...THE EOQ MODEL Name: Course: Tutor: Date: The EOQ Model The types of costs minimized by the EOQ formula The first one is the inventory holding cost, which is a representative of the capital cost incurred by the management. This covers all the costs spent on units, the space the units consume, deductions on inventory, and the desuetude allowances. These costs are measured as a product of unit and time, which define the rate of demand. The other cost is the cost on fixed orders. This represents all costs incurred in order placements but excludes the unit costs. Thus, this costs accounts for the costs incurred in the receiving and the placing of an order. When it comes to the case of manufacturing, it accounts for the costs of putting in place the necessary equipment in the production of order-quantity. These costs are very significant and must thus, be accounted for in any company (Schwarz, 2008). The difference between the POQ model and the EOQ model The EOQ model considers a tradeoff between the cost of ordering and the storage cost when choosing the amount to use in the replenishment of item inventories. The quantity of order is quite affected by the ordering frequency and this extends to affect the cost of ordering. Holding a larger inventory in average increases the storage costs in that particular month. On the other hand, the POQ model considers one product at any particular time. This is because the materials for production...
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...management 5) In a continuous inventory system, a constant amount is ordered when inventory declines to a predetermined level. Answer: TRUE Diff: 2 Page Ref: 746 Main Heading: Inventory Control Systems Key words: inventory control systems, continuous inventory system 6) In a periodic inventory system, a constant amount is ordered when inventory declines to a predetermined level. Answer: FALSE Diff: 2 Page Ref: 747 Main Heading: Inventory Control Systems Key words: continuous inventory system 7) The EOQ is the optimal order quantity that will minimize total carrying costs. Answer: FALSE Diff: 2 Page Ref: 748 Main Heading: The Basic EOQ Model Key words: economic order quantity models, EOQ models 8) Assumptions of the basic EOQ model include constant demand, no shortages, constant lead time, and gradual usage. Answer: FALSE Diff: 2 Page Ref: 748 Main Heading: The Basic EOQ Model Key words: economic order quantity models, EOQ models 9) The non-instantaneous receipt...
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...Team M Team M Four Star Industries Case Study Case Study Anaysis Four Star Industries Case Study Case Study Anaysis Table of Contents Background Current Situation * Market * Production * Manufacturing * Order Process * Inventory Management Issues * Model Proliferation * Inventory and Demand Mismatch * Poor Order Management Analysis * Safety Stock Analysis * Warehouse Rent Analysis * MOQ v/s EOQ * Production /Assembly Line Analysis Recommendations Conclusion Background: Four Star Industries Private Ltd is the manufacturer and wholesaler of the renowned Four Star Pocketed spring mattresses which was founded by Neo Gim Sin in 1966. Its business is aggressively and exclusively focused on servicing the local market and until recently, the company has enjoyed tremendous growth and recognition – becoming a leading manufacturer of pocketed spring mattress (PMS) and winning the Grand Prix for International quality. Four Star sells directly to large dealers (LDs) and small dealers (SDs) who then sell to consumers. Current situation: Market: Mattress models grew rapidly from 13 to 230 models between 1996 and 2002, while sales has been experiencing steady decline within the same period. Decline in mattress sales can be attributed to various factors such as; increased competition, seasonality and volatility of the mattress market, supply and demand mismatch, poor production scheduling and focus on high-end mattresses. Production: ...
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...shrink inventories and decrease plant costs substantially by changing the production cycle times using a well-known production model. Growth in the thick-walled tubing market is also making VBF question its plant capacity requirements. We also address a number of other issues that could help VBF efficiency throughout the plant. Analysis We analyzed VBF production using the economic order quantity model (EOQ) for shared facilities and found a lower cost production cycle schedule that we believe will greatly help VBF to be more responsive to customer needs, reduce inventories and working capital, as well as increase efficiency within the plant. We focus on the EOQ model and its implications for the firm. Exhibit 3A shows the spreadsheet calculations we used to arrive at the shared facility economic order quantity that we are recommending. We compiled costs associated with setting up for products and for carrying the required level of inventory. Setup costs were given as $800 per hour and accounted for the loss in contribution due to changeovers. The cost of carrying inventory was represented as a 24% variable cost. It is given that tubing costs $400 per metric ton; therefore, we use $96 ($400/ton*24%) per ton per year as our carrying cost. The cycle schedule arrived at is just over 38 runs per year given the assumptions of costs and the EOQ model (compare this to the approximately nine runs per year currently used). The proposed total inventory cost is $168,206. The...
