BUS 322 Lecture Notes - Lecture 7: Collectively Exhaustive Events, Economic Order Quantity, Stockout

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 322
• Professor: Mahmoudian Fereshteh

Document Summary

When to order: leads to the reorder point issue combined with the safety stock quantity. The planning, coordinating, and control activities related to the flow of inventory into through and out of an organization. Inventory ordering costs clerical and transportation costs. Required rate of return on investment on inventory, storage spaces costs, handling costs, property tax, insurance, obsolescence, etc: cost of insufficient inventory stock outs costs, cost of quality. Quantity discount forgone, inefficiency, customer ill will. Solution is to find the economic order quantity (eoq) to minimize the costs related to inventory: optimal quantity of inventory to order, by table and/or by formula. Assumptions: the same quantity is ordered at each reorder point, demand, purchase-order lead time, ordering costs, and carrying costs are certain, purchasing costs per unit are unaffected by the quantity ordered, no stockouts occur. Ignores purchasing costs, stockout costs, and quality costs: ordering and carrying costs are minimized.