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Inventory Control
Decisions regarding
What to Buy How Much to Buy When to Buy & Maybe even from Whom to Buy
Objectives
Cost Service Level
Inventory Control
Different Models
Deterministic or Probabilistic Demand Fixed Price or Variable Price Single Period or Multi-Period Dependent Demand or Independent Demand
Probabilistic Demand
Numbers of loaves of bread sold at a Kirana shop Number of Middays sold by a newspaper stall Here the method is to find the expected profit from each alternative and choose the best
Various Models
Deterministic Models
Factors affecting Decisions viz. Demand Rate, Supply Rate, Sales Price, Purchase cost, Inventory carrying cost, Ordering Cost, Backorder Cost, etc.
24
26
28
30
32
34
36
38
Demand
40
Various Models
Classic EOQ Model Ford Warris, 1931
EOQ
2* S * D I
Total Cost
7284000 7282000 7280000 7278000 7276000 7274000 7272000 7270000 1200 1400 1600 1800 2000 2200 2400 2600 2800 3000
Limitations of EOQ
Assumptions of EOQ
Uniform Consumption Rate Purchase price independent of order quantity Completely Predictable Supply Lead Time Precise Determination of Ordering Cost, Inventory Carrying Cost & Backorder Cost No Minimum Order Qty/ Multiples of ordering lots Infinite Shelf Life
Rule
% Diff in Cost
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
1200
1700
2200
2700
3200
3700
4200
4700
5200
5700
6200
6700
7200
7700
8200
Order Qty
8700
Multi-period Models
Decisions for multiple periods, inventory can be used for next period Optimisation methods exist such as Linear Programming, Dynamic Programming
Typical Demand
Demand
60
55
50
45
40
35
30
25
20 1 2 3 4 5 6 7 8 9 10 11 12
Advantages
Simplicity Very low cost of operations
Where Used
C class Inventory or low value items
Safety Stock
To take care of variations in demand Max Possible Demand during review period less average demand during review period A function of % confidence or Service Level
20
10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
Q System
Methodology
Watch the stocks continuously The moment stocks fall below ROL, Order EOQ
Advantages
Least Cost High Service Level
Where Used
High & Medium Value Items
Q System
ROL
Should last till the replenishment is received Safety Stock + Average Demand during supply lead time Protects against variations in demand rate and supply lead time A function of % confidence or Service Level
Q System
60 50
40
30
20
10
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
Lead time
Influences reorder level ROL = Average Daily demand * Lead time
Variability
Variations in lead time Variations in demand rate Safety Stocks are dependent on variations in lead time and variations in demand rate Reorder level = safety stock + demand during lead time
Dependent Demand
Demand directly dependent on the demand for some other item. In manufacturing scenario, the demand for raw materials/ sub-assemblies is dependent on the production plan of the main product. The demand for consumables, food required in canteen is dependent on something else and can be calculated.
Pre-MRP methods
P System or Fixed Period review system
Decide on Maximum stock. Review periodically. Order the gap between Max Stock and Current Stock
MRP
Find Independent Demand from Production Plan of the main product Using Bill of Material find the Gross Requirement (GR) of its components Subtract the stock to get the net requirement Calculate Planned Order Release (POR). POR gives the quantity and date for placing order for each item.
Table
Day
1 2
Stock
20 20
Orders
Production Plan 6
30
26
3
4 5 6
30
12 20 13
12
20 13
Bill of Materials
Table (1 day)
MRP Tabulation
Day->
TABLE GR 26 30 30 12 12 20 20 13 13
Stock
NR
20
20
6
POR
Table Top GR Stock NR 50
6
6 44
30
30 14
12
12 2
20
20 18
13
13 13
POR
18
13
MRP Tabulation
Day->
Leg Assy GR 6 30 11 12 12 20 20 13 13
Stock
NR
25
19 11
44
POR
Legs GR Stock NR 88
12
48 4
20
80 80
13
52 52
44
POR
80
52
MRP Tabulation
Day->
Short Support GR 22 24 40 16 26 26
Stock
NR
70
48
24 16 26
40 16 10 26
POR
Long Support GR Stock NR 102 22 80
24 56
POR
10