Analyzing Inventory Cost And Service In Supply Chains.pdf

A n alyzin g In ve n to ry Co st an d S e rvic e in S u p p ly Ch ain s
Garre tt van R yzin
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Cop yrigh t c 1998 b y Garrett van Ryzin . All righ ts res erved . D ecem b er 1998
Supply Chain Cost and Service i
Contents
1 Introduction 1
2 What are inventories and why do they occur? 1
3 Causes of supply/demand imbalances in a supply chain 1
Planned imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Time and distance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Economies of scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Supply/demand uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Inventory cost accounting 3
5 Models of inventory cost and service 4
Types of inventory control policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The economic order quantity (EOQ) model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A model with random demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The demand process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The ordering process and inventory position . . . . . . . . . . . . . . . . . . . . . . . . 6
The periodic review, order-up-to policy . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Choosing the policy parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Cost and service measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6 Examples 10
Calculating the inventory needed to meet a target ¯ll rate . . . . . . . . . . . . . . . . . . . . 10
Determining service provided by a given inventory level . . . . . . . . . . . . . . . . . . . . . 11
Determining policy parameters . . . . . . . . . . . . . .