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Understanding Inventory Control and Management Techniques

Inventory is essential for organizations to meet present and future needs. Explore inventory control methods, functional roles, reasons for carrying inventory, cost components, and classification of EOQ models.

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Understanding Inventory Control and Management Techniques

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  1. Definition The word inventory refers to any kind of resources that has economic value and is maintained to fullfill the present and future needs of an organization Eg:- Manufacturer, Hospital , Bank , Airline

  2. The meaning of inventory control • What item should be stocked • When should an order be placed replenish inventory • Periodic review system • Fixed order quantity system • Optional restock system • How much should be ordered in each replenishment

  3. Functional role of inventory • Lot-Size inventory:- the amount of inventory depends upon the production lot size , ware house space available , replishment lead time etc. • Pipeline inventory :- items cannot be instaneous, optimal inventory level is required for shipment of inventory items to distribution centres and customer for production centres • Safety inventory • Seasonal inventory • Decouling inventory

  4. Reasons for carrying inventory • Improve customer service • Reduced costs • Maintenance of operational capability • Irregular supply and demad • Quantity discounts • Avioding stockouts

  5. Inventory cost components • Purchase cost • Carrying cost • Set-up cost • Shortage and customer service cost • Total inventory cost

  6. Classification of EOQ Models C = Purchase cost of an item(Rs per unit time) Co = ordering cost per order item(Rs per unit time) R = cost of carring one rupee’s worth of inventory expressed in terms of per cent of rupee value of inventory item(per cent per unit time)

  7. Ch =C.r = cost of carring one unit of an item in the inventory for a given length of time (Rs per item per unit time) • Cs =shortage cost per unit time(Rs per unit time) • D = annual requirement (demamd) of an item(unit per unit time) • Q = order quantity , number of units ordered per order (units)

  8. ROL = reorder level i,e the level of inventory at which an order is placed(units) • LT replenishment lead time (time period) • n = number of orders per time period(order per unit time) • t = reorder cycle time (time period) • tp = production period (time period)

  9. rp = production rate (quantity per unit time) • TC = total inventory cost (Rs) • TVC = total variable inventory cost (Rs)

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