment time components:

   • Order transmittal
   • Order processing
   • Order preparation
   • Delivery

5. Fixed Order Quantity Approach (Condition of Uncertainty)

   • 1. A constant and known replenishment or lead time
   • 2. A constant price ir cost that is independent of order quantity or time
   • 3. No inventory in transit
   • 4. One item of inventory or no interaction between items
   • 5. Infinite planning horizon
   • 6. No limit on capital availability

6. The Just-in-Time Approach

   • 1. Zero inventories
   • 2. Short lead times
   • 3. Small, frequent replenishment quantities
   • 4. High quality
   • https://www.youtube.com/watch?v=7tchKZiIwIU

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