1.

MAXIMAX APPROACH (OPTIMISTIC) DECISION TREE (decision support device that employs a components required to build a product) (forecast 1. MAXIMAX APPROACH (OPTIMISTIC) DECISION TREE (decision support device that employs a components required to build a product) (forecast
Economy tree-like diagram or model of assessment and their demand-demand management system-master production Economy tree-like diagram or model of assessment and their demand-demand management system-master production
probable outcomes, normally used in operation research) schedule-mrp system- purchase orders/material probable outcomes, normally used in operation research) schedule-mrp system- purchase orders/material
Alternatives Growing Stable Declining Best (1) Decision Node (2) Chance Node (3) Branch plans/work orders) Alternatives Growing Stable Declining Best (1) Decision Node (2) Chance Node (3) Branch plans/work orders)
In 000 in 000 in 000 In 000 (alternatives) (2) (ERP) ENTERPRISE SOLUTION PLANNING (software In 000 in 000 in 000 In 000 (alternatives) (2) (ERP) ENTERPRISE SOLUTION PLANNING (software
Townhouse 55 60 20 60 𝑏𝑢𝑟𝑔𝑒𝑟 50%(25000)+50%(−12000)=6500 that organizes and manages a company’s business Townhouse 55 60 20 60 𝑏𝑢𝑟𝑔𝑒𝑟 50%(25000)+50%(−12000)=6500 that organizes and manages a company’s business
Ex1. 𝑦𝑜𝑢 𝑝𝑖𝑧𝑧𝑎
= 50%(20,000)+50%(−6000)=7000
Ex1. 𝑦𝑜𝑢 𝑝𝑖𝑧𝑧𝑎
= 50%(20,000)+50%(−6000)=7000
Condominm 85 45 -2 85 processes by sharing info across functional areas and Condominm 85 45 -2 85 processes by sharing info across functional areas and
1 1 1 1 1 1
Apartment 68 60 -10 68 Ex2. EMV envelope = (? ) + (? ) + (? ) Apartment 68 60 -10 68 Ex2. EMV envelope = (? ) + (? ) + (? )
3 3 3 across countries) (Customer, retailer, physical distribution, 3 3 3 across countries) (Customer, retailer, physical distribution,
Probability 20% 50% 30% Ex3. Probability 20% 50% 30% Ex3.
production process, purchasing, human resource) production process, purchasing, human resource)
Decision: Invest in condominium EV=.70(60,000)+.30(-45000) Decision: Invest in condominium EV=.70(60,000)+.30(-45000)
(3) (JIT) JUST IN TIME (the philosophy that activities are (3) (JIT) JUST IN TIME (the philosophy that activities are
2. MAXIMIN APPROACH =42000-13500 2. MAXIMIN APPROACH =42000-13500
undertaken only as needed or demanded, also called LEAN undertaken only as needed or demanded, also called LEAN
Economy =28500 PRODUCTION) (THREE ELEMENTS OF JIT: (1) minimizing Economy =28500 PRODUCTION) (THREE ELEMENTS OF JIT: (1) minimizing
EV= .60(28500)+.40(-15000) waste in all forms (2) maintaining respect for all workers EV= .60(28500)+.40(-15000) waste in all forms (2) maintaining respect for all workers
Alternatives Growing Stable Declining Worst =17100-6000 Alternatives Growing Stable Declining Worst =17100-6000
(3) continually improving process ans system) (KEY (3) continually improving process ans system) (KEY
In 000 in 000 in 000 In 000 =11,100 In 000 in 000 in 000 In 000 =11,100
FEATURES OF JIT: (1) maintaining a limited number of FEATURES OF JIT: (1) maintaining a limited number of
Townhouse 55 60 20 20 Townhouse 55 60 20 20
ECONOMIC ORDER QUANTITY suppliers (2) improving plant layout (3) reducing set-up ECONOMIC ORDER QUANTITY suppliers (2) improving plant layout (3) reducing set-up
Condominm 85 45 -2 -2 Condominm 85 45 -2 -2
-INVENTORY MANAGEMENT AND CONTROL play a vital time (4) improving production scheduling (5) targeting zero -INVENTORY MANAGEMENT AND CONTROL play a vital time (4) improving production scheduling (5) targeting zero
Apartment 68 60 -10 -10 Apartment 68 60 -10 -10
role in any business venture defects (6) maintaining flexible workforce) role in any business venture defects (6) maintaining flexible workforce)
Probability 20% 50% 30% Probability 20% 50% 30%
-ECONOMIC ORDER QUANTITY is a far cry from the JUST IN BASIC ASSUMPTIONS OF EOQ (demand is known and -ECONOMIC ORDER QUANTITY is a far cry from the JUST IN BASIC ASSUMPTIONS OF EOQ (demand is known and
Decision: Invest in townhouse Decision: Invest in townhouse
