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MGSC 395 week 8 notes

by: Rachel Whitbeck

MGSC 395 week 8 notes MGSC 395

Rachel Whitbeck
GPA 4.0

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About this Document

These notes cover what we went over in class from Monday, April 4 through Wednesday, April 6. They include information on inventory management, EOQ, continuous and periodic review.
Operations Management
Pearse Gaffney
Class Notes
Operations Management, Management Science
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This 3 page Class Notes was uploaded by Rachel Whitbeck on Thursday April 7, 2016. The Class Notes belongs to MGSC 395 at University of South Carolina taught by Pearse Gaffney in Spring 2016. Since its upload, it has received 23 views. For similar materials see Operations Management in Business, management at University of South Carolina.


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Date Created: 04/07/16
MGSC 395 MW 5:30 Monday, April 4, 2016  Inventory management o Inventory is evil  It ties up cash and hides problems  Takes away sense of urgency  JIT eliminates costs with holding high inventory o Raw material --> WIP & FG --> stock --> retailer, D/C, next factory --> consumer  Where WIP is work in process, FG is finished goods, and stock means in inventory o Types of inventory  Cycle inventory  If purchases are done in large lots, but consumption occurs in small quantities  Average inventory level = Q/2  Safety stock  Just in case, demand uncertainty  Anticipation inventory  Deals with seasonality  Pipeline inventory  Means in transit  D=annual demand  d bar = average demand per period  L = lead time  pipeline inventory = D L dL o ABC analysis (not activity-based costing lol)  3 classes  A- high dollar items  B- medium $  C- low $ o Economic Order Quantity (EOQ)- the lot that minimizes total annual holding and ordering costs  EOQ= square root of( 2DS/H)  D= annual demand  H= holding cost  S= ordering cost (aka setup cost)  Cost= QH/2 + Ds/Q  D/Q is how many times you should order per year Wednesday, April 6, 2016  EOQ- “how much” to order  Also interested in “when to order” o Independent  Continuous review (Q system or reorder point system)  Inventory position= on hand quantity + scheduled receipts – backorders o IP=OH+SR—BO  Reorder point: demand and lead time constant o Ex beer sales at Green’s is always 20 cases/day and the lead time is always 2 days. o ROP= demand during lead time = 20(2)=40 cases o If IP ≤ ROP, send signal to supplier  Reorder point: demand variable, lead time constant o Variability means we need safety stock o R=dL + safety stock = dL + z∂ dLT  ∂ dLT= stdev of demand during lead time  z∂ dLT∂ √Ld o Steps  Determine service level policy (tolerance for a stock-out)  Determine how actual inventory has been behaving  d= actual demand  ∂d= standart deviation of demand  Ex with Green’s: EOQ is set at 400 cases, average demand is 200/week, stdev of demand is 20, lead time is constant at 1 week, and the SL policy is 90%.  ROP= 200(1) + 1.28(20) (√1)= 225.6 cases  Periodic review  Need two new pieces of info: o P- the length of time between reviews o T- target inventory level  Protection interval= P+L  P= EOQ/d  T = d(P+L) + z∂ P+L= d(P+L) + z∂ (dP+L)


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