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CHAPTER 9

CHAPTER 9. Inventory Management. Chapter 9. Inventory Decisions and Costs. When should the order be placed? What is the quantity for which the order be placed? What level of safety stock be kept? Inventory Costs: Purchase cost (Nominal cost) Ordering cost/ Setup cost

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CHAPTER 9

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  1. CHAPTER 9 Inventory Management

  2. Chapter 9 Inventory Decisions and Costs • When should the order be placed? • What is the quantity for which the order be placed? • What level of safety stock be kept? Inventory Costs: • Purchase cost (Nominal cost) • Ordering cost/ Setup cost • Carrying cost/Holding cost • Stock out cost (Back-ordering cost) Quantitative Techniques in Management by N.D.Vohra

  3. Inventory Management Systems • Fixed Order Quantity System (Q - system) • Order quantity is fixed and order placed when the stock level reaches a pre-determined re-order point • Periodic Review System (P - system) • Orders are placed periodically at fixed intervals while ordering quantities can vary • Ss System • Combines the features of P and Q systems Quantitative Techniques in Management by N.D.Vohra

  4. Inventory Models • Model 1: Classical EOQ Model • Relevant costs: Ordering and Holding costs • At EOQ: Ordering cost = Holding cost • At EOQ, Total Cost (TQ*) is minimum • For order quantity (Q) other than EOQ, T(Q) = TQ*×0.5{k + 1/k}, where k = Q/EOQ • Model 2: EOQ with Price-breaks • Relevant costs: Nominal, Ordering and Holding costs • Total Cost determined at feasible EOQ and at each further price-break to find optimal order quantity Quantitative Techniques in Management by N.D.Vohra

  5. Inventory Models • Model 3: Build-up Model/EOQ Model for Production Runs • Used where source of supply is internal • Relevant costs: Set-up and Holding costs • At Economic Lot Size, TC is minimum and Set-up cost = Holding cost • Model 4: Inventory Model with Planned Shortages • Used where back-ordering is possible and planned • EOQ determined where TC is minimum and Ordering cost = Holding cost + Back-ordering cost Quantitative Techniques in Management by N.D.Vohra

  6. Inventory Classification ABC VED HML SDE S-OS FSN XYZ Basis Usage value Criticality of item Unit cost Availability Seasonality Speed of movement Closing inventory value Selective Approaches to Inventory Control Quantitative Techniques in Management by N.D.Vohra

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