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Economics of Manufacturing
Published in Zainul Huda, Manufacturing, 2018
Inventory Costs: In order to make a decision that affects inventory size, the following four inventory costs must be considered: holding cost, setup cost, ordering cost, and shortage cost. The holding cost refers to the cost of holding the inventory; it includes the costs of storage facilities, handling, insurance, breakage, obsolescence, depreciation, taxes, and the opportunity cost of capital. In case holding costs are high, it is important to keep low inventory levels and ensure frequent replacement. Setup cost refers to the cost incurred in setting up facilities for manufacturing; it involves procurement of necessary materials, equipment setups, documentation, charging time, and moving out the previous stock of material (if the production of different products is involved). Ordering cost involves clerical costs to prepare the purchase or production order; it includes all the details, such as counting items and calculating order quantities. Shortage cost is to the cost of stock-out (i.e., the situation when a customer seeks a product but it is not available or is out of stock). The mathematical modeling of inventory costs is given in Section 19.5.2.
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Published in A. Ravi Ravindran , Paul M. Griffin , Vittaldas V. Prabhu , Service Systems Engineering and Management, 2018
A. Ravi Ravindran , Paul M. Griffin , Vittaldas V. Prabhu
The economic order quantity (EOQ) model is used when annual demand (d) is constant, the replenishment lead time is zero, and stockouts are not allowed. We assume that the cost per item is c, the cost to place an order is A, and the cost to hold an item for one year is h. The holding cost arises from several sources: the cost (interest) of tying up money in inventory, space costs, taxes, and theft. It is common to apply a rate i (in %), so that h = ic. Common values for i range from 15% to 33%. We can determine the optimal order quantity Q, but considering the components of total cost (TC(Q)): annual order cost, annual holding cost, and total purchase cost.
Satisfying Customer Demand: Inventory Management
Published in Samuel H. Huang, Supply Chain Management FOR ENGINEERS, 2013
Our analysis showed that the total annual inventory cost using the expedited shipping option is $6484 lower than that using the regular shipping option. This is because using the expedited shipping option allows us to hold less safety inventory. The savings resulted from lower safety inventory exceeds the additional cost of using expedited shipping. Therefore, BVE store should choose the expedited shipping option and order 2188 units of laptops whenever the inventory falls to 1457 units. In general, the required safety inventory is reduced when the replenishment lead time is shortened. This will lead to lower inventory holding cost and thus improve the profitability of a company.
Two-echelon imperfect production supply chain with probabilistic deterioration rework and reliability under fuzziness
Published in Journal of Management Analytics, 2021
From Table 6 and Figure 11, it is clear that the holding cost of manufacturer is very less sensitive, and the purchase cost of manufacturer , selling price of retailer are less sensitive, and deterioration cost of retailer is moderately sensitive. Holding cost increases means total profit decreases, so the manufacturer will try to reduce the holding time. Table 6 shows that when the value of increases, the manufacturer attempts to reduce the time and supply the produced items to the retailer in less time . However, the total profit decreases with the increases in .
A stage-dependent economic order quantity model for high-tech products with a finite life cycle
Published in International Journal of Systems Science: Operations & Logistics, 2021
Based on the performed analysis, it can be concluded that any change in the length of each stage mostly influences the optimal inventory cost and number of orders in the relevant stage. Furthermore, according to the obtained results, it is clear that the optimal inventory cost and number of orders in the first stage is relatively less sensitive to the length of this stage than the other ones. In addition, total inventory cost of all stages is affected by any changes in the length of each stage, but it is a little more sensitive to the length of the second stage, i.e. steady-state stage. In summary, to provide a better estimation of the optimal values, the duration of all stages should be predicted with reasonable accuracy. Moreover, the obtained results clearly indicate that all inventory costs are influenced directly by the ordering cost and the holding cost. Thus, buyers should select the suppliers who suggest the lower value for the ordering cost. Also, it is beneficial to reduce the holding cost by improving inventory management and control system.
Flexible work-in-process production system in supply chain management under quality improvement
Published in International Journal of Production Research, 2020
The buyer places an order for an order quantity Q to manufacturer. Hence, the ordering cost () is as To control the lead time, the buyer uses some costs such that the lead time is always under control. Therefore, the lead time cost () can be found as One can calculate easily the holding cost by multiplying average inventory with holding cost per unit per unit time. One has already average inventory as . Hence, the holding cost of buyer () is Controllable lead time is there, still the shortage cost is there. Thus the shortage cost () can be found as where , and are the standard normal distribution and the probability density function of the normal distribution function.