Meaning of Inventory 43 Fundions of Inventory / Inventory Functionality 3a norance of inventory Management {95 _ Selective Inventory Control Techniques 46 Moder Inventory Control Techniques 97 Qand P Systems / Replenishment Systems 98 MRP 99° DRP 9.10. MRP Vis DRP 911 FOQ 9.12, Problems on EOQ and Total Inventory Cost 9.13 Reorder Level with Numer 9.14 What do you mean by Safety stock? Explain factog influencing the level of a safety stock + Review Questions Inventor is a st 8 OF resources ‘component parts, supplies, te, a Stock. ™ainain inven feo. In ave acces Products as an 2 Avold Ex i ‘d when they need them. © maintain inventory ent to Oy ato 0d exces en inven inventory, entony tum level (i.e, neither high no Nowadays, companies ave ney a Tait objective of inventory manages! TY 3 appropriate level so as to avoid shottst management helps us to ensure that cust i er objective of inventory manese™ + oul aor ock of any item or resource used in an organist 2n include raw materials, finished prod st meet 5 like just-in-time to avoid hay ving exces in demands. This is because caning to While Sotory relaed coats tke warehoyse using cost, ‘ods Efficiently: Efficiency in invento rave and store Product as they co Every extra second spent fy go OU! Processes a nef inventory management, Plus, efcen: dieaeatn rr saisfaction issue for tade channel sel expect supplies to meet prescribed delivery tine ipect products to arrive on time, ‘managed inventory is often ‘soften the es. If he inventory level is approcin, Jower inventory management cost. Moreove iqoath overall functioning of the orgonisation thereby resuing + efficiency and profitability «er Objectives {To ensure that the supply of raw material and finished goods wil remain continuous so that production process is not halted and demands of customers are duly met, 4+ Tominimise inventory carrying cos. 4+ Tokeep investment in inventory at optimum level + Toreduce the losses of th + Tominimise inventory ord obsolescence and wastage, etc. costs. [sen is a necessary evil that every organi on would have to| tin for various purposes. Under stock of inventory can afiect facturing and production process, Over stock of inventory increases ‘ns and reduces the profitabiliy ofthe organisation, Over inventoy {nie nventory both cause financial impact and affect health ofthe Thus, Optimum inventory management is the goal of every ation, 's not possible to serve customer requirements & 1s have to maintain in eye etOtevel inventory. Thus, organi SF inventory, Hence, it can be understood that Inventory isn © scanned with OKEN ScannerLV 2 WO tha H ggg, y se ee 133 rs are produced throughout wes out dl. ! the year = the WL. ga eect market perio Sut are sld ety asa tat So tl invested A ee clothes. aon or theca | wollen lo! rime fantions served BY Inventory are: iy some products 2 Produced ony duragg leds lisation sin nsamed throughout the year. e, han am Geographical Special + nave co ° cultural products Farmer aflows SeFphial SPECaon [ oan ase, HONG FVENION is er impor : uns. on nties Ged specialisat "pr oneerta Teen somone Peloton ats tea | fay sock sa60 RMOWN 35 Buller uncertainties incon of auction he power, materi, ater, gg’ | se of safety stock isto facilitate contin ltd ata conterable ANC om the major may Yin operations ‘e Hence, for economical gains, manufacturing peraons ay |’ ding inventory 26 safely stock protect eakns to per of [rated dose othe sores these factors of progr certnbes: Such gonopieal separations will requ nt Derand in excess of forecast dng th peomance ee. Fo tarsi to complete intearalecomPONENS into tal pg] qarpl: customer request for more or les uns tens 4+ Thus the manufactured goods from various location, teat, ul inthe performance ete length ul. for exam Dy in a single warehouse to assemble into final poxiyey Daa eee eae + For sianple, Procter & Gamble uses isbn cay camber fom ts laundry, food and heath can (CE OF INVENTORY MANAGEMENT, to offer the customer a single integrated shipment, 4 When geographical specialisation is ulise, inventory in ed sad Stock Out: “na tte gs compere nd ia exit ow mtn tty i introduced to the logistical system, ‘gpopinte level so as to avoid shortage of imventoy. Inventory ‘+ Economies gained through geographical specialiein helps us to ensure that customers