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Mmo Assignment

The document discusses backorders in inventory management, highlighting their role in customer retention, associated costs, and potential impact on a company's reputation. It also provides calculations for the Economic Order Quantity (EOQ) with shortages and the optimal cycle time for inventory replenishment. The calculations yield an EOQ of approximately 535 units and an optimal cycle time of about 2.14 days.

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3 views5 pages

Mmo Assignment

The document discusses backorders in inventory management, highlighting their role in customer retention, associated costs, and potential impact on a company's reputation. It also provides calculations for the Economic Order Quantity (EOQ) with shortages and the optimal cycle time for inventory replenishment. The calculations yield an EOQ of approximately 535 units and an optimal cycle time of about 2.14 days.

Uploaded by

marishaek11
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

MMO702S

Assignment 1

222008490 - MARISHA BECK


Question 1

a) Backorders in inventory management refer to situations where customer orders are accepted but
cannot be fulfilled immediately due to insufficient stock. Instead, the orders are placed on hold until
the inventory has been replenished. Backorders are common in industries where demand
fluctuations are frequent or lead times are long.

Key points about backorders:

 Customer Retention: By allowing backorders, businesses can retain customers instead of losing
sales due to out-of-stock situations.

 Extra Costs: Managing backorders incurs additional costs, including handling, storage, and
potential expediting costs.

 Impact on Reputation: Frequent backorders may affect a company’s reputation for reliability
and customer satisfaction.

 Inventory Planning: Backorders require careful planning and accurate demand forecasting to
minimize occurrence and associated costs.

b)

i) The EOQ with Shortages:

The Economic Order Quantity (EOQ) formula with shortages is given by:

Q¿ =
√ 2 DSH
H +P
Substitute the given values D=10 000 , S=50 , H =2 , P=5:

Q¿ =
√ 2 ×10 000 ×50 × 2
2+5
=
√2 ×1 000 000
7
=
7√
2 000 000
=√ 285 714.29 ≈ 535

ii) The Optimal Cycle Time (T):

The optimal cycle time T is given by:


¿
Q
T=
D
d
First, calculate the total number of days in a year:

D 10 000
= =250 days
d 40
Then,
535
T= ≈ 2.14 days
250
References

- “Backorders.” Investopedia,
2022, [Link]

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