ch. 21 inventory control learning objectives analyze the importance of inventory. describe the...
TRANSCRIPT
Ch. 21 Inventory Control
Learning Objectives
Analyze the importance of inventory.Describe the features of an inventory control system.Analyze the costs associated with inventory.Apply the economic order quantity (EOQ) model to solve inventory control problems.
Inventory
Stock of goods.
Functions of inventory
1. To meet anticipated demand.
2. To decouple the production process.
3. To minimize the seasonal effect.
4. To protect against stockouts.
5. To take advantage of future price increases.
6. To purchase in a round lot.
Periodic inventory system
An inventory management system in which a physical count of item sin inventory is made at periodic intervals to determine the quantities on hand.
Perpetual inventory system
An inventory management system in which the inflows and removals of items are kept track of on a continuous basis.
Inventory carrying costs
Indirect inventory costs associated with holding the inventories.
Annual inventory carrying costs
Average inventory level (in dollars)
Inventory carrying costs as a percentage of inventory value
= *
Average inventory level
Stockout costs
A special type of inventory cost which includes tangible costs, such as special delivery costs, lost sales and profits, etc., and intangible costs because the stockout may upset customers which in turn will damage the reputation and goodwill of the firm.
Inventory ordering costs
Indirect inventory costs which refer to the costs of placing and processing orders.
Annual inventory ordering costs
Number of orders placed in a year
Cost per order= *
Annual inventory ordering costs = D / Q * CPO
Economic order quantity
The order quantity at which total inventory costs will be minimized.
An EOQ model
Annual inventory carrying costs =
Annual inventory ordering costs
Q / 2 * UC * ICC = D / Q * CPO
Q = √2(D)(CPO) / (UC)(ICC)
EOQ = √2(D)(CPO) / (UC)(ICC)
Number of orders placed in a year = Expected annual demand
(D) / Order quantity (Q)
Order interval =365 days /
Number of orders placed in in year
Reorder point
The quantity of inventory on hand when an order is placed.
Safety stock
Stock that is carried in excess of expected demand.
Reorder point
Expected demand during the time interval between when the order is placed
and when the order arrives
+=Safety stock
(or buffer stock)
Inventory cycle
Just-in-time (JIT)
Approach in managing inventory materials by having materials arrive just before they are needed.