Inventory management Part 2

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Inventory managementPart 2

• By
• Anita Lee-Post

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Inventory management

• Provide the desired level of customer service
• Enable cost-efficient operations
• Minimize the inventory investment
• Establish a system for managing inventory
• Make decisions about how much and when to order

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Inventory control systems

• Keep track of items in inventory
• Inventory accuracy
• Keep track of items ordered and received
• Inventory model

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Inventory control systems continued

• Keep track of items in inventory
• Periodic counting physical inventory is taken
  periodically
• Cycle counting physical inventory is taken
  continuously

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Inventory control systems continued

• Keep track of items ordered and received
• Single-period inventory models
• Perishable products order exactly what is needed
  balance the risk of lost sales with zero
  inventory costs
• Multi-period inventory models
• Fixed-time period models an order is placed when
  the review period arrives balance a large
  inventory with minimum inventory ordering and
  monitoring costs
• Fixed-order quantity models order a
  predetermined amount each time an order is placed
  balance the holding costs of inventory with its
  ordering costs

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Fixed-order quantity models

• Determine order quantity to minimize inventory
  costs
• Economic order quantity model (EOQ)
• Economic production quantity model (EPQ)
• Quantity discount model (QD)

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EOQ assumptions

• Demand is known constant - no safety stock is
  required
• Lead time (time between order placement and
  arrival) is known constant no back order is
  considered
• No quantity discounts are available
• Ordering (or setup) costs are constant
• All demand is satisfied (no shortages)
• The order quantity arrives in a single shipment

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EOQ inventory profile
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EOQ total costs

• Total annual costs annual ordering costs
  annual holding costs

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EOQ Total cost equation
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EOQ reorder point
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EOQ example

• Given
• Annual demand 60,000
• Ordering cost 25 per order
• Holding cost 3 per item per year
• Number of working days per year 240
• What is the EOQ?
• What is the total cost at EOQ?
• What is the total number of orders placed in a
  year?
• What is the time between orders?
• What is the reorder point if lead time is 3 days?
• What is the reorder point if lead time is 5 days?

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EOQ example continued
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EOQ example continued