Kattareeya Prompreing
白雅欣
iD:DA61G209
(Student in Ph.D. Business and Management, College Business, STUST
email:da61g209@stust.edu.tw
: katt.rmutl@gmail.com
Kattareeya Prompreing
白雅欣
iD:DA61G209
(Student in Ph.D. Business and Management, College Business, STUST
email:da61g209@stust.edu.tw
: katt.rmutl@gmail.com
slides with references: find the linked PDFs in my profile's upload section
SIM (stores and Inv Mgmt) unit 2:
Cost associated with inventories:
Ordering cost,
carrying cost,
over stocking cost,
under stocking cost,
other costs associated with service level.
Selective inventory controls:
Need of Inventory control,
objectives of inventory control,
concept of selective inventory control,
basis and use of different types of selective controls:
ABC,
VED,
HML,
FSN,
SDE,
SOS,
XYZ,
Multiple basic approach to selective inventory control (MBASlC) approach to drugs.
Inventory Optimization: Action Plan for Inventory OptimizationMauly Chandra
The objective is to suggest actionable steps for inventory optimization for Manufacturing SMEs.
It covers aspects such as
- Basics of Inventory Optimization
- 3 Pillars of Inventory Optimization
- Demand Planning - 3 methods of Demand Planning
- Supply Sources - Basics & GOLF
- Inventory Control
- Key Factors to consider in Inventory Control
- Re-Order Point
- Re-Order Quantity
- Max Stock Level
- Min / Safety Stock Level
- How to calculate the Values in different Demand Planning Methods
- Inventory Optimization Examples in each of the Demand Planning Methods
slides with references: find the linked PDFs in my profile's upload section
SIM (stores and Inv Mgmt) unit 2:
Cost associated with inventories:
Ordering cost,
carrying cost,
over stocking cost,
under stocking cost,
other costs associated with service level.
Selective inventory controls:
Need of Inventory control,
objectives of inventory control,
concept of selective inventory control,
basis and use of different types of selective controls:
ABC,
VED,
HML,
FSN,
SDE,
SOS,
XYZ,
Multiple basic approach to selective inventory control (MBASlC) approach to drugs.
Inventory Optimization: Action Plan for Inventory OptimizationMauly Chandra
The objective is to suggest actionable steps for inventory optimization for Manufacturing SMEs.
It covers aspects such as
- Basics of Inventory Optimization
- 3 Pillars of Inventory Optimization
- Demand Planning - 3 methods of Demand Planning
- Supply Sources - Basics & GOLF
- Inventory Control
- Key Factors to consider in Inventory Control
- Re-Order Point
- Re-Order Quantity
- Max Stock Level
- Min / Safety Stock Level
- How to calculate the Values in different Demand Planning Methods
- Inventory Optimization Examples in each of the Demand Planning Methods
The Complete Inventory Management Guide for RetailersVend
Inventory management keeps many retailers up at night, and for good reason: staying on top of your store’s stock levels is a balancing act that can make or break your sales and customer satisfaction.
So how can you can get stock levels just right in your store?
From picking the right solution and entering your products, to tracking stock levels and automating parts of the process, we have you covered with tips and examples to help you win at inventory management - whether you’re choosing your inventory software for the first time, or you want to improve and optimize an existing system.
Concept of inventory, need for inventory, types of inventory, Seasonal, Decoupling, Cyclic, Pipeline, Safety, Implications of Inventory Control Methods Inventory Costs: Concept & Behavior of Ordering cost, Carrying cost & Shortage cost Basic EOQ Model & EOQ with Discount
hey friends, we know from earlier research that material control is the major component of cost. so, let us have a look at few tenchniques relating to material control
Economic Order Quantity (EOQ) is the order quantity that minimizes total inventory costs. Total Inventory Costs Budgetary techniques for inventory planning
2. A-B-C. System of inventory control
3. Economic Order Quantity (E.O.Q.) i.e., how much to purchase at one time economically
4. VED Analysis
5. Perpetual inventory system and the system of store verification
6. Fixation of Stock Level
7. Control Ratios
Inventory Management
Use of Inventory
Types of Costs
ABC Analysis
VED Analysis
Economic Order Quantity (EOQ)
Types of Inventory Management System
Assumptions of EOQ
Basic Fixed Order Quantity Model (EOQ)
EOQ Curve
ABC and VED Classification
Function / Use of Inventory
Inventory Control and Replacement Analysis Priyanshu
Hello Everyone!