have access to produc smeageren invariably oe increased inventory and transportation cat | muten they need thers 2 Decoupling ‘The economic lot size of manufacturing (or transportation! Aifetent from the market requirements. Decoupling process pert Product to be manufactured & distributed in economic lot sizes ti Seale than market demands. For example, let us consiet 2) ‘anufactring unit. This unit, ony mos ee the production operations bs fonimte le produce certain type of ire till an economic I Fart: Thete may nt be matket demand forthe ene lot cof pod He the production of the lot was carried out keeping in mind the ¥ er a as the economies of Production. This is sent to them rat tl load capacity to achieve econam® a barn MAM inthe need to hold excess inventon” Stns Dened nd Supply cdc,” SP between the demand and sue Ime ga Products, be itl ‘od Excess Inventory: helo management is also required s0 as to maintain tvento at ‘pirumleve (.e, neither too high nor lo) $035 to avoid exces invent. companies have adopted modem systems Ike just-in-time to fod excess inventory while trying to meet demands. This i because {tng excess inventory results in increasing all inventory related cos ie ‘Btosing cost, material handing cst. ve Goods Efficiently: {0 inverory means the ably toque ea and toe odd ‘ome in and retrieve and ship when they go out. Every exta second ais these processes ads tothe cot of iventony management, TAS nib management is required to move gods ect mise Profit Margins: ses 1g pee ventory is ten the he in mesng ro main NTE entory level is appropriate, it will result It @ scanned with OKEN Scanner—wss——SS Te Bus it wl eu in sn gn er cea ha ry eng Mae ery an eg it in Production Process: iy 134 management cost the organisation thet continul ent requited S0 as £0 €nsUre continu, duction process 1S not halted an] Ay, den, 5, Toonsre eto maa Pl 0 alte Ps uy et cosas 4 omnimise Inventory Caring Cost roamed wih 3 Hg BIR OF COS such ay I nest mater handing os ee. An nae ‘ey nnd an nese nal the escd cons yn ry ranageent feed fo minimise post Ths x | ing be cos. 4. To keep investment in inventory at o te nec keep invento Inventory Management is necessary 0 ret aay Tvienecesay to avoid excessive blockage of funds in invent ee a Inventory isa necessary evil that every organization would fay wahiain for vaius purposes. Under stock of inventory can a ‘inufactrng and production process. Over stock of inventory increas Coatan ect potable the ongarisaon, Over mentor ‘iwentry both cause financial impact and affect heath of the busines Opium inventory management isthe goal of every organisation 95 SELECTIVE INVENTORY CONTROL TECHNIQUES) Selective Conttol means variation in method of control from i item based on selection basis. The criterion used for this purpose ni ‘ost of itm, criticality, lead time consumption, procurement dif something ese, Classification 1 ABC analy Criterion empl Usage value (i. consume petiod x price per uni). —_—= Unit price (ie. at dost [consumption into aceavlll 5 Critically of the item (4 | production). —__—~ Procurement aificlies_ 2. HME onaiis High Mediam-Lowy 3 VD Destabe —— | 4. SDE analysis Scares Dieu Eaay 5. GOLF anaes (Gover nary | ‘anabsit(Vial Essential nment-Ordinary- | Source of procurement 5805 ana (Seal [FSM anabae Farge seoeenal._| Searonaliy. 7 FSN alas Fon avant. a we et SECIS reveals that just a few numberof items account aii ot cont techie tmoen oe AB low ver hal many Inaba based en js 10 sorts all items into three categories, caled ns oeany eviews set ed toe fr ater These 6 te aed ee gat ous numba: bute conbton sl sense Adtry found that hardly 5 to 10% of he total ems scout or 70 ssa nc) eto be rls Sch a eO Me Se ico he ah Ne sequent stems: piterems are generally 10 10 15% ofthe total items and represen 10 to [Pil the total expenditure on the materials. These are intermediate ems ‘pe ontol on these tems need not be as tight and as rid a A ites, items: Shoo are numerous as many as 70 to 80% of the total items and ineapensve as it represents hardly 5 to 10% on total annual exper on fratetals These items should be procured infrequently and in suflent ‘quan. 7 8 60 Number of ems 68) @ scani ned with OKEN ScannerLogisties and § CM ¢ The above diagram reveals that 10% of items *, Such items are classified as A