This document defines inventory and describes different types of inventory, costs associated with inventory, and inventory models. It discusses deterministic and probabilistic inventory models. The deterministic (EOQ) model assumes fixed demand and no shortages or surpluses. Probabilistic models include single and multi-period models. The multi-period fixed order quantity model uses a reorder point with probabilistic demand and constant lead time.

2. INVENTORY
Inventory is defined as any idle resources of an
enterprise.
Inventory is the physical stock of items held in any business
for the purpose of future production or sales.

3. TYPES OF INVENTORY
1. Raw materials
2. Purchased parts and supplies
3. Finished Goods
4. Work-in-process(partially completed products)
5. Item being transported
6. Tools and equipment

4. COST ASSOCIATED WITH INVENTORY
1) Item cost(production/purchase) cost
2) Ordering cost/set up cost
3) Carrying cost/Holding cost
4) Shortage/stock out cost

6. INVENTORY MODELS
1. Deterministic Inventory Model
2. Probabilistic Inventory Model
3. Queuing Model

7. 1.DETERMINISTIC MODEL
(E0Q MODEL)
In this model the demand is assumed to be fixed and
completely pre-determined.

8. ASSUMPTIONS EOQ MODEL
a. Demand for the material is exactly known.
b. The consumption rate is constant.
c. Deterministic demand (static)
d. Purchase price per unit is constant.
e. No shortage , No surplus.
f. The quantity of material ordered received
immediately.
g. Carrying cost per unit is constant
h. Uniform depletion of inventory.

9. Graphical representation of inventory movement
QUANTITY
Depletion
Order arrives
TIME
q
/
2
Maximum Level
cycles

10. EOQ Models
1. Purchasing model with no shortage
2. Manufacturing model with no shortage
3. Purchasing model with shortage
4. Manufacturing model with shortage

11. 2. PROBABLISTIC INVENTORY MODEL
1. Single period decision model
2. Fixed order quantity model
3. Fixed time period model
Multi Period Model

12. SINGLE PERIOD MODEL
In a single period model, the items unsold at the end of
the periods is not carried over to the next period. The
unsold items, however. may have some salvage values.
Items comes under single period includes –
a. Perishable products (bread,fruits,flowers etc.)
b. Seasonable products such as winter coats,Christmas
stars etc.
c. News paper and magazines

13.  Only one order in time period
 Probabilistic distribution of demand (continuous or
discrete)
 End of time period _________ surplus
stock out PENALTY
Single Period Decision Model

14. MULTI PERIOD MODEL
Inventory system operates continuously with many
repeating periods or cycles ; inventory can be carried from
one period to the next. Whenever the inventory position
reaches the reorder point, an order for Q unit is placed.
Since demand is probabilistic, the time the reorder point
will be reached, the time between orders, and the time the
order of Q units will arrive in inventory cannot be
determined in advance.

15. MULTI PERIOD MODEL
1. Fixed order quantity model
Purchase order can be placed at any time in hand
inventory count is known always.
a) An order quantity of EOQ works well.
b) If demand is constant , re order point is the same as
the demand during lead time.
c) If demand is uncertain, reorder point is usually set
above the expected demand during the lead time.

16. Fixed Order Quantity Model
 Continuous (but not uniform) depletion
of the inventory
 Single item
 Probabilistic distribution of demand
(stationary demand)
 Deterministic lead time (constant)
 Continuous (but not uniform) depletion
of the inventory
 Purchasing cost is independent of the OQ
 No additional cost in case of shortage

17. Fixed Time Period Model
Purchase order is issued at a fixed interval of time.
Ordering quantity is calculated in this model as follows -
Ordering Quantity Q = M-H
M = Desired inventory to cover review periods/lead time
= Expected demand during review period/led time.
H = Inventory on hand

18. ADVANTAGES
 of Fixed Order Quantity Model
a) Not large safety stock.
b) Good for expensive items
 Of Fixed Time Period Model
a) Ease for co-ordination
b) Less work
c) Good for inexpensive items

19. 3.QUEING MODEL