1. Inventory Management

2. Why do we have inventories?

3. Inventory Positions in the Logistics System
Raw Materials Inventory
In-Process Inventory
Finished Goods Inventory at plant
Finished Goods at Field Locations
Finished Goods at Wholesale Locations
Finished Goods at Retail Locations

4. Inventory Carrying Costs
The cost of maintaining inventory in a company's warehouse.
Opportunity Costs
Hurdle Rate (Definition) The required rate of return in a discounted cash flow analysis, above which an investment makes sense and below which it does not. Often, this is based on the firm's cost of capital or weighted average cost of capital, plus or minus a risk premium to reflect the project's specific risk characteristics. also called required rate of return.
opportunity cost of having your capital tied up in.
Out-of-Pocket Costs
Cost requiring cash disbursements in the current accounting
period. Thus, depreciation is not an out-of-pocket cost because it does not require spending of cash.
Risk Costs

5. So…When to order?
R = D x T
Reorder point = avg. daily x avg. performance
(in units) demand cycle length
Reorder point = 10/units x days
day
Reorder Point = 200 units

6. Cost Trade-offs Required to Determine the Most Economical Order Quantity
Annual Cost (Dollars)
Total Cost
Inventory Carrying Cost
Lowest Total Cost (EOQ)
Ordering Cost
Size of Order

7. Economic Order Quantity (EOQ Model)
2 CoD
CiU
Where:
Co = Cost per order
Ci = Annual inventory carrying cost (%)
D = Annual sales volume (units)
U = Cost per unit
EOQ =

8. Other Inventory Approaches
Re-order Point
Re-order Interval
Automatic Replenishment Programs (ARPs)

9. What can happen when we stock out?
Backorders
Loss of sales
Loss of future sales
Loss of customer goodwill
Idle machinery & workers / lost production capacity