items, Tres 5 ‘unted fo, 20% of tems accounted for 20% of costs. Such item, "te cla si My items. z ea 70% of hey as C items stems accounted for only 10% of costs. Such iter, BF clas oa Distribution of ABC Class: i] ABC | Number of items i Class i A 10% B 20% c 70% [Total 100%. (CONTROL High Moderate Low E 2. X-¥-Z Analysis: i 2 x2 arabs approach be slmllar to A-B-C analyse, |b tn x.2 anavas clasietion of inventory Ie based on vaked dia tineis catont ie tromnserp inition «ama whose inventory values are high are called X lems wi thaws whece inventory Values are low are colled 2 items. Vix are those who have moderate inventory value. CONTROL | ITEM High x Moderate Low Zz 3. HML Analysis | @ In HML analytis, classification of inventory is based o” U™ i of items. ee grour® * The items under this analysis are classified into tht 1H: High-value items 'M : Medium-value items L: Low. lue items 4, VED Analysis ent To cessiy the items into High-Medium-Low, 17 Te descending order of unit price. The maenesie a ied in ‘the management may decide to categorise: eee eos items with unit price between Rs ddassified as M items, 5000 to Fs 10000 may be items with unit price < Rs 5000 may be classified as Li [ ome [righ | eae! | vi] Low L In VED Analysis, classification of items is based on ertcality of the iter ‘The analysis classifies the items into three groups: ital items E: Essential items items Vital items are those items without which production would come Wiel Tale If these ifems are not available on time, produc” v toa halt. General policy of the compan °° of vital items so as to avoid delays Jn D : Desirabl would come maintain good inventory production. recentil items are those tems whose stock out cost igh, ge causes items whose stock out or shorts Desirable items are those i osc nly a minor disruption for ® shor onion in the prod orl te The cost incurred s very naming Moderate. [uw @ scanned with OKEN Scannerfe Theitems F: Fast moving Items ; Slow moving Items 1N: Non-moving items Fas moving Hes are the HEM WHO conMggy, ‘ ih ‘ Sow moving Hes ae HHOEE EMS Whose consumpaa, a, tow, 4 Noosmevng items are those Hem Which are not cong med | * past two years. | 6 eirachas element | reviewed regularly. ‘CONTROL | ITEM i i Moderate s : Low N ENGLE Au GOLF Anais tn the GNG-LF (GOLF) analysis, classification of itemsistue)* ‘on nature of suppliers, NY 2° group contains ems bought from Locay, "hen ap geo CONTAINS INOBE Me hich ayy spe Analysis In SDE analy clssiication i based on the aay Theiler under this analysis are casted int tee any 6: Searce D: Difficult E: Easy 1+ Scarce classification comprises of those items wich are not easily available. It normally includes imported produass op products channelized through government agencies Diffiult classification includes those items which are quailabie indigenously but are not easy to procure. Moreover, tums which come from far off distance and for which reliable source do not exist fall into this category Easy dassification covers those items, which are readily avaiable ems which are readily available in local market flint this group * The ltems under this analysis are classified into four groups SONTROE TEN Govern Z Moderate D NG: Non Government io z 1 Local Suppliers * S08 Analysis F Foreen Suppliers * $05 analysis is based on seasonality or otherwise ofthe ems * 'C gouy aay and pute al tems procured from Government sav The analysis classifies the item into two groups: $ (ie. seasonal) Suppliers ei ndetakings. Transactions with this cate 8nd 0S (off-seasonal), The analysis identifies items which are: Ng wet lon ed tine, 11) Seasonat foc a linited period. For eample, sis Me rc tom Now, ema moh meet deo" wih th catego” tinea hfe such ms ane poi th fl @ scanned with OKEN Scanner7 Logtes ond SCM CVE49 ent. _ uo val ble HOUOHOU the yeay 4 SCY hans the orBOIBAIONS competivnes by veaaa Femi afer comparing the cst saving dg gh Zero te ie tf inventor, rn Tear ral items quantity is decided, tT (g.Nons0 mle considerations | ‘CONTROL J fiagh | _Seosonal and IT Limited Jed Ja Zero Natale | ~ Seasonal bi (HE Just in Time HipLead ‘avilable fi throughout the yea Reduced i OFf= Seasonal in 5% WODERN INVENTORY CONTROL TECHNIQUES ats of a: [ sptaton cost gets reduced apanenininei |, Warehousing cost gets reduced. ‘The justin