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...University of Dhaka Department of Management Information systems MBA (Evening) Program Semester : Summer, 2015 Course Name : Simulation and System Modeling (EMIS 521) Instructor : Dr. K. M. Salah Uddin Designation : Associate Professor Prepared by a group consisting of following members: Name | ID No. | Nakib H. Khan | :17-030 | Rokshana Akter | :17-018 | Taslima Parvin | :19-059 | Rezaul Hasan Bhuiyan | :19-075 | Md Anisur Rahman | :20-021 | Md Shahriar Shaon | :21-071 | Date of Submission and Presentation: August 30, 2015 Letter of Transmittal August 30, 2015 Dr. K. M. Salah Uddin Associate Professor Department of Management Information Systems University of Dhaka MBA (Evening) Program Subject: Term Paper on Simulation of Inventory System. Dear Sir, As this term paper is an inseparable part of our Simulation and System Modeling course, we were asked to prepare a term paper on “Simulation of Inventory System”. We devoted our skills and knowledge to efficiently and effectively handle this task. While preparing the term paper, we utilized what we have learnt throughout the semester in this course and capitalized on this opportunity to acquire some in-depth knowledge regarding “Simulation of Inventory System”. We are pleased to we submit hereby the term paper for your kind evaluation. We are always available if it is necessary for any query. Sincerely yours, Md Anisur Rahman ID # 20- 021 In favor of the group ...
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...searching for alternative ways to remain stable in market. This study goes through the process of analyzing the company’s current forecasting model and recommending an inventory control model by ordering optimum units to help them solve their current issue. As a result, an Economic Order Quantity (EOQ) and a variable cost was recommended to help them reduce their product stock outs. The shortage of raw material for production always makes the process discontinuous and reduces the productivity. The ABC analysis technique for the inventory control system is first used to identify the most important multiple products and then the economic order quantity (EOQ) of each product is...
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...BUS 650 Managerial Finance Instructor Supply Chain Management June 18, 2012 Supply Chain Management Business has become increasingly competitive due too many factors. Business has become increasingly global and many companies are diversifying to enter new markets. A factor which companies have become increasingly aware of is supply chain management. A supply chain connects supplies with customers (Chin, Lie, Tsai, 2012). Supply chain management has become an important for companies to evaluate and research because improper management can lead to can hinder performance. Therefore, increased evaluation and research in proper supply chain management is essential for businesses to maintain a competitive advantage. This paper is going to analyze supply chain management a retail perspective to new learning perspectives of modern businesses. Issues For many years supply chain managers had difficulty determining the optimal amount for their inventory levels (Chin et al, 2012). For example, in Wal-Mart the company has to determine how much inventory to include in stores in comparison to a just in time approach. Research has indicated that improper supply chain management can lead to inefficient company performance (Asamoah, Annan, Nyarko, 2012). Therefore, improper evaluation of inventory can increase costs for the company and decrease sales to lack of inventory. For example, typically businesses would replenish inventories when the inventory is low. The supply chain...
