GMS 401 Study Guide - Midterm Guide: Inventory Turnover, Safety Stock, Economic Production Quantity

• School: Ryerson University
• Department: Global Management Studies
• Course: GMS 401
• Professor: Fatemeh Firouzi

Document Summary

Inventory is any unused material, part or, product, usually stored in a warehouse. Inventories are important because holding them costs money, both for storage and the opportunity cost of money ied up in inventory. Management measures eicient use of inventory turnover raio (=cost of goods sold/ average inventory investment). Inventories serve diferent funcions (or purposes), including meeing a seasonal demand, decoupling operaions, protecion against stock-out ( safety stocks), and allowing economic lot size or quanity discounts (cycle stocks). Three classes of models are described: fixed-order quanity (eoq)/reorder point (rop, fixed- interval/order up to level, single period models. The irst two are appropriate if unused items can be carried over into subsequent periods. Eoq models address the quesion of how much to order. They include the basic eoq, economic producion quanity, quanity discounts, and planned shortages models.