1.

Alpha Industry required 25,000 units/year of a accessory

component which will be used in its main product. The ordering
cost is Rs.250 per order and the purchase price per unit is Rs.
150. The carrying cost per unit per year is 12% of the purchase
price. Find Economic Order Quantity (EOQ), Number of orders
per annum and time between two orders.

Demand (D) - 25000 units/year

ordering cost (CO) - Rs.250
carrying cost per unit per year is 12% of the purchase price (C C)
= (12/100) * 150
= Rs.18

1. EOQ = Q* = √(2*DEMAND*CO)/CC

= √(2*25000*250)/18

= √(1,25,00,000)/18

= √69444.44
= 833.34 unit
2. Number of Orders per annum
= D / Q*
= 25000 / 833.34
= 29.9997
= 30 Orders
3. Time between two orders = t* = (Q*/D) x 30 x 12
= (Q*/D) x 30 x 12
= (833.34 / 25000) x 30 x 12
= 0.0333336 x 30 x 12
= 12.000096 12 Days
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2. While manufacturing a certain product within the company,

it incurs set-up cost per set up is Rs. 300 and carrying cost per
unit per year is Rs. 15. Next year demand for the product is
predicted as 15,000 units. Determine the Economic Batch
Quantity (EBQ) and its cycle time if rate of production is 25,000
units per year.

Set - up cost - Rs.300

Carrying Cost - Rs.15
Demand - 15,000 Units

EBQ for 15000 Units

= √(2*15000*300)/15
= √9000000/15
= √600000
= 774.5966692415
= 775 units

Number of batch per annum(B*) and Time interval for production 15000
Units/year(t*)
B* = Demand /EBQ
= 15000 / 775
= 19.35 19 Batches/annum
T* = 365/no. of batches
= 365/19
= 19 days interval between two batches
EBQ for 25000 Units
= √(2*25000*300)/15
= √15000000/15
= √1000000
= 1000 units

Number of batch per annum(B*) and Time interval for production 15000
Units/year(t*)
B* = Demand /EBQ
= 25000 / 1000
= 25 Batches/annum
T* = 365/no. of batches
= 365/25
= 14.6 days interval between two batches
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3. List out the factors causing uncertainties during inventory

management. Discuss the impact of those uncertainties while
handling inventory.
1. Financial Factor
It is obvious that the most important factor is money. For effective inventory
management getting financial investment right is significant, as the progression of the
cycle includes a lot of monetary danger. When you plan the expenditure of each stock
management task, for example, item ordering, tax expenses related to the stocks, and
so on. Deliberately you will have the option to manage your inventory management
process and minimize significant financial issues.
2. Market Demand
Understanding market demand is very important for effective inventory management.
As it all depends on the demand and supply. As it is important to deliver products on
time in order to keep our customer satisfied. Demand is something, a business creates
products as per the customer requirement sometimes the quantity of high sometimes
low.
For instance, you need a charger for using a mobile phone, without a charger you will
not be able to charge your phone. Eventually mobile will be of no use without a charger.
Therefore, it is important that you have enough chargers for charging several phones.
There shall not be a shortage of charge (inventory) so that businesses of yours do not
suffer. Thus, you must keep track of demand high time, low time, when sales are high
& low so that you can plan accordingly.
3. Inventory Theft
Inventory theft is one of the most common issues across the world. It is also one of the
reasons that influence inventory.
For instance, you think inventory is available in the stock but when you check your
warehouse you don't find inventory as per the expectation. It affects business in a
negative way.
4. Lead Time
In this competitive world, everything needs to be delivered quickly and that is why
supply chains are becoming more complex every day. For those industries who bring
their inventory from another country or another region via plane or ship, lead time is
very crucial. When inventory is coming from this far obviously it takes time to reach
so this type of scenario impacts inventory. Therefore, strategy shall be created keeping
in mind all these factors so that inventory management is not affected.
5. Forecast Quality & Quantity
In order to forecast the quality and quantity accuracy of the record is very important.
In small and medium-sized organizations the forecasting inventory is simple.
However, in large organizations, the process is not simple especially when lots of
inventories come in and goes out.As we said, accuracy is crucial. You can know your
client's demand by estimating its previous order frequency and understanding the
pattern. Furthermore, quality impacts the business operation & inaccuracy can lead to
miscalculation. As a result, inventory management will not be as per the expectations.
6. Product Types
When you are thinking about inventory effectiveness you need to ensure that inventory
is used before they are expired or broken. Inventory can be any type.
For instance, in the retail sector fresh vegetable or food have only a few days' life after
that their effectiveness decreases. Therefore, the inventory shall be managed and
utilized in a way so that they are consumed before they expire.
7. Vendors & Manufacturers
Banding together with the right vendor is significant, as vendors are the most
persuasive variable that can impact inventory management. Monitoring and managing
the supply chain can be hard for organizations, especially in the event of you can't
depend on vendors to comply with time constraints and convey quality stocks. In the
finance industry, diversification is done so that risk is minimized if you invest all your
money in single-source results can be hazardous. Similarly, in inventory management,
you should not rely on a single vendor. If anything happens to the vendor's business
your business will suffer as well. Furthermore, there are other benefits of choosing
more suppliers such as you can bargain for the price and ask for a better deal. You can
compare their performance such as delivery time, quality of service, and item. After
which you can decide your final manufacturer or you can avail service of more than
one manufacturer.
8. Suppliers
Partnering with the right suppliers is crucial, as suppliers are one of the most
influential factors, affecting inventory management. Managing supply chains
can be difficult for business, particularly if you cannot rely on suppliers to meet
deadlines and deliver quality products. The following questions are important
if you want to choose the right suppliers.

• Should You Partner with Multiple Suppliers?

It is often said that placing all your eggs in one basket can be risky, which is
something to consider in making a decision between single and multiple
supplier sourcing. If something happens to your supplier, whether it be
financial insolvency, a physical setback (such as a fire in the supplier’s main
warehouse), or just a period of poor material-availability, you will find yourself
unable to keep your promises to your customers. Whereas, there are benefits
in working with two or more suppliers. For instance:

1. If a competitor buys one of your suppliers , or runs into financial or

business difficulties, you have at least one another supplier to fall back on.
2. Demand fluctuations can be more manageable if you have a choice of
suppliers with whom to adjust order volumes.
3. Having two or more suppliers will increase your company’s ability to
 circumvent supply disruptions.
• Should You Focus On Price?
Although price is not a major factor affecting inventory man agement, it is a key
consideration for most businesses. As a growing business, lower procurement
costs allow you to invest more money elsewhere within your business.
Identifying a supplier who is able to offer a special price is therefore of
significant benefit to many businesses.

9. Managing tools and technology

Another factor affecting inventory management is technology. Modern
technology can save both time and money as well as improve the efficiency of
inventory management processes. With the right managing tools you’ll be able
to streamline your inventory management process further. Tools like barcode
scanners, label printers, mobile computers, etc. along with a good inventory
management software can double or even triple the speed of your inventory
processes. Also, the new technologies will help you to implement counting,
recounting, receiving, picking and other processes more efficiently.

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