MGT 250 Lecture 62: Managing Inventory
11 Jun 2018
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• Managing Inventory:
➢ Inventory management has 2 basic goals.
1. Avoid running out of stock.
o Keep from angering & dissatisfying customers.
o This goal seeks to increase inventory to a safe level that won’t risk
stockouts.
2. Efficiently reduce inventory levels & costs as much as possible w/out
impairing daily operations.
o This goal seeks a minimum level of inventory.
➢ There are 3 inventory management techniques that help to balance these
competing goals.
A. Economic Order Quantity (EOQ): a system of formulas that helps
determine how much and & often inventory should be ordered.
o Takes into account overall demand (D) for a product.
o Tries to minimize ordering costs (O) & holding costs (H).
▪ EOQ formulas do a good job of letting managers know what
size/amount of inventory they should reorder to minimize
ordering & holding costs.
▪ EOQ formulas & models can become much more complex as
adjustments are made for:
❖ Price changes
❖ Quantity discounts
❖ Setup costs
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