Inventory Control Revised

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Dr. Anannya Deb Roy

Thank You

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Dr. Anannya Deb


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Operations Research

Midterm ( Jan-June-2012)

Implication of Operations Research

Linear Programming

Transportation ModelAssignment Model

Traveling Salesman Problem

Dr. Anannya Deb RoyMFM, NIFT, Kolkata

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Dr. Anannya Deb

RoyMFM ,NIFT ,Kolkata


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Operations Research

End term ( Jan-June-2012) Inventory Management

Simulation

Queuing Theory

Project Management

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Inventory Models

Necessity for Maintaining Inventory

Cause of Pour Inventory Control

Classification of Inventories

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Classification of Inventories

Direct Inventories

Indirect Inventories

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Direct Inventories

Production InventoryWork-in-Process Inventory

Finished Goods Inventory

Maintenance Repair and Operating (MRO)

InventoryMiscellaneous Inventory

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Indirect Inventories

Transit or Pipeline Inventory

Buffer Inventory

Decoupling Inventory

Seasonal Inventory

Lot Size Inventory

Anticipation Inventory

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Inventory Cost

Purchase Costs

Inventory Carrying or Stock Holding Costs

Procurement Costs

Shortage Costs

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Purchase Cost

Price that is paid for the Purchasing/Producing anItem

May be Constant/Per Unit

May Vary with the Quantity Purchase/Produced

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Inventory CarryingCosts/Stock Holding Costs

Cost of Money or Capital Tied Up in Inventories(15% to 20%)

Cost of Storage Space, Includes Heating, Lightingand Other Atmospheric Control Expenses (1 % to3%)

Depreciation or Deterioration Costs( 0.2% to 1%)

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Inventory Carrying Costs/StockHolding Costs (Continue)

Pilferage Costs ( 1%)

Obsolescence Costs (5 %)

Handling CostsRecord Keeping Costs

Taxes and Insurance ( 1% to 2%)

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Expression of InventoryCarrying Cost

As Percent/Per Unit Time (20% Per Year)

Monetary Value/Unit/Per Unit Time ( RS.

10/Unit/Year)

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Procurement Costs or Set UpCosts or Order Cost

Costs for Placing an Order or Setting up aMachinery : PurchaseRequisition Follow upReceiving the GoodsQuality ControlCost of Mailing, Telephone Calls

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Inventory Control Problem

When to Order ?

How Much to Order ?

How Much Safety Stock Should be Kept ?

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When to Order ?

Lead Time:

Time Interval between Placing an Order andReceiving it in Stock

Reorder Level

Minimum Stock which can meet the Demandbefore replenishment

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The Economic Order Quantity Model

Assumptions:1. Production is instantaneous.There isno capacity constraint and the entire lot isproduced simultaneously.

2. Delivery is immediate.There is no timelag between production and availability tosatisfy demand.

3. Demand is deterministic.There is nouncertainty about the quantity or timing ofdemand.


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The Economic Order Quantity Model

Assumptions:

4. Demand is constant over time. In fact,it can be represented as a straight line, sothat if annual demand is 365 units this

translates into a daily demand of one unit.

5A production run incurs a constantsetup cost. Regardless of the size of the lotor the status of the factory, the setup cost is

the same.


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1

22

C

CREOQ

=

R = Demand per UnitTime

C2 =Cost per Order perUnitC1 = Holding cost perUnit

Economic Order Quantity (EOQ) Model


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EOQ:Problem:1

Dinesh has to supply 12,000 units of aproduct per year to his customers. Thedemand is fixed and known and theshortage cost is assumed to be infinite.

The inventory holding cost is Rs. 0.20per unit per month and the ordering costper order is Rs. 350. Determine1)

The optimum lot size2) Optimum scheduling period3) Minimum total average cost per year

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EOQ:Problem:2

Vanya has forecasted demand for a particularitem as 9,000 units/year. The cost of oneprocurement is Rs.100 and the holding cost perunit is Rs. 2.40 per year. The replacement is

instantaneous and no shortage are allowed.Determine:1) The economic lot size2) The no. of order per year3) The time between orders4) The total cost per year if the cost of one unit is

Rs. 1

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EOQ:Problem:3

Nimisha has to supply 400 units of a productevery Monday to the customers of herorganization. She gets the product at Rs. 50per unit from the manufacturer. The cost ofordering and transportation from themanufacturer is Rs. 75 per order. The cost ofcarrying inventory is 7.5% per year of the costof the product. Find:

1) The economic lot size2) The total optimal cost3) The total weekly profit if the item is sold for

Rs. 55 per unit

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EOQ:Problem:3

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Mahua has predicted that thedemand for a commodity is 100units per day. Every time an order isplaced, a fixed cost of RS. 400 isincurred. Holding cost is Rs. 0.80 perunit per day. If the lead time is 13days, determine the economic lotsize and the reorder point


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Classifying Inventory Items

ABC Classification (ParetoPrinciple)

A Items: very tight control, complete

and accurate records, frequent reviewB Items: less tightly controlled, good

records, regular review

C Items: simplest controls possible,

minimal records, large inventories,periodic review and reorder


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VED Analysis

V-Ital items

E-essential Items

D-Desirable Items


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FNSD Analysis

F-Fast Moving Items

N-Normal Moving Items

S-Slow Moving Items

D-Dead Items


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Reference

Gupta, Prem Kumar and D.S. Hira,(2010), Operations Research, S.Chand, New Delhi, India

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Inventory Control Revised

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