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    Fourth Module

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    ABOOBAKKER
    The document discusses economic order quantity (EOQ) problems and calculations to determine the optimal order quantity that minimizes total inventory costs, which are comprised of ordering costs and carrying costs. Various scenarios are presented showing how the EOQ is affected by changing parameters like annual demand, setup costs per order, and inventory holding costs. The optimal order quantity is found to be 4000 units based on the values given in one example.

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    Fourth Module

    Uploaded by

    ABOOBAKKER
    38 views40 pages
    The document discusses economic order quantity (EOQ) problems and calculations to determine the optimal order quantity that minimizes total inventory costs, which are comprised of ordering costs and carrying costs. Various scenarios are presented showing how the EOQ is affected by changing parameters like annual demand, setup costs per order, and inventory holding costs. The optimal order quantity is found to be 4000 units based on the values given in one example.

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    FOURTH MODULE

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    The document discusses economic order quantity (EOQ) problems and calculations to determine the optimal order quantity that minimizes total inventory costs, which are comprised of ordering costs and carrying costs. Various scenarios are presented showing how the EOQ is affected by changing parameters like annual demand, setup costs per order, and inventory holding costs. The optimal order quantity is found to be 4000 units based on the values given in one example.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    38 views40 pages

    Fourth Module

    Uploaded by

    ABOOBAKKER
    The document discusses economic order quantity (EOQ) problems and calculations to determine the optimal order quantity that minimizes total inventory costs, which are comprised of ordering costs and carrying costs. Various scenarios are presented showing how the EOQ is affected by changing parameters like annual demand, setup costs per order, and inventory holding costs. The optimal order quantity is found to be 4000 units based on the values given in one example.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 40

    EOQ Problems

    • Annual Demand =160000


    • S = 50
    • H =1
    • C=20
    No :of Orders (N) Order Quantity ( Q =D/N)

    1 160000

    10 16000

    20 8000

    40 4000

    80 2000

    100 1600
    No :of Orders (N) Order Quantity ( Q Average Inventory
    =D/N) (Q/2)

    1 160000 80000

    10 16000 8000

    20 8000 4000

    40 4000 2000

    80 2000 1000

    100 1600 800


    No :of Orders Order Average Carrying cost
    (N) Quantity Inventory (Q/2)*H
    ( Q =D/N) (Q/2)
    1 160000 80000 80000

    10 16000 8000 8000

    20 8000 4000 4000

    40 4000 2000 2000

    80 2000 1000 1000

    100 1600 800 800


    No :of Order Average Carrying Ordering
    Orders (N) Quantity Inventory cost cost(D/Q)*
    ( Q =D/N) (Q/2) (Q/2)*H S
    1 160000 80000 80000 50

    10 16000 8000 8000 500

    20 8000 4000 4000 1000

    40 4000 2000 2000 2000

    80 2000 1000 1000 4000

    100 1600 800 800 5000


    No :of Order Average Carrying Ordering Total
    Orders Quantity Inventor cost cost Inventor
    y y Cost
    1 160000 80000 80000 50 80050

    10 16000 8000 8000 500 8500

    20 8000 4000 4000 1000 5000

    40 4000 2000 2000 2000 4000

    80 2000 1000 1000 4000 5000

    100 1600 800 800 5000 5800


    • E0Q = 4000
    • D =1000
    • S =50
    • H = .20 =1/5
    Order Set Up cost Carrying cost Total
    Quantity (D/Q)*S (Q/2)*H Inventory cost

    500 100 50 150

    600 83.3 60 143.3

    700 71.43 70 141.43

    800 62.50 80 142.50


    • EOQ =700
    Total Inventory cost
    Note down this question
    • Find the EOQ for the following :
    Annual Usage =1000pieces
    Cost per unit = Rs.250
    Ordering cost = Rs. 6/Order
    Expediting cost = Rs.4/Order
    Inventory holding cost = 20% of inventory
    • D = 1000
    • S =6 + 4 =Rs.10/Order
    • H = 250 * 20% = 50
    • EOQ= 20
    • Lead time: Time taken (in days) for your
    vendor to fulfill your order
    • Safety stock: The amount of extra stock, if any,
    that you keep in your inventory to help avoid
    stock outs
    • Daily average usage: The number of sales
    made in an average day of that particular item
    Lead Time Demand Formula Example

    • Average Daily Usage: 2.83


    • Lead Time: 15 days
    • 2.83 * 15 = 42.45
    Average Daily Usage Example

    • Exempli Inc. is a fashion retailer. They need the


    average daily usage of the medium, blue,
    variant of one of their popular sweaters from
    this past month.
    • Number of sweaters sold: 85
    • Number of days in the month: 30
    • 85 / 30 = 2.83
    • Exempli Inc. sells an average of 2.83 of these
    sweaters each day.
    Safety inventory
    •an additional quantity of an item held by a company
    in inventory in order to reduce the risk of stockout ,
     caused by fluctuations in supply and demand.
    Safety inventory
    • There is a fundamental tradeoff:
    – Raising the level of safety inventory provides
    higher levels of product availability and
    customer service
    – Raising the level of safety inventory also
    raises the level of average inventory and
    therefore increases holding costs
    • What is a reorder point?
    • A reorder point (ROP) is a specific level at
    which your stock needs to be replenished. In
    other words, it tells you when to place an
    order so you won’t run out of stock.
    Example
    • Suppose you’re a perfume retailer who sells
    200 bottles of perfume every day. Your vendor
    takes one week to deliver each batch of
    perfumes you order. You keep enough excess
    stock for 5 days of sales, in case of unexpected
    delays. Now, what should your reorder point
    be?
    • Lead time = 7 days
    Safety stock = 5 days x 200 bottles = 1000
    bottles
    ROP = (200 x 7) + 1000 = 2400 bottles
    • The order for the next batch of perfume
    should be placed when there are 2400 bottles
    left in your inventory.
    Replenishment Policies
    Continuous review (Q system): (fixed order quantity
    system )
    • inventory is continuously monitored and an order
    of size Q is placed when the inventory level
    reaches the reorder point (ROP).
    Continuous review (Q system):
    • Whenever the inventory position reaches a
    predetermined point, an order for a fixed
    number of units is placed
    • The two parameters of the system are –
    Reorder point and Size of the order.
    Q system

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