Inventory management is incredibly important to all businesses, especially ones with tangible goods and services. Too much
Learning Goal: I’m working on a management discussion question and need an explanation and answer to help me learn.
Read Example 1 and explain your take away. Add additional information. Your document should include minimum 150 words plus credible references.
Inventory management is incredibly important to all businesses, especially ones with tangible goods and services. Too much inventory, the company is wasting money storing the product, too little inventory, the business runs the risk of losing customer satisfaction. In regards to the simulation, the goal is to sell the electronic device while maintaining the proper inventory levels to minimize DigiLife’s costs but still maximize the profits. Understanding that balance between the money invested in the on-hand inventory and the satisfaction of those buying Amulet (Heizer et al., 2020) will be key in obtaining a positive outcome of the simulation.
The three inventory models introduced in our text are: the basic economic order quantity (EOQ), production order quantity, and quantity discount models. The EOQ model is pretty commonly used and recognizable to businesses and operations managers (Çalışkan, 2021); however, the model is historically based in many assumptions such as: a known demand for the product, regular lead time to produce the product, the inventory to produce the product arrives simultaneously, there are no discounts for higher quantity purchased, among others (Heizer et al., 2020). One example of this could be a small business that knows it will sell X amount of a product each time period, as in a seasonal promotion. The production order model is similar to the EOQ model, with the main difference being that supplies to produce the item are received over time. This model is mostly seen in the production industry. Finally, the quantity discount model involves charging less for a product when produced in higher quantities. A great example of this is when one goes grocery shopping. On the shelf, you can buy one box of Rice-A-Roni for $1 or you can buy five boxes for $3. This allows the grocery store to purchase higher quantities for cheaper prices and pass some of the savings on to the shopper.
Based on the instructions for this week’s simulation, and what I’ve read in the text, my first instinct is to adapt the EOQ model. In the simulation, I will be a branch manager, I will not be involved in the production of the Amulet, so that cuts out the production order quantity model. Since the goal is to obtain a large profile on these items, the quantity discount model seems to be out as well. However, as in previous simulations, I will likely try one, then iterate and adapt as necessary.
Çalışkan, C. (2021). Omega. The economic order quantity model with compounding. https://www.sciencedirect.com/science/article/abs/pii/S0305048320306617.
Heizer, J., Render, B., & Munson, C. (2020). Operations Management: Sustainability and Supply Chain Management (13th ed.). Pearson Education, Inc.
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