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...Inventory Management UNIT 17 Objectives INVENTORY MANAGEMENT Upon completion of this unit, you should be able to: understand the meaning of inventory and identify inventory related cost parameters learn about various types of inventory policies appreciate the role of selective inventory management know the exchange curve concept for aggregate inventory planning get a feel of some mathematical models of inventory analysis perform sensitivity analysis on a type of model compute safety stocks understand the problems of slow moving items appreciate the role of computers in inventory control have a brief idea about recent developments in inventory management. Structures 17.1 17.2 17.3 17.4 17.5 17.6 17.7 17.8 17.9 17.10 17.11 17.12 17.13 17.14 Introduction to Inventory Systems Functions of Inventory Classification of Inventory Systems Selective Inventory Management Exchange Curve and Aggregate Inventory Planning Deterministic Inventory Models Probabilistic Inventory Models Inventory Control of Slow Moving Items Recent Developments in Inventory Management Concluding Remarks Summary Key Words Self-assessment Exercises Further Readings 17.1 INTRODUCTION TO INVENTORY SYSTEMS Concept of Inventory . Inventory' may be defined as usable but idle resource'. If resource is some physical and tangible object such as materials, then it is generally termed as stock. Thus stock or inventory are synonymous terms though inventory has wider implications. Broadly speaking, the problem of...
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...the popular statistical techniques assume that studied data are normally distributed under certain conditions. Therefore, a normality test was performed to: Test if demand is well-modeled by a normal distribution or not. Find out descriptive statistics about the demand distribution such as mean, standard deviation and P-value. Test result revealed that the demand is normally distributed with: Mean = 0.664 Standard Deviation = 0.776 P-Value < 0.005 Below are graphical presentations for test results. USED FORMULAS AND ABBREVIATIONS Before starting our calculation of the current situation and the proposed models, we will present the used formulas and abbreviations: EOQ= √((2*D* C_P)/C_H ) TBO= EOQ/d TARGET=d [∑_(t=1)^(Z-1)▒〖t+(TBO-Z)*Z 〗] TC = (C_P*q)+( ( I ) ̅* C_H) ROP = Averager DDLT + SS SS=Z √L* σ_d EOQ = Economic Order Quantity D = Annual Demand C_P= Order Cost...
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...Explanation on the basis on which inventory management is done, the different type of inventory models in the context of the assignment given. The process in which each of them is used. This would help you decide the right inventory model. Pl go through this properly. As a growing corporation in the e-commerce retail apparel industry, XYZ has recently been under pressure to package and ship a higher volume of clothes. In order for the corporation to meet this demand, XYZ’s executive staff must decide either to increase its staffs’ hours in the logistics department and potentially hire another employee or bulk ship inventory to Amazon warehouses to be fulfilled through Amazon Prime. The executive team was able to recreate these two scenarios through linear programing and has determined that the company will seek more profit by utilizing Amazon’s fulfillment services. After analyzing the sales model of using Amazon Inc. fulfillment the recommendations for management are to focus on inventory limits and create patterns that will help forecast the inventory needed. By seeking out inventory models, which resolves dual problems of maintaining sufficient inventories to meet demand, we are able to successfully determine the appropriate inventory limits needed for this operation. Now we see that there could have been many solutions like for low values of demand, fulfillment should be done in-house and for high values direct shipping should be used. When demand is comparable to capacity...
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...MATERIALS MANAGEMENT Importance of materials management :- 1. Materials input is very important as excess material as inventory causes costs to the company and shortage of material results into stoppage of conversion process and subsequently shortage of finished goods leading to customer dissatisfaction 2. Out of 5Ms, that are inputs to a conversion process, material is substantial in terms of its contribution to product cost, and current assets. 3. 51.1% of product cost is on account of materials. Hence the largest contributor to product cost. This marks out materials function as the largest potential avenue for productivity improvement. 4. Materials account for 70% to 80% of working capital. Effective and efficient management of materials can reduce substantial burden on the finances of company. 5. Accounts payable are mostly to materials suppliers. Hence the importance in management of finance of the company. 6. Quality of the Input and product quality: When the companies become leaner and leaner, it is crucial that inputs should remain in the plant only as long as the Through Put Time demands, and the output product should be Right First Time. The quality of inputs plays a vital role in this situation. 7. Management of materials is crucial in a Just In Time company. Production process needs very strong materials management support to gear up to face challenges of current market 8. Materials management provides information about availability of new...