This is the best ppt on 'Inventory Control and Replacement Analysis' that you can ever find.
I tried to include all the topics that will make the reader to grasp everything quickly.
These notes are also helpful for students for their university exams.
Go through the entire ppt and let me know your feedback in the comment box.
Learn and Enjoy!
Thank You!
1 Module 4 Some Common applications Table o co.docxjeremylockett77
1
Module 4: Some Common applications
Table o content
1- Inventory System Simulation
2- The M-N Inventory System
3- Machine reliability study
4- Evaluation of integral
5 - Simulation of hitting a Target
Case I: Inventory system simulation.
Introduction.
The Inventory management is one of the crucial aspects for any manufacturing firm and well known
topic in both corporate and academic world. Inventory management involves a set of decisions that aim
at matching existing demand with the supply of products and materials over space and time in order to
achieve profitable operations. An inventory is considered as one of the major assets of a business and it
represents an investment that is tied up until the item is sold or used in the production of an item. It costs
money to store, track and insure inventory. Inventories that are not well managed can create significant
financial problems for a business, whether the problem results in an inventory glut or an inventory
shortage. Proper management of inventories would help to utilize capital more effectively.
Why Is Inventory Control Important?
If your business requires maintaining an inventory, you might sometimes feel like you're walking a
tightrope. Not having enough inventory means you run the risk of losing sales, while having too much
inventory is costly in more ways than one. That's why having an efficient inventory control system is so
important.
Avoiding Stock-outs.
One of the worst things you can do in business is to turn away customers -- people who are ready to give
you their money -- because you've run out of the item they want. "Stock outs" not only cost you money
from missed sales, they can also make you lose customers for good, as people resolve to take their
business somewhere that can satisfy their needs. An efficient inventory control system tracks how much
product you have in stock and forecasts how long your supplies will last based on sales activity. This
allows you to place orders far enough ahead of time to prevent stock-outs.
Overstock Hazards
When inventory isn't managed well, you can also wind up with overstock -- too much of certain items.
Overstock comes with its own set of problems. The longer an item sits unsold in inventory, the greater
the chance it will never sell at all, meaning you'll have to write it off, or at least discount it deeply.
Products go out of style or become obsolete. Perishable items spoil. Items that linger in storage get
damaged or stolen. And excessive inventory has to be stored, counted and handled, which can add
ongoing costs.
2
Working Capital Issues
Inventory is expensive to acquire. When you pay, say, $15 for an item from a supplier, you do so with
the expectation that you will soon sell the item for a higher price, allowing you to recoup the cost plus
some profit. As long as the item sits on the shelf, though, its value is locked up in in ...
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
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Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
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Kyiv PMDay 2024 Summer
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Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
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What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
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This Digital Transformation and IT Strategy Toolkit was created by ex-McKinsey, Deloitte and BCG Management Consultants, after more than 5,000 hours of work. It is considered the world's best & most comprehensive Digital Transformation and IT Strategy Toolkit. It includes all the Frameworks, Best Practices & Templates required to successfully undertake the Digital Transformation of your organization and define a robust IT Strategy.
