Page 168 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Unit 11: Production Management

Notes
Did u know? The formula for reorder point is

Reorder Point = Usage Rate * Lead Time

Economic Order Quantity (EOQ): How Much to Order?

The formula for EOQ is

2CS
Q =
I
Where C = Annual Usage of item in units
S = Cost to place an order
I = Annual Carrying Cost Per Unit

It is based on following assumptions:
(a) Ordering cost is constant
(b) Cost of carrying additional unit is constant

(c) There are no quantity discounts available
(d) Usage of consumption is constant
Cost of keeping large quantity = Carrying Cost
Cost of placing an order = Order Processing Cost
Thus, if the order is placed in large quantity, the order processing cost would be less but carrying
cost would be high.

Caselet 4 Keys to Inventory Management

ook at the capital sitting on your lot and showroom floor and you’ll quickly see
that your pre-owned and new-vehicle inventory are your dealership’s most valuable
Lassets. So, is your dealership’s process for converting these assets into profit
extracting the maximum value from every vehicle? If not, there’s a four-part inventory
strategy that can help jump start growth and ensure your store’s inventory is working for
the dealership in the form of more deals, more profit, and less waste.

If your dealership is buying and selling on gut instinct, or you don’t have a handle on
which models turn in 20 days versus which sit for 90, or perhaps your trade-in strategy is
to get the customer in a new vehicle instead of considering where you can move his or her
old vehicle, you’re throwing money away every day.
To be successful in today’s market, dealers need to have concrete inventory strategies and
processes in place. This means doing much more than just stocking the correct quantity of
vehicles. Managing your inventory for profitability consists of four interlocking pieces
that make up a comprehensive inventory strategy: inventory analysis, proactive strategy,
inventory sourcing, and inventory management systems. Let’s take a closer look at each
piece of your inventory strategy.
Contd...

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