inventory management vipul

7/28/2019 Inventory Management Vipul

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Submitted by

vipul kanojiaabu bakerbupinder singh

Inventory Management

And models


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Types of Inventories

Raw materials & purchased parts

Partially completed goods calledwork in progress

Finished-goods inventories (manufacturingfirms)

or merchandise (retail stores)


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Functions of Inventory

To meet anticipated demand

To smooth productionrequirements

To protect against stock-outs


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Objective of Inventory Control

To achieve satisfactory levels of customer

service while keeping inventory costs within

reasonable bounds

Level of customer service

Costs of ordering and carrying inventory


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A system to keep track of inventoryA reliable forecast of demand

Knowledge of lead times

Reasonable estimates of

Holding costs

Ordering costs Shortage costs

A classification system

Effective Inventory Management


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Inventory Counting Systems

Periodic System

Physical count of items made at

periodic intervals

Perpetual Inventory SystemSystem that keeps track of removals

from inventory continuously, thusmonitoring current levels of each item


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Lead time: time interval between ordering andreceiving the order

Holding (carrying) costs: cost to carry anitem in inventory for a length of time, usually a year

Ordering costs: costs of ordering and receivinginventory

Shortage costs: costs when demand exceedssupply

Key Inventory Terms


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ABC Classification System

Classifying inventory according to somemeasure of importance and allocating

control efforts accordingly.A -very important

B- mod. important

C- least importantAnnual

$ valueof items

A

B

C

High

Low

Low High

Percentage of Items


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Economic order quantity (EOQ) model

The order size that minimizes totalannual cost

Economic production model

Quantity discount model

Economic Order Quantity Models


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Only one product is involved

Annual demand requirements known

Demand is even throughout the year

Lead time does not vary

Each order is received in a single delivery

Inventory Level = 0 when new order justarrived

There are no quantity discounts

Assumptions of EOQ Model


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Total Cost

Annualcarryingcost

Annualorderingcost

Total cost = +

TC =Q

2H

D

QS+


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Minimum Total Cost

The total cost curve reaches itsminimum where the

Carrying Cost = Ordering Cost

Q

2H

D

QS=


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Deriving the EOQ

Using calculus, we take the derivativeof the total cost function and set thederivative (slope) equal to zero andsolve for Q.

Q = 2DSH

= 2(Annual Demand )(Order or Setup Cost )Annual Holding Cost

OPT


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Economic Production Quantity(EPQ)

Assumptions

Only one product is involved

Annual demand requirements are known Usage rate is constant

Usage occurs continually, but production occursperiodically

The production rate is constant Lead time does not vary

There are no quantity discounts

12-14


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Quantity Discount Model

Quantity discount

Price reduction offered to customers for

placing large orders

priceUnit

where2

CostPurchasingCostOrderingCostCarryingCostTotal

P

PDS

Q

DH

Q

12-15


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When to Reorderwith EOQ Ordering

Reorder Point- When the quantity onhand of an item drops to lower amount,the item is reordered

Safety Stock -Stock that is held inexcess of expected demand due to

variable demand rate and/or lead time.

Service Level -Probability that demandwill not exceed supply during lead time.


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Determinants of the Reorder Point

The rate of demand

The lead time

Demand and/or lead time variability

Stockout risk (safety stock)


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Single period model: model for orderingof perishables and other items with

limited useful lives

Shortage cost: generally the unrealizedprofits per unit

Excess cost: difference betweenpurchase cost and salvage value ofitems left over at the end of a period

Single Period Model


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Too much inventory Tends to hide problems

Easier to live with problems than toeliminate them

Costly to maintain

Wise strategy

Reduce lot sizes

Reduce safety stock

Operations Strategy


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THANK YOU

inventory management vipul

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