Editable Toolkit to help you reuse our content: 700 Powerpoint slides | 35 Excel sheets | 84 minutes of Video training
This PowerPoint presentation is only a small preview of our Toolkits. For more details, visit www.domontconsulting.com
Unveiling the Secrets How Does Generative AI Work.pdfSam H
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RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
VAT Registration Outlined In UAE: Benefits and Requirementsuae taxgpt
Vat Registration is a legal obligation for businesses meeting the threshold requirement, helping companies avoid fines and ramifications. Contact now!
https://viralsocialtrends.com/vat-registration-outlined-in-uae/
2. Brief Outline
1. Meaning of the term Inventory, Inventory Control
2. Functions of Inventory
3. Effectiveness Measures of Inventory Management
4. Inventory Counting Systems
5. Inventory Classifications: ABC, VED, FSN, HML, SDE, XYZ
Analysis etc.
6. Economic Order Quantity: Basic Economic Order Quantity,
EOQ for Production Lots, EOQ with Quantity Discounts
3. Meaning of the term Inventory
An inventory is a stock or store of goods. Firms stock hundreds of items ranging
from small items such as nuts & bolts to large items such as machines and trucks.
Inventory for a manufacturing plant means all the materials, parts, supplies,
expense tools & in-process or finished products recorded in the books of account of
an organization and kept aside in its stock either in the factory or at the warehouse
for a defined period of time.
Service firms carry inventories of supplies & equipment:
Inventory for Department Stores includes clothing, furniture, stationery, appliances, toys,
gifts, cards etc.
Inventory for Hospitals includes drugs, surgical supplies, life monitoring equipment,
sheets & pillow cases etc.
Inventory for Supermarkets includes fresh foods, canned foods, frozen foods, household
supplies, baked goods, dairy products, groceries etc.
4. Meaning of the term Inventory
Good inventory management is important for the successful operation of most
businesses & their supply chains. Operation, Marketing & Finance have interests in
Good Inventory Management. Poor inventory management hampers operations,
diminishes customer satisfaction & increases operating costs.
One widely used measure of Managerial performance relates to ROI which is PAT
divided by Total assets. Reduction of Inventories reduces total assets & therefore
indirectly increases ROI.
Inadequate control of inventories can result in both under & overstocking of items.
Under-stocking results in missed deliveries, lost sales, dissatisfied customers and
production bottlenecks. Over-stocking unnecessarily ties up funds that might be
productive else where.
5. Meaning of the term Inventory
Inventory control process consists of four steps:
1. Setting objectives (defining inventory levels)
2. Measuring actual levels of inventory
3. Comparing actual levels with set standards
4. If there is a deviation, taking appropriate corrective actions
Inventory management has two main concerns: level of customer service (right
goods, in the right quantity, in the right place, at the right time) & cost of
ordering & carrying inventories.
Inventory manager tries to achieve a balance in stocking with two fundamental
decisions: when to order & how much to order.
6. Functions of Inventory
1. To meet anticipated customer demand (anticipation stock).
2. To smooth production requirements (seasonal inventories).
3. To decouple operations {buffers between successive operations to
maintain continuity of production, buffers of raw materials to insulate
production from disruptions in deliveries from suppliers (to protect against
stock outs due to delayed deliveries), and finished goods inventory to
buffer sales operations from manufacturing disruptions (to protect against
stock outs due to unexpected increases in demand)}.
4. To hedge against price increases.
5. To take advantage of quantity discounts.
7. Effectiveness Measures of Inventory Management
Managers can use a number of measures to judge the effectiveness of inventory
management.
1. Customer satisfaction; which is measured by the number and quantity of
backorders and / or customer complaints.
2. Inventory turnover; which is the ratio of annual cost of goods sold to average
inventory investment. The turnover ratio indicates how many times a year the
inventory is sold.
3. Days of inventory on hand; a number that indicates the expected number of days of
sales that can be supplied from existing inventory.
8. Inventory Counting Systems
Inventory counting systems can be:
(i)Perpetual (Fixed Order Quantity Models also called EOQ or “Q” System)
(ii)Periodic (Fixed time Period Model also referred as Periodic system or “P”
system)
1.Under a periodic system, (‘P’ system) a physical count of items in inventory is made at
periodic intervals (e.g. weekly, monthly) in order to decide how much to order of each item.
