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Inventory model

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Rachel Evora
Amanda Arevalo
Randy Mendoza
Mariella Faltado
Louie Andrew Lorenzo


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Published in: Data & Analytics
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Inventory model

  1. 1. The value of materials and goods hold by an organization to:  Support production (raw materials, subassemblies, work process)  for support activities (repair, maintenance, consumables)  for sale or customer service (merchandise, finished goods, spare parts)
  2. 2. Single Period Inventory Also known as the ‘newsboy problem’ as it describes the problem of a newspaper vendor who must decide on how many papers to order per day and any that are leftover must still be paid for. It is a model for ordering of perishables and other items with limited useful lives. Multiple-Period Inventory Involves that will be maintained in inventory long enough that units which have been consumed may be replenished. In a multi-period model, all the items unsold at the end of one period are available in the next period.
  3. 3. 1. Smoothing out irregularities in supply 2. BUYING and PRODUCING in lots batches 3. Allow organization to cope with perishable material 4. Storing labor
  4. 4.  also known as Wilson EOQ Model or Wilson Formula  was developed by Ford W. Harris in 1913  order quantity that minimizes total inventory holding costs and ordering costs.
  5. 5. • Only one product involved • Annual demand requirements are known • Demand is spread evenly throughout the year so that the demand rate is reasonably constant. • Lead time does not vary • Each order is received in a single delivery • There are no quantity discounts
  6. 6. • D = Orders per year • Co = Cost per Order • Q = Order Size • Cc = Carrying Cost • TC = Total annual inventory cost
  7. 7. Annual Ordering Cost CoD Q Formula:
  8. 8. Annual Carrying Cost Formula: CcQ 2
  9. 9. Total Annual Inventory TC=COD + CCQ Q 2
  10. 10. Optimal Order Quantity Formula: Qopt = √2Co D Cc
  11. 11. EOQ Cost Model
  12. 12. The I-75 Carpet Discount Store in North Georgia stocks carpet in its warehouse and sells it through an adjoining showroom. The store keeps several brands and styles of carpet in stock; however, its biggest seller is Super Shag carpet. The store wants to determine the optimal order size and total inventory cost for this brand of carpet given an estimated annual demand of 10,000 yards of carpet, an annual carrying cost of $0.75 per yard, and an ordering cost of $150. The store would also like to know the number of orders that will be made annually and the time between orders (i.e., the order cycle) given that the store is open every day except Sunday, Thanksgiving Day, and Christmas Day (which is not on a Sunday).
  13. 13. INVENTORY COSTS 1. Ordering costs 2. job shop costs 3. Costs of carrying inventory 4. Discounts 5. Out-of-stock costs 6. Costs of running the inventory system
  14. 14. Carrying Costs of Inventory
  15. 15. Inventory Control • set of policies and operating procedures that are designed to maximize a company’s use of inventory, so that it generates the maximum profit from the least amount of inventory investment without intruding upon customer satisfaction levels.
  16. 16. Areas in which to exercise inventory control 1. Raw materials availability 2. Finished goods availability 3. Work in process 4. Reorder point 5. Bottleneck enhancement 6. Outsourcing

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