MGT 3501 Lecture Notes - Lecture 12: Carrying Cost, Lead Time
Document Summary
Know exactly when firm will be replenished. Multiple orders from the same vendor can be combined into one order and delivery. Can have multiple delivery on one truck. Inventory position only needs to be known when a review is done. Don"t need to purchase anything to scan, etc. Fixed-time is less expensive, but much riskier. Demand for the product is constant and uniform 1. The day the inventory hits 0, the day suppliers replenishes to the original quantity, then cycles again. If it"s able to stay constant, can automate this system. Finding optimal quantity (q) to order (economic order quantity): Total cost is a concave curve with respect to quantity. Holding cost and ordering cost are inversely related. Because holding cost = have inventory, meaning not ordering. When holding cost and ordering cost equal to each other, the total cost to the company will be minimized. Qopt = the lowest total cost to the company.
