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Managing Goods Chapter 16
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FactoryWholesalerDistributorRetailerCustomer Replenishment order Replenishment order Replenishment order Customer order Production Delay Wholesaler Inventory Shipping Delay Shipping Delay Distributor Inventory Retailer Inventory Item Withdrawn Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Physical Goods Distribution System
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Inventories Seasonal inventories Speculative inventories Cyclical inventories In-transit inventories Safety stocks
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Inventory Management Concerned with: –What should be the order quantity? –When should an order be placed (reorder point)? –How much safety stock should be maintained?
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Cost Management Balance between: –carrying an inventory to protect against demand fluctuations (customer goodwill and sales), and –inventory costs (i.e., ordering, warehouse, obsolescence) Economic Order Quantity (EOQ) helps to identify this balance
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Economic Order Quantity Simple model Assumes a constant rate of demand and no stock-outs Excludes pricing variations such as quantity discounts Views ordering cost and inventory holding cost
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