INVENTORY CONTROL

INVENTORYInventory is defined as any idle resources of an

enterprise.

Inventory is the physical stock of items held in any business for the purpose of future production or sales.

TYPES OF INVENTORY

1. Raw materials

2. Purchased parts and supplies

3. Finished Goods

4. Work-in-process(partially completed

products)

5. Item being transported

6. Tools and equipment

COST ASSOCIATED WITH INVENTORY

1) Item cost(production/purchase)

cost

2)Ordering cost/set up cost

3)Carrying cost/Holding cost

4)Shortage/stock out cost

INVENTORY MODELS1. Deterministic Inventory Model

2. Probabilistic Inventory Model

3. Queuing Model

1.DETERMINISTIC MODEL(E0Q MODEL)

In this model the demand is assumed to be fixed and completely pre-determined.

ASSUMPTIONS EOQ MODELa. Demand for the material is exactly known.b. The consumption rate is constant.c. Deterministic demand (static)d. Purchase price per unit is constant.e. No shortage , No surplus.f. The quantity of material ordered received

immediately.g. Carrying cost per unit is constanth. Uniform depletion of inventory.

Graphical representation of inventory movement

QUANTITY

Depletion

Order arrives

TIME

q/2

Maximum Level

cycles

ICM

EOQ Models 1. Purchasing model with no shortage

2. Manufacturing model with no shortage

3. Purchasing model with shortage

4. Manufacturing model with shortage

2. PROBABLISTIC INVENTORY MODEL

1. Single period decision model

2. Fixed order quantity model

3. Fixed time period modelMulti Period Model

SINGLE PERIOD MODEL

In a single period model, the items unsold at the end of the periods is not carried over to the next period. The unsold items, however. may have some salvage values.

Items comes under single period includes –a. Perishable products (bread,fruits,flowers

etc.)b. Seasonable products such as winter

coats,Christmas stars etc.c. News paper and magazines

Only one order in time period

Probabilistic distribution of demand (continuous or discrete)

End of time period _________ surplus stock out

PENALTY

Single Period Decision Model

MULTI PERIOD MODEL

Inventory system operates continuously with many

repeating periods or cycles ; inventory can be carried from

one period to the next. Whenever the inventory position

reaches the reorder point, an order for Q unit is placed.

Since demand is probabilistic, the time the reorder point

will be reached, the time between orders, and the time the

order of Q units will arrive in inventory cannot be

determined in advance.

MULTI PERIOD MODEL

1. Fixed order quantity modelPurchase order can be placed at any

time in hand inventory count is known always.

a) An order quantity of EOQ works well.b) If demand is constant , re order point is the

same as the demand during lead time.c) If demand is uncertain, reorder point is

usually set above the expected demand during the lead time.

Fixed Order Quantity Model

Continuous (but not uniform) depletion of the inventory

Single item Probabilistic distribution of demand

(stationary demand) Deterministic lead time (constant) Continuous (but not uniform) depletion

of the inventory Purchasing cost is independent of the OQ No additional cost in case of shortage

Fixed Time Period Model

Purchase order is issued at a fixed interval of time.

Ordering quantity is calculated in this model as follows -

Ordering Quantity Q = M-H M = Desired inventory to cover review

periods/lead time = Expected demand during review

period/led time.H = Inventory on hand

ADVANTAGES

of Fixed Order Quantity Model

a) Not large safety stock.

b) Good for expensive items

Of Fixed Time Period Model

a) Ease for co-ordination

b) Less work

c) Good for inexpensive items

3.QUEING MODEL