Topics
      Basic concepts.
      Management issues.
      Inventory-related costs.
      Economic order quantity model.
      Quantity discount model.
      Order timing decisions.
      Order quantity and reorder point interactions.
      Multi-item management.
      Multiple items from a single source.
                                  
     Independent versus Dependent 
     Demand
   Independent demand is for an item for which 
     demand is influenced by factors outside of 
     company decisions.
   Dependent demand is for an item for which 
     demand is directly dependent on demand or 
     requirement of another item.
   An item may have both independent and 
     demand.
                             
      Functions of Inventory
   Transit stock (pipeline inventories): depends on the 
      time to transport inventories between locations.
   Cycle stock: order quantities larger than immediate 
      requirements—thus satisfying multiple periods of 
      demand. 
   Safety stock: provides protection against 
      irregularities and uncertainties in supply or demand.
   Anticipation stock: stock to meet demand in peak 
      periods or special situations, e.g., planned 
      shutdown.
                                   
       Management Issues
     Routine inventory decisions:
        • How much to order (Q, S).
        • When to order (R, T).
     Inventory system performance:
        • Inventory turnover.
        • Customer service; e.g, fill rate.
     Implementation - basic systems are in place 
       before implementing advanced methods.
                                     
       Inventory-related Costs
   Ordering costs - incurred each time a 
      replenishment order is placed.
   Carrying costs - function of the item’s value and 
      length of time it’s held in inventory.
       • Cost of capital, opportunity cost.
       • Taxes, insurance, inventory shrinkage, storage costs.
   Shortage and customer service costs - incurred 
      when demand exceeds available supply.
       • Loss of contribution margin and loss of good will.
       • Tracking backorders.
       • Customer service measures (surrogate for cost).