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Management Problems
Henry C. Co
Technology and Operations Management,
California Polytechnic and State University
Inventory
Inventory: stockpiles of raw materials,
components, semi-finished or finished goods
waiting to be processed, transported or used
at a point of the supply chain.
Reasons to have inventories
l Improving service level,
l Reducing overall logistics costs,
l Coping with randomness in demand and lead times
l Making seasonal items available all year
l Speculating on price patterns, etc.
Annual inventory holding cost can be 30% of
the value of the materials kept in stock, or
even more.
Ghiani, p. 121
Ghiani, p. 122
Ghiani, p. 129
Q D
TC = H + S
2 Q
Ordering Costs
Ghiani, p. 123
Ghiani, p. 126
Suppose production rate = p= 200
units/day, and demand rate = d = 80
units/day.
Since p>d, inventory will increase at
__________ (p-d) units/day.
Suppose current inventory is 0.
l In 10 days, the inventory level would be
10 days * 120 unit/day = _____ units.
l In 20 days, the inventory level would be
20 days * 60 unit/day = _____ units.
l etc.
Ghiani, p. 126
Ghiani, p. 133
Ghiani, p. 134
S* − A cu
Solve =
B − A cu + co
cu
S = A+ (B − A) ⋅
*
cu + co
r −c
= A+ (B − A) ⋅
r −u
Inventory Management Problems 26
Try this on Excel!
Emilio Tadini & Sons is a hand-made shirt retailer,
located in Rome (Italy), close to Piazza di Spagna. This
year Mr. Tadini faces the problem of ordering a new
bright color shirt made by a Florentine firm.
l He assumes that the demand is uniformly distributed between 200
and 350 units.
l The purchasing cost is c = €18 while the selling price is r = €52
and the salvage value is u = €7. Thus co = 34 and cu = 11.
cu
S * = A+ (B − A) ⋅ = 200 + (350 − 200 ) ⋅
34
= 313
cu + co 34 + 11
r −c 52 − 18
= A+ (B − A) ⋅ = 200 + (350 − 200 ) ⋅ = 313
r −u 52 − 7
Ghiani, p. 142
Ghiani, p. 142
Ghiani, p. 143
Ghiani, p. 145
Ghiani, p. 147
Ghiani, p. 147-148