TIME (JIT) approach steady or constant, lead time is known and constant, TIME (JIT) approach steady or constant, lead time is known and constant,
3. EQUALLY LIKELY (LAPLACE) APPROACH 3. EQUALLY LIKELY (LAPLACE) APPROACH
-FREQUENT STOCK OUTS (unavailability of stocks) is receipt of inventory is immediate, cost include set up and -FREQUENT STOCK OUTS (unavailability of stocks) is receipt of inventory is immediate, cost include set up and
Economy Economy
detrimental in any business endeavour holding cost, stockouts can be reduced) detrimental in any business endeavour holding cost, stockouts can be reduced)
Alternatives Growing Stable Declining Averag INVENTORY (a complete listing of merchandise or stock on INVENTORY CONTROL COST: (1) cost of the items (2) cost Alternatives Growing Stable Declining Averag INVENTORY (a complete listing of merchandise or stock on INVENTORY CONTROL COST: (1) cost of the items (2) cost
In 000 in 000 in 000 e hand, work in progress, raw mat, finish goods on hand, of ordering (3) cost of carrying, holding inventory (4) cost In 000 in 000 in 000 e hand, work in progress, raw mat, finish goods on hand, of ordering (3) cost of carrying, holding inventory (4) cost
Townhouse 55 60 20 45 etc.) of safety stock (5) cost of stockouts Townhouse 55 60 20 45 etc.) of safety stock (5) cost of stockouts
Condominm 85 45 -2 42.67 THREE KINDS OF INVENTORY DEVELOPING THE ECONOMIC ORDER QUANTITY Condominm 85 45 -2 42.67 THREE KINDS OF INVENTORY DEVELOPING THE ECONOMIC ORDER QUANTITY
Apartment 68 60 -10 39.33 (1) RAW MATERIALS (inputs to production (2) WORK IN TWO SIGNIFICANT COST IN INVENTORY (1) ordering cost Apartment 68 60 -10 39.33 (1) RAW MATERIALS (inputs to production (2) WORK IN TWO SIGNIFICANT COST IN INVENTORY (1) ordering cost
Probability 20% 50% 30% PROCESS (inventories in the production process) (3) (2) holding cost Probability 20% 50% 30% PROCESS (inventories in the production process) (3) (2) holding cost
Decision: Invest in townhouse FINISHED PRODUCTS (goods/inventories ready for sale) ANNUAL ORDERING COST Decision: Invest in townhouse FINISHED PRODUCTS (goods/inventories ready for sale) ANNUAL ORDERING COST
4. REALISM (HURWICZ) APPROACH INVENTORY PROCESS (1) Suppliers (2) raw materials (3) 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑚𝑎𝑛𝑑 𝐷 4. REALISM (HURWICZ) APPROACH INVENTORY PROCESS (1) Suppliers (2) raw materials (3) 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑚𝑎𝑛𝑑 𝐷
= 𝑐 = 𝑐
a=0.3 1-a=0.7 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟 𝑄 𝑜 a=0.3 1-a=0.7 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟 𝑄 𝑜
work in process (4) fabrication & assembly (5) finished work in process (4) fabrication & assembly (5) finished
a(best payoff)+(1-a)(worst pyoff) goods (6) customers ANNUAL CARRYING COST a(best payoff)+(1-a)(worst pyoff) goods (6) customers ANNUAL CARRYING COST
𝐷 𝐷
townhouse= 0.3(60)+0.7(20)=32 BASIC COMPONENTS OF INVENTORY PLANNING AND Average Inventory X Carrying cost per year = 𝐶ℎ townhouse= 0.3(60)+0.7(20)=32 BASIC COMPONENTS OF INVENTORY PLANNING AND Average Inventory X Carrying cost per year = 𝐶ℎ
2 2
𝑂 𝑂
condominium= 0.3(85)+0.7(-2)=24.1 CONTROL SYSTEM (1) planning on what inventory to stock AVERAGE INVENTORY LEVEL = 2 condominium= 0.3(85)+0.7(-2)=24.1 CONTROL SYSTEM (1) planning on what inventory to stock AVERAGE INVENTORY LEVEL = 2
apartment= 0.3(68)+0.7(-10)=13.4 & how to acquire it (2) forecasting parts/ product demand apartment= 0.3(68)+0.7(-10)=13.4 & how to acquire it (2) forecasting parts/ product demand
2𝑥𝐷𝑥𝑆 2𝑥𝐷𝑥𝑆
Economy (3) Controlling Inventory levels (4) Feedback EOQ = √ 𝐻 Economy (3) Controlling Inventory levels (4) Feedback EOQ = √ 𝐻
measurements to revise plans and forecasts D= Annual Demand (units) measurements to revise plans and forecasts D= Annual Demand (units)
Alternatives Growing Stable Declining Weight REASONS FOR HOLDING INVENTORY (1) protecting against S= Cost per Order Alternatives Growing Stable Declining Weight REASONS FOR HOLDING INVENTORY (1) protecting against S= Cost per Order