time inventory management is a Japanese philosophy wi has been applied and practiced since early 1970's in many Japan organisation The cont of JIT has been developed by Talichi Ohno of Ta Motos Caporaton in 1850. & tin tine an iveriory management philosophy aimed ae ‘waste ond redundant inventory by delivering product jut wha crmaniaton need them 4. “stn Tine” means making “Only what i needed, when ks 2nd int amount needed” © This concept states that an activity should be undertaken orly ‘here is need for Hence, inventory should be brought Into ™) only when tis regue, £. Traditionally, organisat inverto| oc cousin dt ep ge amount of re beeen at this leads to increase % However, JIT sees ns rate, avousge Menlo 96 waste and focuses of My wt, at the right time, at the right place: |. Vaterial handling cost gets reduced. |, ieniory level gets reduced. |. Processing time gets reduced. amples of Companies following JIT: |. Dat al has followed JIT principles to make its manufacturing process 2 Toot Toya is considered by many to be the poster child for JIT secs The Toyota production strategy is highlighted by the fact that Alera are not brought to the production floor until an weed, Just In Time 2 (AIT - 2) NT 2\s a customer- supplier partnership concept “tion and now practiced by many companies am ts mth ler wo I method, the employee of the sup a er cen “a bad by the supplier. This employee keeps 2” © ies Protucs as and when necessary. pioneered a the Bose 1 their supplies owe wth the responsibilities of sm, Be Je and me @ scanned with OKEN ScannerLogistics and S CM (ry, se ‘ Ee coor fem’ stl fee fom al the pape Sy Tae cng 0 Purse of mater PR 4S admins Thus, basically JIT 2 is a customer — sup, “OMe by SEP ae have been given authority in customer's onan tltogs! ae erations Ms Beets 1 wet efi get reduced. 2. Inventory level of suppliers also gets reduced, 5. proved ons wt he sup. 4a stues dminsative cots fo both the customer ae oa a Vendor Managed Inventory / Continuous Repleni Strategy jc, It is ako called as Continuous Replenishment strate Menaged inventory. Traditionally the customer has to place order before the su nods. Bt in this revised model, the customer no longer play ‘instead shares information with the vendors, 9 Veni lie for | 28 order by This infomation relates tothe actual usage of their products, ce ‘stock on hand & anticipated demand. : One bs fis ema, the ‘replenishment of customer's inventory. i : ee a ted ta nda mun inn i fsck they we hep tor ero within the stipulated stock levels. . Porches Order On demand Info Crore SS Usomen ll suppLien Produ Dairy Ni Product Dellvory or Resenahmen is rete Vendor Manegt Inventory |. Quick Response When a retailer places an order for replenishment, the supplier with the ip of EDI {Electronic data interchange] finalizes the delivery details and enmunicates them to the customer in advance. This fecttates scheduling labour and other facilites, This reduces inventories as uncertainties are reduced and total cost esting into better performance. With a fast and dependable response inventory can be ordered as ated resulting in inereased turnover and improved availability Quick response is a technology driven cooperative efforts from suppliers \dretalers to increase the inventory velocity. Automatte or Profile Replenishment or AR al erables the supplier to anticipate the customer's requirement in ‘ne fo make replenishment. The responsibility fo "rte . nventory management is placed directly on the There should be information flow between customer and supplies that 'nventory availabilty visible. Nie thes aay the inventory management fom the cone reigit 10 the supplier, suppller gets the benefit of inventory VHB *e elective to reduce tool coms manageme: @ scanned with OKEN ScannerLoaiics and SCM Ayiyg, Constraints a, Needs accurate forecast th tnaceuracy in forecast quantity yin forecast location Inaceu Inaccuracy in forecast time ce. Variable forecast cytes Buffer for uncertainty EOQ WITH NUMERICALS| Economie Onder Quantty (EOQ) is an equation for invent pated the ideal order quantity company should purchas? bal inventory given a set cost of production, demand rate and other variables :conomic. ee san atom order quantity (EOQ) shat sie ofthe onder HA ximum economy in purchasing ani ultimately ot purchasing