UCL ESPO/IAG/POMS PROD 2800 PRODUCTION AND OPERATIONS MANAGEMENT Gestion de la production et des opérations Per AGRELL Lecture 5Inventory.

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UCL ESPO/IAG/POMS PROD 2800 PRODUCTION AND OPERATIONS MANAGEMENT Gestion de la production et des opérations Per AGRELL agrell@poms.ucl.ac.be Lecture 5Inventory Control

PROD 28002 Outline Key issues Order policies – Fixed order quantityEOQ – Q-model – Variable-time period model(r,Q) – Fixed-time period model – P-model (s,S)

Key issues 1. Which policy? 2. When to order? 3. How much to order?

Inventory Costs Holding (or carrying) costs. – Costs for storage, handling, insurance, etc. Setup (or production change) costs. – Costs for arranging specific equipment setups, etc. Ordering costs. – Costs of someone placing an order, etc. Shortage costs. – Costs of canceling an order, etc.

PROD 28005 Reorder Point System (r,Q) r Q L

PROD 28006 Fixed-Time Period Model (S,T) Review every T periods Inventory position (IP) = On-hand + on-order - backlog Order up to level S if IP < s

PROD 28007 Fixed-Time Period System (S,T) s S T 2T 3T

PROD 28008 Stochastic Demand (S,T) s S T 2T 3T

PROD 28009 Safety Stocks

PROD 280010 Safety Stock Factors zP(no stockout)P(stockout) 0.0050%50% 1.0084%16% 1.6495%5% 1.9697.5%2.5% 2.3299%1%

PROD 280011 Safety Stocks in (S,T) S = D(T+L) + z  T+L = Expected demand over T+L + Safety stock Order = S – IP

PROD 280012 Demand Variability

PROD 280013 ABC Classification A-items B-items C-items Share of inventory value Share of inventory records

PROD 280014 Adapted Systems A-items – Individual forecasts – Fixed Order Quantity systems (often) B-items – Fixed-Time Period systems – Regular follow-up C-items – Simple rules – Two-bin systems

PROD 280015 Two-Bin Systems FullEmpty Reorder one bin

PROD 280016 Summary ABC classification Systems – Fixed quantity, variable time – Fixed time, variable quantity Safety stock calculations

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