8/2/2019 Inventory Control Revised
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Dr. Anannya Deb Roy
Thank You
01:15 am to 04:15pm
Dr. Anannya Deb
8/2/2019 Inventory Control Revised
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Dr.A
nannyaD
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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
01:15 am to 04:15 pm03-20-12
Dr. Anannya Deb
RoyMFM ,NIFT ,Kolkata
8/2/2019 Inventory Control Revised
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Operations Research
End term ( Jan-June-2012) Inventory Management
Simulation
Queuing Theory
Project Management
01:15 am to 04:15 pm03-20-12
Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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Inventory Models
Necessity for Maintaining Inventory
Cause of Pour Inventory Control
Classification of Inventories
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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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Classification of Inventories
Direct Inventories
Indirect Inventories
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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
8/2/2019 Inventory Control Revised
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Inventory Cost
Purchase Costs
Inventory Carrying or Stock Holding Costs
Procurement Costs
Shortage Costs
01:15 am to 04:15 pm03-20-12
Dr. Anannya Deb RoyMFM, NIFT, Kolkata
8/2/2019 Inventory Control Revised
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
8/2/2019 Inventory Control Revised
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
8/2/2019 Inventory Control Revised
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
8/2/2019 Inventory Control Revised
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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.
Dr. Anannya Deb RoyMFM, NIFT, Kolkata
01:15 am to 04:15 pm03-20-12
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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.
Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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
Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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EOQ:Problem:3
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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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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Dr. Anannya Deb RoyMFM, NIFT, Kolkata
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