2.A perpetual inventory system (also known as a continual system) keeps track of removals
from inventory on a continuous basis, so the system can provide information on the current
level of inventory for each item. When the amount on hand reaches a predetermined
minimum, a fixed quantity Q (optimal order quantity) is ordered (‘Q’ System)
9. Classification of Inventory
Large number of Material are used in production. All items held in
inventory are not of equal importance in terms of dollars invested,
criticality to production, lead time of procurement etc. It is therefore
desirable to classify materials according to the amount of analysis that
can be justified. Control efforts can be allocated according to the
relative importance of various items in inventory. Some of the
schemes for classification of the material are:
1. ABC based on value of item
2. VED based on criticality to production
3. HML based on value
4. SDE based on lead time of procurement
5. FSN based on requisition of material
6. XYZ based on general classification
10. Classification of Inventory – A-B-C Approach
A-B-C Approach is a classification of inventory into three classes: A, B and C, based on their
value. This analysis is based on the popular Pareto Principle, which states that 80% of the
value of the material or items is on account of 20% of the items.
The analysis is done by rearranging the item in the order of value and identifying the three
categories as given in the table below (Approximate percentages):
a. Rigid control for A-Class items.
b. Moderate control for B-Class items
c. Loose control is adequate for C-Class items.
Value of
consumption of items
No. of items Class
70% of value 10% of no. of items A (very Important)
20% of value 20% of no. of items B (moderately Imp)
10% of value 70% of no. of items C (least Important)
11. Classification of Inventory - VED Analysis
VED analysis is a classification of inventory into three classes: Vital,
Essential and Desirable based on their importance. The analysis is done
by rearranging the items in the order of importance and identifying the
three categories as explained in the example below :
Example: Inventory classification of spare parts in Maintenance
1. V – Vital items are those items the absence of which will result in total
stoppage of the production line. Rigid control is required for these items.
2. E – Essential items are those items the absence of which results in partial
stoppage of the production line. Moderate control is required for these items.
3. D – Desirable items are those items the absence of which does not affect the
production line. Loose control is adequate for these items.
12. Classification of Inventory - HML Analysis
HML analysis is a classification of inventory into three classes: High value
items, Medium value items, and Low value items based on their value
(similar to ABC Analysis). The analysis is done by rearranging the items in
the order of value and identifying the three categories as explained in the
example of Inventory classification of Purchase Order (contractual
document and hence very critical for an organization) below:
The purchase orders can be classified according to their value, so that
only the high value purchase order are monitored by the manager. The
other smaller value purchase orders can be delegated to the lower
authorities.
13. Classification of Inventory - SDE Analysis
SDE analysis is a classification of inventory into three classes: Scarce, Difficult & Easy based
on the lead time of procurement. The analysis is done by rearranging the items in the order of
the lead time of procurement and identifying the three categories as explained in the example
of regular purchased items below:
1.S – Scarce items, which are the items that are in short (limited) supply & very difficult to
procure. e.g. Imported items, where the lead time is very high. Rigid control is required.
2.D – Difficult items, which are available but difficult to procure because there are limited
suppliers, where the lead time is moderate. Moderate control is required
3.E – Easy items, which are items that are easily available. E.g. standard items available off
the shelf. There is no lead time of procurement for these items. Loose control is adequate
14. Classification of Inventory - FSN Analysis
FSN analysis is a classification of inventory into three classes: Fast moving, Slow moving &
Non moving based on the frequency of issue of items from Stores. The analysis is done by
rearranging the items in the order of the frequency of issue of items and identifying the three
categories as explained in the example of items issued by stores below:
1.F – Fast moving items, which are the items that are required frequently; for example all
direct items. Rigid control is required.
