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INVENTORY MANAGEMENT

INVENTORY MANAGEMENT. Inventory. Raw material In-Process Finished Goods Components & spare Parts Inventory Costs Purchase Cost Ordering Costs Carrying / Holding Costs Shortage Costs. Types of Inventory. Seasonal Inventory Arise out of seasonality Decoupling Inventory

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INVENTORY MANAGEMENT

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  1. INVENTORY MANAGEMENT WWW.PPTMART.COM

  2. Inventory • Raw material • In-Process • Finished Goods • Components & spare Parts Inventory Costs • Purchase Cost • Ordering Costs • Carrying / Holding Costs • Shortage Costs WWW.PPTMART.COM

  3. Types of Inventory • Seasonal Inventory • Arise out of seasonality • Decoupling Inventory • Work-in progress- output of preceding stage becomes input for succeeding stage • Inventory decisions require analysis of workstation capacities, resource availability & bottlenecks • Cyclic Inventory • Inventory in repeated cycles and consumed overtime • Average cyclic inventory = Q/2 • Pipeline Inventory • It is carried according to the lead time • Done to avoid shortage due to delays in delivery • It is the additional inventory to buffer against uncertainties in demand & supply of raw materials & components WWW.PPTMART.COM

  4. Economic Order Quantity (EOQ) It is an idealized inventory system to calculate the fixed order quantity that minimizes total costs. This optimal order size is called EOQ. Reorder Level Reorder level = lead time × demand per unit time ROL = LT × D WWW.PPTMART.COM

  5. Fixed Order Quantity System or ‘Q’ System EOQ Reorder Level Minimum Level Safety Stock T1 T2 T3 Time WWW.PPTMART.COM

  6. Fixed Order Period System or ‘P’ System Q2 Q3 Q1 M L Safety Stock T T T TIME WWW.PPTMART.COM

  7. EOQ Model Total Cost Curve Holding Cost Min Tc Annual Cost Ordering Cost Order Quantity EOQ WWW.PPTMART.COM

  8. EOQ = Optimum Quantity = Least Total Cost Total cost = Tc = D*Cp + D*Co + Q*Ch Q 2 Where, Tc = Total Cost D = Annual demand (units) Cp = Purchase cost / unit Q = Order quantity (EOQ) Co = Cost of Placing an order Ch = Holding cost WWW.PPTMART.COM

  9. Total Cost (Min.) = Ordering Cost = Carrying Cost D * Co = Q * Ch Q 2 Where, D/Q = No. of orders, Q/2 = Average Inventory Thus, Q² = 2 D Co Ch Or Q =√2 D Co = EOQ Ch WWW.PPTMART.COM

  10. Q1. Telco Ltd. Uses 2,400 of particular type of component per year. ‘X’ enterprise supplies this at a price of Rs. 10 each. Ordering cost is Rs. 100 per order & carrying cost is 10% at Telco. ‘X’ enterprise wants to give 10% discount if order quantity is 1000. Is it advisable to accept the discount offer? WWW.PPTMART.COM

  11. Sol.1 EOQ =√2 D Co = √2*2400* 100 = 690 units Ch 1 Where, Ch= 10% x 10 Now, Total Cost for EOQ: Tc1 = D. Cp + D . Co + Q . Ch Q 2 = 2400 x 10 + 2400 x 100+690 x 10 x 10=24,693 690 2 100 Total cost for Discount offer i.e. for order of 1000 units Tc2= 22,340 Hence, it is better to take discount offer as Tc2 < Tc1 WWW.PPTMART.COM

  12. Q2. Company ‘XYZ’ buys 2000 pencils/year at Rs 1/- each. The ordering cost is Rs 10/- per order. Inventory carrying cost is 16% per annum. Find: (1) EOQ (2) No. of orders & (3) Total inventory cost/year WWW.PPTMART.COM

  13. Sol 2. (1) Given: D = 2000 units, Co = 10, Ch = 16 % of Cp = 16 % x 1 = .16 EOQ =√2x2000x10 = 500 units 0.16 (2) No. of orders = D = 2000 = 4 orders Q 500 (3) Tc = D . Co + Q . Ch =4 x 10+250 x 0.16 = 80 Q 2 WWW.PPTMART.COM

  14. ABC Analysis • Also called “Always better Control” • It takes into account both value & volume of consumption of items WWW.PPTMART.COM

  15. A items represent 10% of the total inventory items, but70–80% of the total cost. • Plywood • B items are of mediumvalue that represent 20% of the items and 15–25% of the total cost. • Electrical wiring • Upholstery for seats • The low price items are class C items, representing 70% of the items and 5–10% of the total cost. • Nuts WWW.PPTMART.COM

  16. 100 90 Annual Consumption value of Total 70 C A B 30 100 10 0,0 Quantity WWW.PPTMART.COM

  17. VED ANALYSIS • Also called Vital (v), Essential (E) & Desirable (D) analysis • Concerned with functional importance of items regardless of their volume &value • ‘V’ items have large inventory • ‘D’ items have minimum stock JIT METHOD Also referred as • ZIPS (Zero Inventory Production System) • MAN (Materials as Needed) • NOT (Nick of Time) • ZIN (Zero Inventories) WWW.PPTMART.COM

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