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CHAPTER 6:
MANAGING
INVENTORY
Inventory Management
Objective:
1. Maximize inventory turnover
2. Carry sufficient inventories

EXCESSIVE
Heavy burden on ...
Terms:
Lead Time
- Time between start of activity, process and
completion (Start till the end process).
Stock Out
- Produc...
Re-order Quantity
- Number of units in one order.

Re-order Level
- Level of inventory, when should place an order.
Econom...
Types of Inventory
1. Raw Materials
- Mostly on credit or Accounts Payables
2. Work In Progress (WIP)
- Consist partially ...
Costs of Inventory
There are three other inventory costs:

1. Holding costs
- Admin, staff costs, insurance & etc.
2. Orde...
Economic Order Quantity
Model (EOQ)
Definition:
1. Tools to determine the optimal order quantity

that results in the lowe...
EOQ

Conflict among
dept:
- Financial dept:
low lvl of
inventory
- Marketing dept:
high lvl of
inventory
- Production Dept...
EOQ Formula
Example
Annual demand – 30,000 barrels.
Purchase in lot 5,000 barrels.
Price is $12/each.
Ordering cost is $200/per order....
Without EOQ
Total Cost

= Holding Cost + Ordering Cost
= (Average Inventory x Ch/unit) +
(No. of orders x Co/order)
= (Q/2...
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Transcript of "C6 managing inventory"

  1. 1. CHAPTER 6: MANAGING INVENTORY
  2. 2. Inventory Management Objective: 1. Maximize inventory turnover 2. Carry sufficient inventories EXCESSIVE Heavy burden on cash INSUFFICIENT Lost sales, delay for customers
  3. 3. Terms: Lead Time - Time between start of activity, process and completion (Start till the end process). Stock Out - Production require the inventory, but stores out of the inventory (Out of stocks). Buffer - Maintaining the inventory and WIP for any interruption of supply.
  4. 4. Re-order Quantity - Number of units in one order. Re-order Level - Level of inventory, when should place an order. Economic Order Quantity - Replenishment order size, minimize ordering costs and holding costs.
  5. 5. Types of Inventory 1. Raw Materials - Mostly on credit or Accounts Payables 2. Work In Progress (WIP) - Consist partially finished goods. - Need add work before become finished goods. 3. Finished Goods - Product completed but not sold yet.
  6. 6. Costs of Inventory There are three other inventory costs: 1. Holding costs - Admin, staff costs, insurance & etc. 2. Order set up costs - Incurred each time a batch of inventory is ordered. 3. Stock out costs - Costs of running out inventory. 4. Purchase costs - Actual cost of buying inventory
  7. 7. Economic Order Quantity Model (EOQ) Definition: 1. Tools to determine the optimal order quantity that results in the lowest total in inventory cost. 2. Optimal order level will lead to minimal overall inventory cost.
  8. 8. EOQ Conflict among dept: - Financial dept: low lvl of inventory - Marketing dept: high lvl of inventory - Production Dept: High lvl of inventory More frequent – increase ordering cost, decrease holding cost Less frequent – decrease ordering cost, increase holding cost
  9. 9. EOQ Formula
  10. 10. Example Annual demand – 30,000 barrels. Purchase in lot 5,000 barrels. Price is $12/each. Ordering cost is $200/per order. Holding cost is 10% of purchase price. Calculate the total cost by using EOQ and without EOQ technique?
  11. 11. Without EOQ Total Cost = Holding Cost + Ordering Cost = (Average Inventory x Ch/unit) + (No. of orders x Co/order) = (Q/2 x Ch) + (D/2 x Co) = (5,000/2 x 1.20) + (30,000/5,000 x 200) = $ 3,000 + 1,200 = $ 4,200
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