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...Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following would NOT generally be a motive for a firm to hold inventories? 1) _____ A) to minimize holding costs B) to take advantage of quantity discounts C) to decouple various parts of the production process D) to hedge against inflation E) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand 2) Which of the following is NOT one of the four main types of inventory? A) work-in-process inventory B) finished-goods inventory C) raw material inventory D) safety stock inventory E) maintenance/repair/operating supply inventory 3) Which of the following is a function of inventory? A) to take advantage of quantity discounts B) to hedge against inflation C) to decouple various parts of the production process D) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand E) All of the above are functions of inventory. 4) Which of the following statements about ABC analysis is FALSE? A) In ABC analysis, forecasting methods for "C" items may be less sophisticated than for "A" items. B) Criteria other than annual dollar volume, such as high holding cost or delivery problems, can determine item classification in ABC analysis. C) ABC analysis is based on the presumption that controlling the few most important...
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...produce important inventory savings. False (Inventory management, easy) 9. Cycle counting is an inventory control technique exclusively used for cyclical items. False (Inventory management, moderate) 10. One advantage of cycle counting is that it maintains accurate inventory records. True (Inventory management, moderate) 11. In cycle counting, the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification. True (Inventory management, moderate) 12. Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage. True (Inventory management, moderate) 13. The demand for automobiles would be considered an independent demand. True (Inventory models,...
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...Inventory Management Meaning, concept and definition of Inventory: Inventory is stores of goods and stocks. In manufacturing, items in inventory are called stock keeping items, held at a stock [storage] point. Stock keeping items usually are raw materials, work-in progress, finished products and supplies. It is the stock of any item or resource used in an organization. Inventory control is activities that maintain stock keeping items at desired levels. In manufacturing, since the focus is on a physical product, inventory control focuses on material control. In the service sector, since the focus is on a service [often consumed as generated], inventory control focuses less on materials and more on supplies. For service organizations that are not highly labor-intense, inventories assume more importance. Transit systems maintain inventories of equipment and replacement parts. Local department stores maintain inventories of merchandise. Production/ operation management focuses on conversion of inputs into outputs of goods and services. This conversion process is reexamined to emphasize material input. Note that there may be stock points at the input [raw materials], conversion [work-in-progress], and output [product] stages. By convention, manufacturing inventory generally refers to items that contribute to or become part of a firm’s product output. Manufacturing inventory is typically classified into raw materials, finished products, components parts, supplies, and work in progress...
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...group project paper | Economic Order Quantity | Operations & Supply Chain Management | | Alvin KurniawanDavid ChristianHenry SinagaIrsyad WicaksonoPhillip Tedja | 16 Maret, 2013 | | DAFTAR ISI Halaman Bab 1. Pendahuluan 1.1. Latar Belakang…………………………………………………. 2 1.2. Rumusan Masalah…………………………………………….. 3 1.3. Tujuan Penulisan………………………………………………. 3 1.4. Sistematika Penulisan…………………………………………. 4 Bab 2. Landasan Teori 2.1 Pengertian Economic Order Quanity (EOQ)………………… 5 2.2 Sejarah Economic Order Quantity (EOQ)…………………… 7 2.3 Asumsi-asumsi Economic Order Quanity (EOQ)…………… 8 2.4 Keuntungan dan Kerugian Economic Order Quanity (EOQ). 9 Bab 3. Profil Perusahaan……………………………………………………… 10 Bab 4. Pembahasan Masalah………………………………………………… 12 Bab 5. Kesimpulan dan Saran……………………………………………….. 14 BAB 1 Pendahuluan 1.1 Latar Belakang Sebagai mahluk sosial, manusia tidak akan bisa terlepas dari kebutuhan sandang atau pakaian. Fungsi utama dari pakaian adalah untuk menutupi tubuh kita sekaligus melindunginya dari terik matahari, suhu dingin, hujan, salju dan segala cuaca lainnya. Tidak hanya cuaca namun gangguan dari lingkungan luar non cuaca. Saat ini pakaian tidak hanya berfungsi sebagai penutup tubuh, namun juga sebagai karya seni dan gaya hidup. Tidak sedikit pula yang menjadikan pakaian sebagai personifikasi status sosial mereka. Kebutuhan tersebut akhirnya mendorong para pelaku bisnis untuk...
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