any material and ulti wet eit towards maintaining t a "8 the materials at the optimum level and 2 #! ‘MRP DRP TL Gudng [MRP b& guided by Master [DRP_ is guided by Foci __| production schedules demand otal Z conve of [MRP is under the contol of | DRP is not under the conta them | he frm the firm since i depends customer demand =k Jr Demand | MAP operates in dependant | DEP operates in independ Situation _| demand situation. demand situation Geaea of MRP involves movement | DRP involves movement fal Opsation | from raw materials to | finished goods to customer, finshed goods - 5, Scope [MRP is concemed with | DRP is concerned wih Ot Inbound Loaistis, Logistics 6. Stages of [MRP contols inventory | DRP controls and cord funeioning | belore manufacturing and | inventory after man sembly complete and assembly offinhed pragement syords. the economnte order quan "be ordered at one time for yo a c0a ‘nenea.cening a Wmber oF Orders Pinond Per Your | unptions undertying the EOQ model 1 pedamand ofthe Hem occur uniformly over tepid te noun te, ‘pereplenishment ofthe stock is instant. The time hat elapses between the » ong of order aed receiving the item into stock called kad tine ae. ‘he price per unt is fixed and is independent ofthe oder she | ‘poco of placing an oxder and process the delivery sd and dees rot | vey wh the ie | | the imentory caning charges vary directly anneal with these fhe reno is expressed as percentage of average invetery invest ‘De tem can be produced in quantities desired, There beng no reson sian Kind, Jl. The item has fairly long shelf life, ‘ota. Ustations of EOQ = 1. The demand for an item may not be uniform throu 3 fuctuate from seasons to 38asons Lead time can never be zero. There is alwe Dbcement of order and delivery of oder. Piice of material ‘may not remain same throughout hs ‘suppliers offer discount on bulk purchases: ‘furaes in price of the product. Ne re delivery may vay | Cost of placing an order and processing the 4 3. Pending upon size of order. there being no fear of deterioration or ighout the yen. it e jays 0 time gap between the year. Moreover, then i wil lead (© @ scanned with OKEN Scanner150 Lensicond SCM rym — \ _ ypasenet Sem ‘The formulae of EOQ sng information refers to pedestal fans, o £0Q = \BACaIC 1 mat: 36,000 units eco en some roar ner nF 0 c cost per unit aing CO8t is Rs. 500/- per order Co = costof order placing xs caring Cost: 25% i inventory carrying cost we te E0Q, allt NUMERICALS ON E0Q. 1. The annual demand for an item is 3200 units. The unit cost tect inventory carrying rate is 25% per annum, 7 TE the cost of wheres procurement is 150, Find EO. SF annual Consumption in units j= Annual z p= Ordering cost per order fee c= Cost per unit So = 50 {Inventory Carrying Cos (in decimal) =025 19 = 500, C = 4000,1 = 0.25, OQ = Y2ACa ae PSOE 36000500 200 0.25 vesaosis 4000 S 2 ae 2 The information gered fom EDPL shows tha the anol deat bl item, Starter Switch & 5000 nos. The unt 8. The unit pre ofthe item aoe ‘ach. The inventory caring cont, ine 190 units ana e420 units. The uit ont Bs 8 The Annual dana ol 200 pg, The et of oeuement Rs, 200/.. Caleulate EO. and ordering cost is 20% ant Per order respectively, Find EOQ, Pee E0Q Where, PACT (M.U, Oct 2017) ‘A = Annual consumption in units Co = Ordering cost per arder C = Cost per unit @ scanned with OKEN Scanner152 Legis ond SCM (ryBI46 7 Se ie a onto 6 5400 ¥8 The unc The mm en ate 20%. The con of es apts “sor. Calulate MU eH ye 7 pe 150). Caleulate EO v. mre eer ¥ pea Per Unit rar) ane Ce flere Co passor ante FOR YS a aS oq = ACAI mo ror (x BODOOXIS = 10x 0.20 = 3x 0.15 coq = 50 unis 5:12 PORBLEMS ON EOQ AND TOTAL INVENTORY Cosy Formulas Zac 1. £09 =\/785 A= Annual Demand © = Ordeing Cost 1 = Inventory Cerying Cost © = CostPer Unit = Atel Demand 2 No.of orders = Atul ema 3. Ordering Cost = No.of orders x. Cost per order ‘Average Inventory = 2 Coming cost= Average Inventory x Inventory Carrying cost x Cet perl (Cost of Purchasing Meterial = Annual Demand x Cost Per Unit Tolal Inventory Cost (TIC): Ordering Cast + Carrying Cost + Cote! Purchasing Materials ° el ABC Manufacturing Company requires 20,000 Units of matt ™limentory Cost Cox of Ordering Carving cst ost of i annum. Is eos to purchase is Rs. 45 per order and Rs. 3 pe ii Tel ny ang ho