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    Chapter-20 Inventory Management

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    Pooja Sheoran
    This document provides an overview of inventory management concepts. It discusses the basics of inventory including different types of inventory and inventory costs. It also describes inventory control systems like continuous review and periodic review. Economic order quantity models are presented as a way to determine optimal order quantities to minimize total inventory costs. The document outlines assumptions of the basic EOQ model and shows the EOQ cost model formula. It also discusses safety stock, reorder points, production quantity models, and how to calculate reorder points to achieve a target service level.

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    © All Rights Reserved
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    Chapter-20 Inventory Management

    Uploaded by

    Pooja Sheoran
    183 views20 pages
    This document provides an overview of inventory management concepts. It discusses the basics of inventory including different types of inventory and inventory costs. It also describes inventory control systems like continuous review and periodic review. Economic order quantity models are presented as a way to determine optimal order quantities to minimize total inventory costs. The document outlines assumptions of the basic EOQ model and shows the EOQ cost model formula. It also discusses safety stock, reorder points, production quantity models, and how to calculate reorder points to achieve a target service level.

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    Inventory Management

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    This document provides an overview of inventory management concepts. It discusses the basics of inventory including different types of inventory and inventory costs. It also describes inventory control systems like continuous review and periodic review. Economic order quantity models are presented as a way to determine optimal order quantities to minimize total inventory costs. The document outlines assumptions of the basic EOQ model and shows the EOQ cost model formula. It also discusses safety stock, reorder points, production quantity models, and how to calculate reorder points to achieve a target service level.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    183 views20 pages

    Chapter-20 Inventory Management

    Uploaded by

    Pooja Sheoran
    This document provides an overview of inventory management concepts. It discusses the basics of inventory including different types of inventory and inventory costs. It also describes inventory control systems like continuous review and periodic review. Economic order quantity models are presented as a way to determine optimal order quantities to minimize total inventory costs. The document outlines assumptions of the basic EOQ model and shows the EOQ cost model formula. It also discusses safety stock, reorder points, production quantity models, and how to calculate reorder points to achieve a target service level.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 20

    PROJ ECT REPORT ON

    I NVENTORY MANAGEMENT




    INTRODUCTION
    I nventory Management
    BASICS
    Lecture Outline
    Elements of Inventory Management
    Inventory Control Systems
    Economic Order Quantity Models
    Quantity Discounts
    Reorder Point
    Order Quantity for a Periodic Inventory
    System
    What Is Inventory?
    Stock of items kept to meet future
    demand
    Purpose of inventory management
    how many units to order
    when to order
    Types of Inventory
    Raw materials
    Purchased parts and supplies
    Work-in-process (partially completed)
    products (WIP)
    Items being transported
    Tools and equipment
    Inventory and Supply Chain
    Management
    Bullwhip effect
    demand information is distorted as it moves away
    from the end-use customer
    higher safety stock inventories to are stored to
    compensate
    Seasonal or cyclical demand
    Inventory provides independence from vendors
    Take advantage of price discounts
    Inventory provides independence between
    stages and avoids work stop-pages
    Two Forms of Demand
    Dependent
    Demand for items used to produce
    final products
    Tires stored at a Goodyear plant are
    an example of a dependent demand
    item
    Independent
    Demand for items used by external
    customers
    Cars, appliances, computers, and
    houses are examples of independent
    demand inventory
    Inventory and Quality
    Management
    Customers usually perceive quality
    service as availability of goods they want
    when they want them
    Inventory must be sufficient to provide
    high-quality customer service in TQM
    Inventory Costs
    Carrying cost
    cost of holding an item in inventory
    Ordering cost
    cost of replenishing inventory
    Shortage cost
    temporary or permanent loss of sales
    when demand cannot be met
    Inventory Control Systems
    Continuous system (fixed-
    order-quantity)
    constant amount ordered
    when inventory declines to
    predetermined level
    Periodic system (fixed-time-
    period)
    order placed for variable
    amount after fixed passage of
    time
    Economic Order Quantity
    (EOQ) Models
    EOQ
    optimal order quantity that will
    minimize total inventory costs
    Basic EOQ model
    Production quantity model


    Assumptions of Basic
    EOQ Model
    Demand is known with certainty and
    is constant over time
    No shortages are allowed
    Lead time for the receipt of orders is
    constant
    Order quantity is received all at once
    Inventory Order Cycle
    Demand
    rate
    Time
    Lead
    time
    Lead
    time
    Order
    placed
    Order
    placed
    Order
    receipt
    Order
    receipt
    I
    n
    v
    e
    n
    t
    o
    r
    y

    L
    e
    v
    e
    l

    Reorder point, R
    Order quantity, Q
    0
    EOQ Cost Model
    C
    o
    - cost of placing order D - annual demand

    C
    c
    - annual per-unit carrying cost Q - order quantity
    Annual ordering cost =
    C
    o
    D
    Q
    Annual carrying cost =
    C
    c
    Q
    2
    Total cost = +
    C
    o
    D
    Q
    C
    c
    Q
    2
    EOQ Cost Model (cont.)
    Order Quantity, Q
    Annual
    cost ($)
    Total Cost
    Carrying Cost =
    C
    c
    Q
    2
    Slope = 0
    Minimum
    total cost
    Optimal order
    Q
    opt
    Ordering Cost =
    C
    o
    D
    Q
    Production Quantity
    Model
    An inventory system in which an order is
    received gradually, as inventory is
    simultaneously being depleted
    AKA non-instantaneous receipt model
    assumption that Q is received all at once is relaxed
    p - daily rate at which an order is received over
    time, a.k.a. production rate
    d - daily rate at which inventory is demanded
    Safety Stocks
    Safety stock
    buffer added to on hand inventory during lead
    time
    Stockout
    an inventory shortage
    Service level
    probability that the inventory available during
    lead time will meet demand
    Reorder Point with
    a Safety Stock
    Reorder
    point, R
    Q
    LT
    Time
    LT
    I
    n
    v
    e
    n
    t
    o
    r
    y

    l
    e
    v
    e
    l

    0
    Safety Stock
    Reorder Point for
    a Service Level
    Probability of
    meeting demand during
    lead time = service level
    Probability of
    a stockout
    R
    Safety stock
    dL
    Demand
    z
    d
    L

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