Inventory Management: Planning, Coordination, Controlling Flow of Inventory
INVENTORY MANAGEMENT (JIT AND BLACKFLUSH COSTING) Inventory Management includes planning, coordination, and controlling the flow of inventory into, through, and out of company. There are 5 categories of cost that are associated with goods sold:
1. Purhcasing costs: the cost of goods from supplier and freight
2. Ordering costs: the cost of preparing purchase orders, receiving and checking the goods, matching invoices received, purchase orders and delivery notes to make payments
3. Storage cost: the cost of holding inventory of goods sale
4. Stockout costs: the cost is incurred when the company ran out of certain items that are requested by customer
5. Quality costs: the cost is incurred if the features and characteristics of the product are not in accordance with customer.
Economic Order Quantity is a decision model to calculate the optimal quantity of inventory to be ordered with certain assumptions. That assumption is simply no booking fees, storage, same quantity ordered on each reorder point, demand, charge ordering, and storage costs are already known with certainty, the purchase cost per unit is not affected by the quantity ordered, and do not occur out of stock. Total cost is the sum of ordering cost and carrying cost. The formula of EOQ is: EOQ=√2DP/C
Note: D = demand (unit) for specified period P = ordering cost that relevant per purchase order C = storage cost that relevant per unit ordered for specified period Reorder point is the level of the quantity of inventory on hand that triggers a new purchase order. Reorder point most easily calculated if both of demand and free time a purchase order is already known for sure.
Safety stock is inventory is kept at all times regardless of the quantity of inventory ordered using the EOQ model. Safety stock is used as a buffer against unexpected increase in demand, uncertainty about the grace period, and non-availability of inventory from suppliers.
Inventory storage costs consist of
1. Purhcasing costs: the cost of goods from supplier and freight
2. Ordering costs: the cost of preparing purchase orders, receiving and checking the goods, matching invoices received, purchase orders and delivery notes to make payments
3. Storage cost: the cost of holding inventory of goods sale
4. Stockout costs: the cost is incurred when the company ran out of certain items that are requested by customer
5. Quality costs: the cost is incurred if the features and characteristics of the product are not in accordance with customer.
Economic Order Quantity is a decision model to calculate the optimal quantity of inventory to be ordered with certain assumptions. That assumption is simply no booking fees, storage, same quantity ordered on each reorder point, demand, charge ordering, and storage costs are already known with certainty, the purchase cost per unit is not affected by the quantity ordered, and do not occur out of stock. Total cost is the sum of ordering cost and carrying cost. The formula of EOQ is: EOQ=√2DP/C
Note: D = demand (unit) for specified period P = ordering cost that relevant per purchase order C = storage cost that relevant per unit ordered for specified period Reorder point is the level of the quantity of inventory on hand that triggers a new purchase order. Reorder point most easily calculated if both of demand and free time a purchase order is already known for sure.
Safety stock is inventory is kept at all times regardless of the quantity of inventory ordered using the EOQ model. Safety stock is used as a buffer against unexpected increase in demand, uncertainty about the grace period, and non-availability of inventory from suppliers.
Inventory storage costs consist of