Spreadsheet Models for Managers


Getting Access to Spreadsheet Models for Managers


If Spreadsheet Models for Managersyou use Excel to model businesses, business processes, or business transactions, this course will change your life. You’ll learn how to create tools for yourself that will amaze even you. Unrestricted use of this material is available in two ways.

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Order "Spreadsheet Models for Managers, on-line edition, one month" by credit card, for USD 69.95 each, using our secure server, and receive download instructions by return email.
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Spreadsheet Models for Managers

Inventory cost factors 11/5
Session Links
  • Costs related to the number of orders
    • Decision to order
    • Telephone, postage, other communications
    • Labor
    • Computation and record-keeping (accounting, tracking, control)
    • Price verification (external only)
    • Receiving and handling
    • Freight
    • Setup and stowage
  • Costs related to the total value and bulk of inventory
    • Handling and storage
    • Interest expense
    • Opportunity costs relative to alternative inventoried components
    • Insurance, taxes, space, equipment
    • Heating, cooling, humidity control
    • Shelf life factors: spoilage, theft, obsolescence

Here’s a list of contributing factors that determine the cost of acquiring, and then holding, inventory. The key idea here is that each time you place an order, you incur acquisition costs. Meanwhile, as material sits in the warehouse or storage area, you incur storage or carrying costs. By increasing your ordering frequency, you can reduce storage costs, but you increase acquisition costs. So these two sets of costs can be traded off against each other.

Last Modified: Wednesday, 27-Apr-2016 04:15:26 EDT

Assuming Constant Demand

Although the assumption of constant demand is critical to justifying the derivation of the formula for Economic Order Quantity, most problems don’t satisfy that requirement in the strict sense. But EOQ is nevertheless a valuable concept in two kinds of circumstances. The first case is when the time scale of the inventory management decisions is much shorter than the time scale of the variations in demand. And the second is when the fluctuations in demand occur much more rapidly than the inventory management decisions.

These two approximations occur repeatedly in modeling problems. Watch for opportunities to apply them elsewhere.