2.S – Slow moving items are issued limited number of times in a given period; for example
indirect items like machine oil. Moderate control is required
3.N – Non moving items are not issued for the period of time under consideration. These
items may have become obsolete due to product or process changes
15. Classification of Inventory - XYZ Analysis
The XYZ category is a general category of classification for the three classes:
Example1: Categorization of the items in terms of size.
1. ‘X’ items are those items that are heavy & bulky.
2. ‘Y’ items are those items that are moderate bulky.
3. ‘Z’ items are those items that are not bulky.
Example2: Categorization of the items in terms of shelf-life.
1. ‘X’ items are those items that have very short shelf-life
2. ‘Y’ items are those items that have moderate shelf-life.
3. ‘Z’ items are those items that do not have a shelf-life
Rigid control is required on X-Category items,
Moderate control is required on Y-Category items
Loose control is adequate on Z-Category items
16. Categories of Inventory Cost
Ordering Cost – is incurred for processing the purchase order, expediting,
record keeping, and receiving the order into the warehouse.
Stock out costs - In raw-materials inventory, stock out costs can include
the cost of disruptions to production. In finished-goods inventory, stock out
costs can include lost sales and dissatisfied customers.
Acquisition costs – is the unit cost of the item. For purchased materials,
ordering larger batches may lower unit costs because of quantity discounts
and lower freight and materials-handling costs.
Carrying costs - Interest on debt, interest income foregone, warehouse
rent, cooling, heating, lighting, cleaning, repairing, protecting, shipping,
receiving, materials handling, taxes, insurance, and management are
some of the costs incurred to insure, finance, store, handle, and manage
larger inventories.
17. Categories of Inventory Cost
Cost of production problems - Higher in-process inventories
camouflage underlying production problems. Problems like
machine breakdowns, poor product quality, and material shortages
never get solved.
Cost of coordinating production - Because large inventories clog
the production process, more people are needed to unsnarl traffic
jams, solve congestion-related production problems, and
coordinate schedules.
Cost of Obsolescence - Large inventories of items that are
obsolete due to design and / or process changes
18. Opposing Views on Inventory
If the order quantity is small (i.e. If the inventory is too little) then the
following cost are high:
1. Ordering Costs
2. Stock out Costs
3. Acquisition Costs
If the order quantity is large (i.e. If the Inventory is too much) then the
following cost are high:
1. Carrying Costs
2. Cost of Production Problem
3. Cost of Coordinating Production
4. Cost of Obsolescence
19. Concept of Economic Order Quantity (EOQ)
Materials are ordered so that the cost of ordering too little is
balanced against the cost of ordering too much on each order.
Two classes of cost are graphed. Carrying cost represents all the
annual costs associated with ordering too much. Ordering cost
represents all the annual costs associated with ordering too little.
When annual carrying cost curve is added to the annual ordering
costs curve, an annual total stocking cost curve results. The order
quantity where total stocking cost is minimum is traditionally called
Economic Order Quantity (EOQ)
20. Determining Order Quantities (EOQ Models)
Three Order size Models being used are :
1. Model I – Basic Economic Order Quantity (EOQ).
2. Model II-EOQ for Production Lots.
3. Model III-EOQ with Quantity Discounts.
Model I – Basic Economic Order Quantity (EOQ)
Assumptions:
1. Annual demand, carrying cost, and ordering cost for a material can be estimated.
2. Average inventory level for a material is order quantity divided by 2. This implicitly
assumes that no safety stock is utilized, orders are received all at once (instantaneous
replenishment), materials are used at a uniform rate, and materials are entirely used up
when the next order arrives.
3. Stock out, customer responsiveness, and other costs are inconsequential.
4. Quantity discounts do not exist.
21. Time
Quantity
Replenishment Cycle
Material Received all at once (Instantaneous Replenishment)
Consumption of
material at a
constant rate
The same cycle
repeats
Q
Instantaneous Replenishment
Average inventory when the material is received all at once is
Q
2
Q
2
Slide 21
23. Model II-EOQ for Production Lots
Assumptions:
1. Annual demand, carrying cost, and ordering cost for a material can be estimated.
2. No safety stock is utilized, materials are supplied at a uniform rate (p) and used at a
uniform rate (d), and materials are entirely used up when the next order begins to
arrive.
