Inventory Management
Submitted to :Prof Hetal Pandya
Submitted by : Komal Patel
Sec – C , 8nbam086
Acknowledgement
The work presented here is not a single effort as each and every person
associated with this project has contributed in the successful accomplishment of
this piece of work and is being thanked for their efforts. We cannot in full
measure, reciprocate the kindness shown and contribution made by various
persons in this endeavor of mine. We shall always remember them with gratitude
and sincerity.
I also thankful to Prof. Hetal Pandya who has helped us to make this structured
report.
Yours faithfully,
Komal Patel
Sec - C
8nabam086
Overview
Opposing Views of Inventories
Nature of Inventories
Fixed Order Quantity Systems
Fixed Order Period Systems
Other Inventory Models
Why We Want to Hold Inventories
Why We Not Want to Hold Inventories
Why We Want to Hold Inventories
Improve customer service
Reduce certain costs such as
l ordering costs
l stock-out costs
l acquisition costs
l start-up quality costs
Contribute to the efficient and effective operation of the production system
Finished Goods
l Essential in produce-to-stock positioning strategies
l Necessary in level aggregate capacity plans
l Products can be displayed to customers
Work-in-Process
l Necessary in process-focused production
l May reduce material-handling & production costs
Raw Material
l Suppliers may produce/ship materials in batches
l Quantity discounts and freight/handling $$ savings
Why We Do Not Want to Hold Inventories
Certain costs increase such as
l carrying costs
l cost of customer responsiveness
l cost of coordinating production
l cost of diluted return on investment
l reduced-capacity costs
l large-lot quality cost
l cost of production problems
Nature of Inventory
Two Fundamental Inventory Decisions
Terminology of Inventories
Independent Demand Inventory Systems
Dependent Demand Inventory Systems
Inventory Costs
Two Fundamental Inventory Decisions
How much to order of each material when orders are placed with either
outside suppliers or production departments within organizations
When to place the orders
Independent Demand Inventory Systems
Demand for an item carried in inventory is independent of the demand for
any other item in inventory
Finished goods inventory is an example
Demands are estimated from forecasts and/or customer orders
Dependent Demand Inventory Systems
Items whose demand depends on the demands for other items
For example, the demand for raw materials and components can be
calculated from the demand for finished goods
The systems used to manage these inventories are different from those
used to manage independent demand items
Inventory Costs
Costs associated with ordering too much (represented by carrying costs)
Costs associated with ordering too little (represented by ordering costs)
These costs are opposing costs, i.e., as one increases the other decreases
The sum of the two costs is the total stocking cost (TSC)
When plotted against order quantity, the TSC decreases to a minimum cost
and then increases
This cost behavior is the basis for answering the first fundamental question:
how much to order
It is known as the economic order quantity (EOQ)
l Fixed Order Quantity Systems
l Behavior of Economic Order Quantity (EOQ) Systems
l Determining Order Quantities
l Determining Order Points
l Typical assumptions made
l annual demand (D), carrying cost (C) and ordering cost (S) can be
estimated
l average inventory level is the fixed order quantity (Q) divided by 2
which implies
l no safety stock
l orders are received all at once
l demand occurs at a uniform rate
no inventory when an order arrives
l Assumptions (continued)
l Stock-out, customer responsiveness, and other costs are
inconsequential
l acquisition cost is fixed, i.e., no quantity discounts
l Annual carrying cost = (average inventory level) x (carrying cost) = (Q/2)C
Annual ordering cost = (average number of orders per year) x (ordering
cost) = (D/Q)S.
Here, is the example of zartex co. mfg of fertilizer, calcium nitrate, so
considering all the factor like EOQ, ordering time, how much, when to order is as
follow.
Zartex Co. produces fertilizer to sell to wholesalers. One raw material –
calcium nitrate – is purchased from a nearby supplier at 22.50 per ton. Zartex
estimates it will need 5,750,000 tons of calcium nitrate next year.
The annual carrying cost for this material is 40% of the
acquisition cost, and the ordering cost is 595.
a) What is the most economical order quantity?
b) How many orders will be placed per year?
c) How much time will elapse between orders?
D = 5,750,000 tons/year
C = .40(22.50) = 9.00/ton/year
S = 595/order
= 27,573.135 tons per order
l Total Annual Stocking Cost (TSC)
TSC = (Q/2)C + (D/Q)S
= (27,573.135/2)(9.00)
+ (5,750,000/27,573.135)(595)
= 124,079.11 + 124,079.11
= 248,158.22
l Number of Orders Per Year
= D/Q
= 5,750,000/27,573.135
= 208.5 orders/year
l Time Between Orders
= Q/D
= 1/208.5
= .004796 years/order
= .004796(365 days/year
Conclusion
From the above report of inventory management its
conclude that when-ever any organization start a business they
should consider inventory cost from this org, benefited to
reduce the cost of inventory and run the organization through
effectively and low cost. Through this organization know when
to order and how much to order to get discount and lesser cost.
.