Ingenio. Bd the economic order quaniy and the toa FencnanGuld the company accept the offer of 2% discount * Price, Provided each order is of §,000 units or more? 18,00,000 7 0.45 00 = 2000 Units | elation of Total Inventory Cost ‘Annual Demand _ 20,000 s Noof Orders =" Ordersie = 2000 = 10 ‘ Oxdering Cost = No. of orders * Cost per order = 10 XRe45, Ordering Cost= Rs. 450 2,000 2.090 _ 1000 Units ‘Average Inventory= $ Canying Cost \werage Inventory sentry Cong Cant XC Pe Ut 1000% 0.15 x3 Carrying Cost= Rs. 450 Cost of Purchasing Material = Annual Demand X Cost pet Unit = 20,0003 Cost of Purchasing Material = Rs. 60,000 Mat Re, 450+ Rs 450+ Rs 60,000 Rs 60,900, Te @ scanned with OKEN ScannerPa order Per = Rs 45 Per order oe Oe C= Rs 3 2 Rs 2.94 one [= 18% = 0.15 one sok (€00)= 5000 Units plate OF Catelation of Total Inventory Cost _ ae _ Annual Demand _ 20,000 ay a. No.of Order =" Order Size 5,000 = 4 ox 4,000 x 250 b. Ordering Cost = No. of orders x Cost Per order 7 ‘75 X0.25 = 4 Rs. 45 i z 270,00, 000 ends Cont =e 10 _ a = 1200 Uni Average Inventory = 3 = 290 ~ 2500 Units pa Clanton of Total Inventory Cost, 4. Camjingcos = Avera Invert Inventory Caring Cot Cot er nual Deron MW No.of Orders = AnauelDemand 25.000 _ 45 | 500 X 0.15 x 2.94 Peete Conties Costa uel 1102.50 4 Ordering Cost = No. of orders x Cost per order 45 x Rs. 250 Cost of Purchasing Material = Annual Demand x Cost Pernt Ordering Cost = Rs. 11,250 = 20,000 x 2.94 Q_1.200_ Cost of Purchasing Material= Rs, 58,800 2 gap 7 uae t - lento Cost = Cost Ordeting + Canying Cot + Costof Purchasing sid Caving Cost = Average Inventory x Inventory Carving Cont Cost Per Ut = Rs. 180+ Rs.1102.50+ Re 58,800 Total Inventory Cost = Rs 60,082.5, ‘Average Inventory 600% 0.25 * 75 ler, do you accept the discount ft Canving Cost Since the Total 19 Cost= Rs, 11,250 7 Inventory Cost when order quantity is 5000 unis 5 Cog snd x Cost per Unit gf 25 congo oT potir quant 5009 wi) OF Purchasing Material = Anni Demon Cte leads to sana 2: Bs. 60:90, the company should accept he of 54,000 75 al deal 7 of Rs. 817.5 (Rs, 60,900 — Rs. 60,082.5). Nag Cos of Purchasing Material = Rs. 40,50,000 Leal cra cone SIMU chips athe ae of Rs. 75, eT T*VCON cof Ong + Camis» ok PS ion of chip is 7 \e ordering © and Total Costa cust is a. what Wor Oy Cost = ‘ordering 9,000 nts per ea ‘supplier offer a discount of = Rs 40,72,500 | @ scanned with OKEN Scannerwe Incase of 10% Discount A= 4.000 Unis = B250Per ower C= RTS: 10%= BSGTS = 25% 025, @ (€0Q)=9000 Units Calculation of Tota toventory Cost NO. of Order =Annual Demand _ 54,009 Ordersizee = 9,009" <6 b. Ordering Cost 1. of orders Cost Per order 6X Rs, 250 Ordering Cost = Rs 1500 Average Inventory = 2 - % age Inventory = 3 = 200 = as00 Units Coming = Ave 9 Invent Inventory Canying Cost X Cou Pete = #500 x05 x675 Corvin Conte Rs. 75957 5 Cost Purchasing Material = Annual Demand xc Cost Per i Cost of Purchasing Mate, i Teall Ct = Cnc Ondng4 = Fs 15006 vemtary Con =| Rs. 36,45,000 Casing Cost + Cont of Purchasing Mote Rs 7595 dn 5+ Rs. 36.45,000 1) Cot uthen 2 compa eg Hany S000 unt le 25 it ade 90.72.5060, the ea Cost when te to savings ofa ine CoMPany should ace * 3,50,062.5 (ts, 40,72,500 | ‘vant (EQ) i 1 the discount eter Rs. 27.22.4375), 3. Find 1, oq 2. Total Inventory Cont 157 mers — ager has decided to place purchase order oo se manager OI eran of 9000 uso get docu swith mini! eer unit. Stale whether Purchase Manager i jecision? (Nov- 2019) justified in his deci Eos ae Per order | oper Unt | epsi0Per | | 208 « caestate OF EOQ ACS 00 cl Pax. 9000 x 150 10 x020 (2700;500 - 2 £0Q = 1162 Units 1 Calculation of Total Inventory Cost snnual Demand _ 9,000 _ + No of Orders = Bsus ~ 162 “§ b. Ordering Cost = No. of orders x Cost per order 8 x Rs. 150 Rs, 1200 11a a & Average Inventory = = “2g = S81 Uni Cos Per Unt entry Caring Cost CCanying Cost= Average Inventory X twenty Carvin = 591x020 X10 Canying Costs Re. 1162 e.Contof Purchasing Mteial~ Annus Demand X Cost per Unit = 9000 x 10 terial = Re, 90,000 Cost of Purchasing Cony ost + cot of Purchasing Matta Tventory Cost = Costcf Ogee an Cont Cg ee 162 Re 0000 Mat ett ventory Cost = 9252 @ scanned with OKEN ScannerTotal Inventory Cost = Cost of Ordering + Canying Cost + Cost of Purchasing Mais Total Inventory Cos 4. In case of 