Inventory 
                                 Inventory 
                                Management: 
                                Management: 
                               Economic Order 
                               Economic Order 
                            Quantity, JIT, and the 
                            Quantity, JIT, and the 
                            Theory of Contraints
                            Theory of Contraints
                                                 2
               Learning Objectives
               Learning Objectives
     Describe the traditional inventory management 
      Describe the traditional inventory management 
      model.
      model.
     Describe JIT inventory management.
      Describe JIT inventory management.
     Explain the basic concepts of constrained 
      Explain the basic concepts of constrained 
      optimization.
      optimization.
     Describe the theory of constraints, and explain 
      Describe the theory of constraints, and explain 
      how it can be used to manage inventory.
      how it can be used to manage inventory.
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                Managing Inventories
                Managing Inventories
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         u                                           Inventory
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         t    0          3          6    9         12
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         I                       Weeks
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     The Appropriate Inventory Policy
     The Appropriate Inventory Policy
     Two Basic Questions Must be Addressed
    How much should be ordered or produced?
     How much should be ordered or produced?
    When should the order be placed or the setup 
     When should the order be placed or the setup 
     be performed?
     be performed?
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                      Inventories
                      Inventories
    As the firm increases its order size, the number 
      As the firm increases its order size, the number 
     of orders falls and therefore the order costs 
      of orders falls and therefore the order costs 
     decline.  However, an increase in order size also 
      decline.  However, an increase in order size also 
     increases the average amount in inventory, so 
      increases the average amount in inventory, so 
     that the carrying cost of inventory rises.  The 
      that the carrying cost of inventory rises.  The 
     trick is to strike a balance between these two 
      trick is to strike a balance between these two 
     costs.
      costs.
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