In 000 in 000 in 000 edAve. quality problems (2) reliability (3) protecting against C=Cost per unit In 000 in 000 in 000 edAve. quality problems (2) reliability (3) protecting against C=Cost per unit
Townhouse 55 60 20 32 interruption in supply (4) smoothing productions flow (5) Townhouse 55 60 20 32 interruption in supply (4) smoothing productions flow (5)
I= Holding Cost (%) I= Holding Cost (%)
Condominm 85 45 -2 24.1 meeting higher than expected demand (6) improving Condominm 85 45 -2 24.1 meeting higher than expected demand (6) improving
H= Holding Cost I x C H= Holding Cost I x C
Apartment 68 60 -10 13.4 delivery speed (7) flexibility (8) reducing inputs costs Apartment 68 60 -10 13.4 delivery speed (7) flexibility (8) reducing inputs costs
REORDER POINT (ROP) (determines when to order REORDER POINT (ROP) (determines when to order
Probability 20% 50% 30% Probability 20% 50% 30%
INVENTORY CONTROL (permits the firm to supply inventory) INVENTORY CONTROL (permits the firm to supply inventory)
Decision: invest in townhouse Decision: invest in townhouse
requirements/requests with respect to production or to ROP= demand per day x lead time for a new order in days = requirements/requests with respect to production or to ROP= demand per day x lead time for a new order in days =
5. MINIMAX REGRET APPROACH 5. MINIMAX REGRET APPROACH
the customer at the exact instant needed, at the minimal d x L = where L (time between the placing and receipt of an the customer at the exact instant needed, at the minimal d x L = where L (time between the placing and receipt of an
Economy price) Economy price)
order) order)
INVENTORY MANAGEMENT METHODS QUANTITY DISCOUNT MODELS (total cost = material INVENTORY MANAGEMENT METHODS QUANTITY DISCOUNT MODELS (total cost = material
Alternatives Growing Stable Declining in 000 Alternatives Growing Stable Declining in 000
(A) TRADITIONAL METHODS 𝐷 𝑄
cost+ordering cost+holding cost) = DC+ 𝐶𝑂 + 𝐶𝐻 (A) TRADITIONAL METHODS 𝐷 𝑄
cost+ordering cost+holding cost) = DC+ 𝐶𝑂 + 𝐶𝐻
In 000 in 000 𝑄 2
In 000 in 000 𝑄 2
Townhouse 85-55=30 60-60=0 20-20=0 (1) PERPETUAL INVENTORY SYSTEM (fixed amount of Townhouse 85-55=30 60-60=0 20-20=0 (1) PERPETUAL INVENTORY SYSTEM (fixed amount of
Where: Where:
Condominm 85-85=0 60-45=15 20(-2)=22 inventory is ordered using the EOQ model) Condominm 85-85=0 60-45=15 20(-2)=22 inventory is ordered using the EOQ model)
D=Annual demand units D=Annual demand units
Apartment 85-68=17 60-60=0 20-(-10)=30 (2) PERIODIC INVENTORY SYSTEM (Variable amount of Apartment 85-68=17 60-60=0 20-(-10)=30 (2) PERIODIC INVENTORY SYSTEM (Variable amount of
Co=ordering cost of each order Co=ordering cost of each order
inventory based on the normal level of inventory after inventory based on the normal level of inventory after
C=Cost per unit C=Cost per unit
Economy deducting customers demand) Economy deducting customers demand)
Ch=holding or carrying cost per unit per year Ch=holding or carrying cost per unit per year
(3) ABC CLASSIFICATION (a method of classifying inventory (3) ABC CLASSIFICATION (a method of classifying inventory
SAFETY STOCK (is used to deal with the concern of SAFETY STOCK (is used to deal with the concern of
Alternatives Growing Stable Declining in 000
Maxim items according to their annual amount) Alternatives Growing Stable Declining in 000
Maxim items according to their annual amount)
stockouts or shortages) stockouts or shortages)
In 000 in 000 um (B) MODERN METHODS In 000 in 000 um (B) MODERN METHODS
ROP=d x L+ SS (safety stock) ROP=d x L+ SS (safety stock)
Townhouse 30 0 0 30 (1) (MRP) MATERIAL REQUIREMENTS PLANNING Townhouse 30 0 0 30 (1) (MRP) MATERIAL REQUIREMENTS PLANNING
Condominm 0 15 22 22 ((integrates data from production schedules with that from Condominm 0 15 22 22 ((integrates data from production schedules with that from
Apartment 17 0 30 30 inventory and the BILL OF MATERIALS (BOM) to calculate Apartment 17 0 30 30 inventory and the BILL OF MATERIALS (BOM) to calculate
Decision: Invest in condominium purchasing and shipping schedules for the parts or Decision: Invest in condominium purchasing and shipping schedules for the parts or