Deterministic Inventory Model
This model based on the mathematical concept and outcomes determined by analyzing the relationship of the state and events without any room for random variation. In this, inventory model given input always produce the same output or in other words can say it is like chemistry equations. Contact us to get Deterministic Inventory Model Homework Help.
This model considered two kinds of approaches to determine the shortage of the product in inventory one is the loss of sales and other are allowing the backorder. By considering the assumption of the loss of sales profit maximization is requiring either no sales made or no stock outs occurs and under the assumption of the backorders, maximization required if the cost of the shortage of product is finite or positive. In this model, buyers reduce the carrying cost by inducing the sellers to make an early purchase of products.
We can make clear understanding about the concept of make early delivery of products with the help of an example.
If Buyer A buy product of $500 from seller B then he took the product of $300 and delays the payment of $200 so that inventory can be managed by sharing the product between the two parties. This allows buyers to reduce the holding cost of the product and makes control over the sellers.
Organizations use this model to avoid two situations and both of the situations related to the front end of the business that is customer. If organization facing the situation of stock out condition than they have to lose their customers, and this is very bad situation it also leads negative marketing of the organization.
In the second condition when the organization made advance order and have to hold product for a long time in a warehouse, in this condition organization has to pay inventory holding cost. If organizations follow this model, then they have to manage an optimum level of inventory which makes satisfied both ends of the business. With the mathematical model organization can control cost at inventory handling process.