10% Discount 2. Rs. 84, ‘A= 9000 Units Co= Re 150Per order Cx Rs 10- 10%= Rs 9 per I= 20%= 020 @ (€0Q)=8000 Units ‘Annual Demand 9,000 Order Size ~ 3,000 = 3 a. NO, of Order = Ordering Cost = No. of orders X Cost Per order = 3% Rs, 150 Ordering Cost = Rs 450 Q _ 3,000 ©. Average Inventory = 3 ==*9~ = 1500 Units 4. —Canjing cost =sAverage Inventory x Inventory Carving Cost x CoatPa | = 1500 x 0.20x9 ‘Carrying Cost= Rs. 2700 Cost of Purchasing Material = Annual Demand x Cost Pe Unt = 9000x 9 Cost of Purchasing Material = Rs. 81,000 ince the Total Inventory Cost when order quantity is 3000 unit is ey Se ComPared fo Total Inventory Cost when order Beda theca Rs: 92,362, the purchase manager's deen? The ‘ savings of Rs, (Rs. 92,362 — Rs. 84,150). ‘emand for a particular item is 15000 units. Rs. 4 Canvin ordering coer 29 S08 On an average inventory is 30% and ost per order is Rs, 50/- Find : 1. £0Q : 2. Total Invent 7 tory Cos £09 calculation of Total Inventory Cost ® 1 “Slimeniory Cost = Cost of Ordeing + Caryn cost + cost 159 (75,00,000 = 12 = 1118 Units Annual Demand _ 15,000 No. of Orders = “"“Grior Sue = Tae = 4 Ordering Cost= No. of orders * Cost per order = 14% Rs. 50 Ordering Cont= Rs. 700 us average Inventon=Q = LL = 558 un CConing Cost=Average Inventory x Inventory Caving Cost x Cos Per Unit = 559% 0.304 Carrying Cost= Rs. 671 Cost of Purchasing Material = Annual Demand X Cost pt Unit Cost of Purchasing Mates ‘hasing M of Purchasing Material = Rs, 700+ Rs 671+ Rs. 60,000 Tot it Mventory Cost= Rs 61,371 10% Di ‘ount = 15000 Units ©2585 50Per order Bo R84 10%= Rs 3.60 per unt » 0% = 0.30 ®0Q)= = 3000 Units © scanned with OKEN Scanner‘otal Inventory Cost = Rs. 55,870 i.e. Rs. 55,870 as compared to Total Logistics and $ C. eet M (TYE sos! es fon of Total Inventory Cost oe Annual Demand _ 15,009 .e consumption we Ondoring Cost = No.of orders X Cost Per order 2 00x5 : = 5x Rs. 50 500 ‘= 3 days consumption sdering Cost = Rs 250 pet hisind @ _ 3,000 se 3 x 100 500 + 300=800 1 replenishment of mat c. Average Inventory =3 = ~*7 = 1500 Units | = 300 6. Camco = ein etn Coming Cat Coe = 1500 x 0.30% 3.60, * Carrying Cost= Rs. 1620 e. Cotten] = Ami Donand X Cont Pasig = 15000%:3.60 oie Cont of Purchasing Materlal= Re. 54000 Tester Cat Cate Og + Canim Cot Cs Pacing gy, EE = Rs. 250+ Rs 1620 Rs, 54,000 ‘nee there is no mention of safety stock, tock = zero Lead time consumption = Consumption rate x lead time = 1,000.4 = 4,000 units 01 lead time consumption + safely stock ROL= 4,000 + 0 = 4,000 units } fonual demand for a product is 60,000 units. Its delivery lead time is cular item ho months. Buffer stock requirement is 500 units. Calculate reorder eel of Pinak Varu Limited ime of placing a new order when thet mest ot ony te normal comune ad Time consumption) but also met “2dtime consumption = consumption rate x lead time Suetuations in lead time and /or demand. S#8 lead time is given in months, consumption rate should be Glalated on per month basis. femal demand = 60,000 units Theor ime x Der Monthy de Demand per Day + Safety Level ofS “tthly demand = 60,000/12= 5,000 units There LUMERICALS ON re lore, aly cone ERICALS ON REORDER LEVEL ‘me consumption Since the Total Inventory Cost when order quant 1en order quanity he. Rs, 61,371, the purchase manager's decision ¢ The reorder level is the point at which stock of Aliminished to a point whet Re order level i a stage or stock in hand is insuffi ‘over normal lead time uncertainties arising out of | short, as soon as the nits. Leads tone fo lal in the production process is 10? es safety stock equal days, Company's isto hee? ? = 5,000 x * day's consumption. Calculate re-order Ie! Bate. = 10,000 units Sock Roy "Oek the safety stock) = 500 units * 10,000 + 500% 10,500 une © scanned with OKEN Scannerogistes and 12 — SHAY 5 we on of raw Malet nthe poducion py ie fons a base ct consumed at rate of. Y Mgy co” eeeiney aie as on proces i {Inne dear’ lations a bas 3 dae, a ttn ros tf sel Pe ee aa8s: Company's pois, 4 yo . ad time for procul A safe eee se per day, The lead te dealer. Calculate reorder ley, 7 dock equal umption. Calculate ters is maintainer ‘Lead Time Consumption of materials ater the order is place. = Consumption Rate X Lead Ting re = 5003 (FDO YOU MEAN BY SAFETY sTOGR ER = 1500 units Gers INFLUENCING THE