Operational Management Inventory Management
INVENTORY MANAGEMENT
Course Instructor: Dr. Swati Singh Course: MBA- II Amity Business School
Raw material In-Process Finished Goods Components & spare Parts
Inventory Costs
Purchase Cost Ordering Costs Carrying / Holding Costs Shortage Costs
Procurement / Ordering costs Holding costs
◦ Maintenance and Handling ◦ Taxes ◦ Obsolescence
◦ Lost sales (Customer goodwill) ◦ Backorders
◦ Administrative, inspection, transportation etc.
Stock-outs costs
Seasonal
Inventory
Decoupling
Arise out of seasonality
Inventory
Cyclic
Work-in progress- output of preceding stage becomes input for succeeding stage Inventory decisions require analysis of workstation capacities, resource availability & bottlenecks
Inventory
Pipeline
Inventory in repeated cycles and consumed overtime Average cyclic inventory = Q/2
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
Deterministic Models
◦ The simplest inventory models assume demand and the other parameters of the problem to be deterministic and constant.
◦ The Economic Order Quantity (EOQ) model
Probabilistic Inventory models
◦ The demand is not known. Demand characteristics such as mean, standard deviation and the distribution of demand may be known.
◦ A fixed order quantity model ◦ A fixed time period model
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
Probabilistic Inventory models
Q
Quantity on hand Profile of Inventory Level Over Time
Demand rate
Reorder point
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Place order
Receive order
Place
Course Instructor: Dr. Swati Singh Course: MBA- II Amity Business School
Raw material In-Process Finished Goods Components & spare Parts
Inventory Costs
Purchase Cost Ordering Costs Carrying / Holding Costs Shortage Costs
Procurement / Ordering costs Holding costs
◦ Maintenance and Handling ◦ Taxes ◦ Obsolescence
◦ Lost sales (Customer goodwill) ◦ Backorders
◦ Administrative, inspection, transportation etc.
Stock-outs costs
Seasonal
Inventory
Decoupling
Arise out of seasonality
Inventory
Cyclic
Work-in progress- output of preceding stage becomes input for succeeding stage Inventory decisions require analysis of workstation capacities, resource availability & bottlenecks
Inventory
Pipeline
Inventory in repeated cycles and consumed overtime Average cyclic inventory = Q/2
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
Deterministic Models
◦ The simplest inventory models assume demand and the other parameters of the problem to be deterministic and constant.
◦ The Economic Order Quantity (EOQ) model
Probabilistic Inventory models
◦ The demand is not known. Demand characteristics such as mean, standard deviation and the distribution of demand may be known.
◦ A fixed order quantity model ◦ A fixed time period model
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
Probabilistic Inventory models
Q
Quantity on hand Profile of Inventory Level Over Time
Demand rate
Reorder point
Receive order
Place order
Receive order
Place