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Inventory Control Subject To Deterministic Demand

This document provides an overview of inventory control under deterministic demand. It begins by classifying different types of inventories, including raw materials, components, work-in-process, and finished goods. It then discusses reasons for holding inventories, such as economies of scale in production and transportation. The document outlines characteristics of inventory systems, including demand patterns, lead times, review periods, and how excess demand is treated. Finally, it details relevant costs including ordering costs, inventory holding costs, and backlog costs.

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Gamze Yildirim
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56 views

Inventory Control Subject To Deterministic Demand

This document provides an overview of inventory control under deterministic demand. It begins by classifying different types of inventories, including raw materials, components, work-in-process, and finished goods. It then discusses reasons for holding inventories, such as economies of scale in production and transportation. The document outlines characteristics of inventory systems, including demand patterns, lead times, review periods, and how excess demand is treated. Finally, it details relevant costs including ordering costs, inventory holding costs, and backlog costs.

Uploaded by

Gamze Yildirim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 8

4-1

Chapter 4

Inventory Control Subject to


Deterministic Demand

IE375 Fall 2020


Nesim K. Erkip
1
4-2

Breakdown of the Total Investment in


Inventories in the U.S. Economy (2007)

2
4-3

Classification of Inventories
• Raw materials. These are resources required for
production or processing – (Product as described at the
Push/Pull Boundary and/or final product)
• Components. These could be raw materials or
subassemblies that will later be included (into product as
described at the Push/Pull Boundary and/or final product)
• Work-in-process (WIP). These are inventories that are in
the plant waiting for processing
• Finished goods. These are items that have completed the
production process and are waiting to be shipped out.

3
4-4

Reasons for Holding Inventories


• Economies of scale in Production
– Duration in Production – manufacturing lead time
• Economies of scale in Transportation
– Duration of transportation – transportation lead time
• Uncertainties
• Speculation - Changing Costs Over Time
• Smoothing
• Logistics
• Control costs
4
4-5

Characteristics of Inventory Systems


• Demand
– May Be Known or Uncertain
– May be Changing or Unchanging in Time
• Lead Times - Can assume known or unknown.
• Review Time. Is system reviewed periodically or is system
state known at all times?
• Treatment of Excess Demand (Backlogs)
• Backorder all Excess Demand (Backorders)
• Lose all excess demand (lost sales)
• Backorder some and lose some
• Inventory that changes value over time
• perishability
• obsolescence
5
4-6

Relevant Costs
• Ordering Cost (or Production Cost)
Includes both fixed (setup cost) and variable
(unit) components.

slope = c (unit cost)

C(x) = K + cx for x > 0 and =0 for x = 0 6


4-7

Relevant Costs (continued)

7
4-8

Relevant Costs (continued)


• Backlog cost (penalty cost is frequently used, as
well) includes administrative costs, as well costs
regarding reputation loss (we call it goodwill
cost)
 Backorder – customer is willing to wait with or
without some additional discount, favors
charge for backorders:
 per unit per unit time
 OR per unit
 Lost sales – profit loss
 per unit

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