1 / 16

Optimizing Inventory Costs: A Comprehensive EOQ Analysis for Improved Management Efficiency

This presentation outlines the process of enhancing inventory cost management through the Economic Order Quantity (EOQ) model. With a focus on A-class inventory items at a specific store, we analyze historical data to demonstrate the significant cost-saving potential of EOQ. Key topics include problem overview, data description, Pareto analysis, calculation of current vs. EOQ inventory costs, and additional recommendations for maintaining inventory accuracy. Our findings reveal potential annual savings exceeding $2 million across stores, emphasizing the critical role of effective inventory management.

brenna
Télécharger la présentation

Optimizing Inventory Costs: A Comprehensive EOQ Analysis for Improved Management Efficiency

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Mark Mastrangeli John Knezevic Improving Inventory Costs with EOQ

  2. Agenda: • Problem Overview • Data Description & Data Sample • Assumptions(carrying, holding costs) • Pareto Analysis (ABC Classification) • EOQ Models • Sample Savings • Other Recommendations

  3. Overview • Objectives Of Inventory Management • Minimize Inventory Costs • Maximize Customer Service • In order to Minimize Inventory Cost • Find Economic Order Quantity that minimizes: • Annual Ordering Cost + Annual Carrying Cost • Annual Purchasing Cost is not included because there is nothing you can do about it.

  4. Data Description • Given 2.9 million line historical data file • Focusing on a single store’s A class inventory Items we calculated: • Current Method Annual Inventory Cost • EOQ Annual Inventory Cost • ~3000 Item Master Inventory spreadsheet • Eliminated Many Items to narrow inventory

  5. Historical Data Sample

  6. Relevant Data • Item No • Location • Item Description • Item Price • Average Cost • Max Order • Lead Time

  7. Assumptions • 350 Day Working Year • $10.00 Cost per Order • 7% IRR Carrying Cost • Max Order Quantity could be changed

  8. Pareto Analysis (ABC Classification) • Pareto Principle • 80% of a nation’s wealth, owned by 20% of population • Apply concept to inventory • A - account for 10-20% of items, 60-80% value • B - account for 20-40% of items, 15-30% value • C - account for 50-60% of items, 5-10% value • Focused exclusively on A items

  9. The Basic EOQ Model • Can be used in planning the purchases of inventory items for retailers • General Assumptions: • Uses Constant Annual Demand vs. Fluctuating Periodic • Item’s purchase cost is independent of the quantity ordered and irrelevant in calculating annual inventory cost • Lead time is a certainty

  10. Our Analysis: • Assuming, • Max Order Quantity has been changed. • $10.00 Cost per Order • 7% IRR • 350 Working Days per year • Calculated Cost of Actual known orders • Averaging Total Units Ordered over Duration and known number of orders • Calculated EOQ Model for all 27 Class ‘A’ Items

  11. Our Analysis

  12. Our Analysis:

  13. Our Analysis:

  14. Sample Savings • For All 27 Class ‘A’ Items • Current Total Cost of Inventory under given assumptions: $3,315.91 • EOQ Total Cost of Inventory: $1348.05 • Savings over current method: $1967.86 • Average Savings per Item: $72.88 • ~Annual Savings for All 1124 stores: • 1124 x $1967.86 = $2,211,874.64 • If Pareto Principle Holds $2,211,874.64 = 60% Value • Then 100% = $ 3,686,461.69

  15. Other Findings: • For 3227 Orders, 516 Items in the history for Greenville, Dallas Center Avg Units per order = 2.7 • Under EOQ for 27 A Items 67 Orders per year • Under Current Method 307 Orders per year • 80% Reduction • 80% Reduction of 3227 = 645 Orders

  16. Recommendations: • Maintaining Inventory Accuracy • Avoid stock outs at all cost • DC does not have item to send • Recommended levels of accuracy • A items ± 0.2% • B items ± 1% • C items ± 5% • Cycle Counting • Each month 1/12th of company items are counted • Consider Changing Max Order Quantity and Using EOQ

More Related