1. Managing Goods Chapter 16

2. 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order Production Delay Wholesaler Inventory Shipping Delay Shipping Delay Distributor Inventory Retailer Inventory Item Withdrawn Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.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

3. Inventories Seasonal inventories Speculative inventories Cyclical inventories In-transit inventories Safety stocks

4. 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?

5. 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

6. 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