Production and Operation Managements Inventory Control Subject to Known Demand Prof.JIANG Zhibin Department of Industrial Engineering Management Shanghai Jiao Tong University
Production and Operation Managements Prof. JIANG Zhibin Department of Industrial Engineering & Management Shanghai Jiao Tong University Inventory Control Subject to Known Demand
Contents .Introduction .Types of Inventories .Motivation for Holding Inventories; .Characteristics of Inventory System; Relevant Costs; .The EOQ Model: EOQ Model with Finite Production Rate Quantity Discount Models .Resource-constrained multiple product system .EOQ models for production planning Power-of-two policies
Contents •Introduction •Types of Inventories •Motivation for Holding Inventories; •Characteristics of Inventory System; •Relevant Costs; •The EOQ Model; •EOQ Model with Finite Production Rate •Quantity Discount Models •Resource-constrained multiple product system •EOQ models for production planning •Power-of-two policies
Introduction .Inventory is the stock of any item or resource used in an organization. "Generally inventory is being acquired or produced to meet the need of customers; .An inventory system is the set of policies and controls that monitors levels of inventory or determines what levels should be maintained. Independent demand system Dependent demand system
Introduction •Inventory is the stock of any item or resource used in an organization. •Generally , inventory is being acquired or produced to meet the need of customers; •An inventory system is the set of policies and controls that monitors levels of inventory or determines what levels should be maintained. • Independent demand system • Dependent demand system
Introduction The fundamental problem of inventory management When to place order for replenish the stock -How much to order? The complexity of the resulting model depends on the assumptions about the various parameters of the system The major distinction is between models for known demand and random demand
Introduction • The fundamental problem of inventory management : When to place order for replenish the stock ? How much to order? • The complexity of the resulting model depends on the assumptions about the various parameters of the system The major distinction is between models for known demand and random demand
Introduction .The current investment in inventories in USA is enormous; .It amounted up to $1.57 trillion in the third quarter of 2007; .It accounts for 20-25%of the total annual GNP(general net product); .There exists enormous potential for improving the efficiency of economy by s scientifically controlling inventories;
Introduction •The current investment in inventories in USA is enormous; •It amounted up to $1.57 trillion in the third quarter of 2007; •It accounts for 20-25% of the total annual GNP (general net product); •There exists enormous potential for improving the efficiency of economy by scientifically controlling inventories;
Introduction Other Farm 1为 7%) Inventory model $174.6 $114.6 billion billion Retail discussed here are most 30附 Manufacturing 29% $472.5 billion $454.9 billion applicable to Wholesale 23为 manufacturing, $353.6 billion wholesale,and retail Total investment =$1,570.2 billion sectors,composing 82 Survey of Current Business (July 2007) of the total. Fig.4-1 Breakdown of the Total Investment in Inventories in the U.S.Economy (2007)
Introduction Fig. 4-1 Breakdown of the Total Investment in Inventories in the U.S. Economy (2007) Inventory model discussed here are most applicable to manufacturing, wholesale, and retail sectors, composing 82 % of the total
Contents .Introduction .Types of Inventories .Motivation for Holding Inventories; .Characteristics of Inventory System; Relevant Costs; .The EOQ Model: EOQ Model with Finite Production Rate Quantity Discount Models .Resource-constrained multiple product system .EOQ models for production planning Power-of-two policies
Contents •Introduction •Types of Inventories •Motivation for Holding Inventories; •Characteristics of Inventory System; •Relevant Costs; •The EOQ Model; •EOQ Model with Finite Production Rate •Quantity Discount Models •Resource-constrained multiple product system •EOQ models for production planning •Power-of-two policies
Types of Inventories A natural classification is by value added from manufacturing: Raw materials-Resources required in the production or processing activity of the firm. Components-Raw materials or subassemblies that will later be included into a final product. Work-in-process (WIP)-the inventory either waiting in the system for processing or being processed. .Finished good-also known as end items-the final products
Types of Inventories A natural classification is by value added from manufacturing: • Raw materials-Resources required in the production or processing activity of the firm. • Components-Raw materials or subassemblies that will later be included into a final product. • Work-in-process (WIP )-the inventory either waiting in the system for processing or being processed. •Finished good-also known as end items-the final products
Contents .Introduction .Types of Inventories .Motivation for Holding Inventories; .Characteristics of Inventory System; Relevant Costs; .The EOQ Model: EOQ Model with Finite Production Rate Quantity Discount Models .Resource-constrained multiple product system .EOQ models for production planning Power-of-two policies
Contents •Introduction •Types of Inventories •Motivation for Holding Inventories; •Characteristics of Inventory System; •Relevant Costs; •The EOQ Model; •EOQ Model with Finite Production Rate •Quantity Discount Models •Resource-constrained multiple product system •EOQ models for production planning •Power-of-two policies
Why Hold Inventories .For economies of scale-It may be economical to produce a relatively large number of items in each production run and store them for future use. Coping with Uncertainties VUncertainty in demand; VUncertainty in lead time vUncertainty in supply
Why Hold Inventories •For economies of scale-It may be economical to produce a relatively large number of items in each production run and store them for future use. •Coping with Uncertainties Uncertainty in demand; Uncertainty in lead time Uncertainty in supply
