Inventory

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Inventory Control and Management
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Inventory

• Inventory is the tangible property that
• is held for sale in the normal course of business
• Is used to produce goods or services for sale

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Inventory

• Types of Inventory depends on the business
• Merchandising inventory (Merchandisers)
• Raw materials, Work in process, and Finished
  goods (Manufacturing)

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Inventory Management
All forms of inventory need to be financed, and
their efficient management can increase the
organizations profit HOWEVER It is difficult
to plan and control inventory
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Objective
Inventory control and management Low Optimu
m Level High The objective is to determine the
optimum size that will minimize the total
costs.
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• Inventory Control
• Three kinds of costs are associated with
  inventory
• 1- Inventory carrying or storage costs
• 2- Inventory ordering costs
• 3- Costs of not carrying sufficient inventory

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Carrying or storage costs

• Cost of warehouse space
• Cost of funds invested in inventory
• Insurance
• Obsolescence and damage
• Material handling expenses
• Property taxes
• Greater the average inventory, higher are the
  carrying costs. Can be reduced by placing
  frequent orders in small quantities.

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Ordering costs

• Clerical costs of ordering inventory
• Transportation costs
• Receiving costs Inspection costs
• Relatively low average inventory means many
  orders and higher total ordering costs.

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Costs of not carrying sufficient inventory

• Customer ill will
• Lost sales
• Cost of placing rush orders
• If these costs are high, managers will want to
  hold large inventories

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Basic EOQ Model

•     Demand is known constant
•     Lead time is constant
•     Only one item is involved
•     No shortages occur

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Economic Order Quantity (EOQ)

• EOQ is the order quantity or size that results in
  minimizing the total inventory costs (sum of
  ordering and carrying costs).

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Reorder point

• Reorder point indicates when an item should be
  ordered. When the inventory drops down to the
  reorder point, it is time to reorder.

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Quantity Discounts

• EOQ is not always the cheapest quantity purchased
  .
• If the suppliers give quantity discounts they
  must be taken into account.