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    CH 8 Inventory Management

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    Michelle Davinna Michael Herry
    This document summarizes key concepts in inventory management. It discusses the types of inventory including raw materials, work-in-progress, and finished goods. It also describes the costs of holding inventory, including carrying costs and ordering costs. The document then introduces the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering and carrying costs to determine the optimal order quantity. The EOQ model equations are provided to calculate the optimal order quantity, expected number of orders per year, and time between orders. An example application of the EOQ model is also included.

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    CH 8 Inventory Management

    Uploaded by

    Michelle Davinna Michael Herry
    24 views12 pages
    This document summarizes key concepts in inventory management. It discusses the types of inventory including raw materials, work-in-progress, and finished goods. It also describes the costs of holding inventory, including carrying costs and ordering costs. The document then introduces the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering and carrying costs to determine the optimal order quantity. The EOQ model equations are provided to calculate the optimal order quantity, expected number of orders per year, and time between orders. An example application of the EOQ model is also included.

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    Ch 8 Inventory management

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    This document summarizes key concepts in inventory management. It discusses the types of inventory including raw materials, work-in-progress, and finished goods. It also describes the costs of holding inventory, including carrying costs and ordering costs. The document then introduces the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering and carrying costs to determine the optimal order quantity. The EOQ model equations are provided to calculate the optimal order quantity, expected number of orders per year, and time between orders. An example application of the EOQ model is also included.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    24 views12 pages

    CH 8 Inventory Management

    Uploaded by

    Michelle Davinna Michael Herry
    This document summarizes key concepts in inventory management. It discusses the types of inventory including raw materials, work-in-progress, and finished goods. It also describes the costs of holding inventory, including carrying costs and ordering costs. The document then introduces the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering and carrying costs to determine the optimal order quantity. The EOQ model equations are provided to calculate the optimal order quantity, expected number of orders per year, and time between orders. An example application of the EOQ model is also included.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 12

    CHAPTER 8

    INVENTORY MANAGEMENT
    Inventory Management
     Types Of Inventory
     Raw material – basic input of production
     Work-in-progress – semi - finished goods
     Finished goods – good that ready for Sell

     Investment in Inventories also involve Risk-


    Return Trade-off (i.e. Low Return)
    INVENTORY MANAGEMENT (CONT..)
    Objective:
    To carry sufficient inventories – to support
    sales and demand
    To maximize inventory turnover – minimize
    the investment in Inventories
    INVENTORY MANAGEMENT (CONT..)
    Cost of Handling Inventories
     Carrying costs - associated with holding or
    “carrying” inventory over time; e.g.
    obsolescence, insurance, extra staffing,
    interest, pilferage, damage, warehousing, etc.
     Ordering costs - associated with costs of
    placing order and receiving goods; e.g..
    Supplies, forms, order processing, clerical
    support, etc.
     Total Inventory Costs - Carrying costs
    plus Ordering costs
    INVENTORY MANAGEMENT (CONT..)
    Economic Order Quantity (EOQ)
    Method use to control Inventory

    Purpose:
     To Minimize cost
     How much to order
    EOQ Model
    How Much to Order?

    Annual Cost

    Minimum
    total cost

    Order (Setup) Cost Curve

    Optimal Order
    Order Quantity (Q*) quantity
    EOQ Model Equations
    Optimal Order Quantity 2 ×D ×O
    = Q* =
    C
    D
    Expected Number of Orders =N =
    Q*
    Expected Time Between Orders Working Days / Year
    =T =
    N
    D D = Demand per year
    d =
    Working Days / Year S = Setup (order) cost per order
    H = Holding (carrying) cost
    d = Demand per day
    L = Lead time in days
    SS = safety stock
    O = Ordering cost
    C = carrying cost
    EOQ METHOD CONTINUE…
     TOC = (D/Q) X O
     TCC = [(Q/2) + SS] x C

     ROP = (d x l) +SS

     TIC = TOC + TCC

     Average inventory = [ Q/2] + SS

     Frequency of orders = (360) x Q / D

     Minimum inventory = SS

     Maximum inventory = Q + SS
    INVENTORY MANAGEMENT (CONT..)
    Total Ordering Cost
    TOC = (D/Q) X O

    Total Carrying Cost


    TCC = [(Q/2) + SS] X C, where SS is Safety Stock

    Reorder Point (ROP)


    ROP = (d X l) + SS, where d is daily demand, and
    l is the lead time
    INVENTORY MANAGEMENT (CONT..)
    Example of EOQ Model
    DEF Corp has an annual usage of 4,000 units. The
    ordering cost is RM 100 per order while the
    carrying cost is RM 0.80 per unit. The company
    holds 17 units as safety stocks. It takes 7 days for
    the shipment to arrive. Calculate:
    i. EOQ
    ii. Re-Order Point
    iii. Total inventory Cost
    INVENTORY MANAGEMENT (CONT..)
    Solution:
    EOQ = √[(2DO)/C]
    = √ [(2 X 4,000 X 100)/ 0.80], 1,000 units
    ROP = (d X l) + SS
    = (11 X 7) + 17, 95 days
    TOC = (D/Q) X O
    = (4,000/1000) X 100, RM 400
    TCC = [(Q/2) + SS] X C
    = [(1,000/2) + 17] X 0.80, RM 413.6
     The end…..

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