Spreadsheet Models for Managers
Getting Access to Spreadsheet Models for Managers
If 
you 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.
- As a stand-alone Web site
- It resides on your computer, and you can use it anywhere. No need for Internet access.
- At this Web site
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Spreadsheet Models for Managers
| Inventory cost factors (2) | 11/6 Session Links |
- Costs of stockouts
- Lost sales
- Lost customers
- Idle time (no parts ⇒ idle assembly lines)
- Idle workpieces in process
- Back-order/expedite cycle
- Size of order
- Quantity discounts
- Freight
- Insurance
- Security
Knowing the true cost of inventory
is important
even when you outsource it.
Here are some other cost factors that complicate your already-complicated decision. If you reduce inventory, you run the risk of sales or manufacturing disruption due to stockouts. And if you increase order size, you can sometimes get discounts in price, freight, or insurance. Also, the cost-per-unit of security operations generally declines with increasing inventory size.
The ordering decision can thus be so complex that the only way to figure out what to do is to make a graphical representation of your costs, and pick the order point on the basis of the graph.
Last Modified: Wednesday, 27-Apr-2016 04:15:26 EDT
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.