3. Stock out, customer responsiveness, and other costs are inconsequential.
4. Quantity discounts do not exist.
5. Supply rate (p) is greater than usage rate (d)
Variable Definitions
1. All the definitions in Model I apply also to Model II. Additionally
2. d = rate at which units are used out of inventory (units per time period)
3. p = rate at which units are supplied to inventory (same units as d)
24. Quantity
Time
Replenishment Cycle
Material received uniformly at a constant rate
The rate at which the inventory is increasing is the difference between
production rate and demand rate (p-d)
The rate at which the inventory is decreasing is the
function of the demand rate (d)
The same cycle
repeatsQ
Average inventory when the material is gradually received at a constant rate is
- 1-
d
p
Q
2
1-
d
p
Q
2
Slide 24
25. Model II-EOQ for Production Lots
Cost Formulas -
Annualcarryingcost AverageinventorylevelxCarryingcost C
Q
2
1
d
p
Annualorderingcost OrdersperyearxOrderingcost S
D
Q
Totalannualstockingcost TSC Annualcarrying cost Annual orderingcost C
Q
2
1
d
p
S
D
Q
Equatingannualcarrying cost & annualorderingcost: EOQ
2SD
C1 d
p
Slide 25Slide 25
26. Model III – EOQ with Quantity Discounts
Assumptions:
1. Annual demand, carrying cost, and ordering cost for a material can be
estimated.
2. Average inventory levels can be estimated at either:
a. Q/2 – if the assumption of Model I prevail : no safety stock, orders are received
all at once, materials are used a uniform rate, and materials are entirely used
up when the next order arrives.
b. Q/2 [(p – d)/p] – if the assumption of Model II prevail : no safety stock, materials
are supplied at a uniform rate (p) and used at a uniform rate (d), and materials
are entirely used up when the next order arrives.
3. Stock out, customer responsiveness, and other costs are inconsequential.
4. Quantity discounts do exist. As larger quantities are ordered, price breaks
apply to all units ordered.
27. Concept of Quantity Discount
Quantity discount signifies the discount that the manufacturer can avail if he
places a large order on the vendor. This is because a large order offers economy of
scale for the vendor which can be explained on the break even chart drawn below
Sales
Variable Cost
Total Cost
Fixed Cost
Profit
Quantity
Sales/Cost
It can be observed in the above break-even chart, that as the output (quantity)
increases, the profit increases.
Slide 27
28. Model III-EOQ with Quantity Discounts
Variable Definitions :
1. All the definitions in previous models apply to Model III. Additionally,
2. TMC = Total annual material costs (rupees per year)
3. ac = Acquisition cost of either purchasing or producing one unit of a material
(rupees per unit)
Formulas
1. The EOQ and TSC formulae from either Model I or Model II are applied to Model III,
depending on which assumption best fit the inventory situation.
2. Annual acquisition costs = Annual demand x Acquisition cost = (D) * ac
3. Total annual material costs (TMC) = Total annual stocking costs + Annual acquisition cost
= TSC + (D) * ac
29. Model III – EOQ with Quantity Discounts
Model I Model II
Order Delivered Gradual Deliveries
All at One Time
EOQ 2SD
C
EOQ 2SD
C 1 – d
p
TMC C Q
2
S D
Q
Dac TMC C Q
2
1 –
d
p
SD
Q
Dac
Procedures
1. Compute the EOQ using each of the sales prices.
2. Determine which EOQ from Step I above is feasible. In other words, is the computed EOQ
in the quantity range for its price ?
3The total annual material cost TMCis computed for the feasible EOQ and the quantity at any
price break with lower sales prices.
4. The order quantity with the lowest total annual material cost TMCis the economic order
quantity for the material.
Slide 29