C6 managing inventory

543 views

Published on

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
543
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
29
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

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

×