Learning Objectives

At the end of the module, the student will: Understand the basic categories and relationships of inventory costs and the impact of inventory decisions on those costs. Know how to develop total cost models for specific inventory systems. Understand the components and relationships of the economic order quantity (EOQ) model. Be able to use the EOQ model to make key inventory decisions: how-much-to-order and when-to-order inventory. Know how to adjust inventory decisions to account for uncertainty in demand during lead-time and prescribed customer service levels. Be able to extend the basic EOQ model to inventory systems involving production lot size, planned shortages, and quantity discounts. Be able to use a computer program for determination of order quantity and order point levels, and the resultant and total costs.

Readings

Anderson, D., Sweeney, D., and Williams, T. (1998). Quantitative Methods for Business (7th ed.). Cincinnati, OH: South-Western College Publishing. Chap 13 Inventory Management: Independent Demand Anderson, D., Sweeney, D., and Williams, T. (2000). The Management Scientist for Windows 95, Windows 98, and Windows NT (Version 5.0). Cincinnati, OH: South-Western College Publishing. Chap 9 Inventory

Notes

The following topics are included in summary notes for Module Five. Module 5.1 Notes: EOQ Model Module 5.2 Notes: Production Lot-Size Model Module 5.3 Notes: Planned Shortages Module 5.4 Notes: "A Make-or-Buy Analysis" Case

Assignment

The case assignment for Module 4 is Parts 1 - 6, "A Make-or-Buy Analysis," pp. 574-575 in the text. NOTE: This case is not assigned for turn-in/grading. It is worked out in Module Notes 5.4. You may wish to work on the case, and then check your results with the notes. Of course, you may e-mail questions or case analyses to me for informal feedback. The Management Scientist is used to provide information needed to answer questions in Parts 4 and 5.

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