LEVEL OF a Sarery gh 3 Safety Stock = 1000 units sacks 0 teem sed by loiscansto descbe« eof ea peorder Level = Lead Time Consumption + Safety Siock ser pined 10 mitigate isk of sockous (dora aye = 1500 + 1000 25 used by uncertainties in supply and demand, ‘Adequate safety soc 1 sod ents Me einen oper Hotel Neng heen e ’ \etainty exists in demand, supply, or manu yuh laced when stock level re; when uncertainty 'PPIY, OF manufacturing yield, and Hence, new order should be placed when stock | cheat are opin soca sssaninsurance Jove of safe stock formation gathered fom ABCPL regarding air vals athe influ eee Gey of Her: Incas fA etegon whe abt cone ‘The lead time for pr Xt 2, cursed. It may not be required to keep a high level of safety sock. High hel of safely and high value consumption item wil ao increase the ‘Average demand is 1000 units per week eee Safety stock is assumed to be 1000 units | tadtime: Normally longer the lead time mote is the chances of Cake Re-Order Level Indu and hence more is the requirement of sale sock, | Runber of supplters: Incase there are number of suppl aval for Bie, is not necessary to keep a high level of safety stock Stock cut Ltt cmon = Corsmgon ae Xin ey Sark ' Giticality of an item: Safety stock for acttcal items needs to be high segs Lom oan ise rachig motel R01 E abee ng ma z Sn Araabiity of Lesser saety stock can be hep an aes yn, Utes are easily available enc, new oder should be placed when stock level reaches 2000 ust ; Possibility make the item in-house: If is posible to make an item in- RACTICAL PROBLE! bose ata shon A Rotice in case of emergency. A lower safety stock wil | 144 consume 8000 units of» component every yet ict, ce, itis Rs. 10. Ordeting cost er order is Rs, 200. Inventory cami isk of obsolescence: It is So eeea mee: It i better Costs are estmoted to be 20% of the cot stock situation. . f deterioration is higher than the cost of no st RS festriction: Rescion in the sage space 6 anobe ade mes the safety stock evel 2 Sut cost: The cost of stock out and the ou ua ig "Page of luction due to no stock situation (depending upon rae PP Of production de to Setaan COMPany's financial condition) also influence the decision *Aley stock, tory tur is mover. Determine economic order quanti jnventory cost, . 7 © scanned with OKEN Scanner” — ine SS oe is Hee SCM OVENS 5, Kn MLO gIS Tie: 1. objective Type avetions iple Choice questions | ke [SYNOPSIS] Cost Approach low whieh actual stock level shouldny, yy Tol tty Be pase Costing Po Based Costing — eens: Review Questions ted. ished to a point where it needs to be replenished, 8b, ROL e-SafelyStock 4. None ofthe aon 1 proces perils the producto be manufacured and diggs Tei COnEEP! of ota COs approach i simple and complement the it economic lt size that are greater than mavket demands ta of designing logistics as an integrated performance system, Thes $e costs Incurred for performing all the logical setae fered 8 whol 2. Safety stock is also known as 3. ABC analyssis based on I 4: Under __ concep the employee of supplier works in house with cst 5 6 7 Under system, review perc ity is variable 1a TF toa or cont Talon an Pato] 8 VEDimenioy conta ehigue i based on 9. InSDE analysis casi the item has scare, d Lada ‘Ane: 1. Decoupling, 2. Buller stock 3. Paretio's 4. JIT 2.5. P6,DRP?. Aree Sheet reflects the financial ‘ABC. Caticalty 9 Eaay ‘ot of time (usually the end of the fi (6)_Mateh the followin “amnatize the assets and li = rath ofthe organisation, sam inerio ainda Pelt and Loss Statement: Pot and Loss statement at a specific purpose isto indicate the net D._Perpetia rovew system [D. Perpetual ev E._ DiloshephOrick F._ Chsed oop MRP [6 Usage vate s of Inventory Management. ying methods and total cost tfoence ot nventoy Managenen i dina cetng meh oe ‘© We noon nveion agent Management weygutiis ics based costing tionality, “ed Costing and Mission Based Costing Qa00 © scanned with OKEN Scanner167 EXPENSES Which ate not lar product but has» irect Cost includes all those Logitisond SCM (IVES ; SU Fy eeoved in manufacturing party a costing methodology that identitiog 5. it Teenng a product and then assigns eqs Mig sts Iy according to ing th ysl Gqvolved in. manuf js assigned to each 7 the 9 money on verou ity. Co ma s activities oo eb vrous operation uns. Asch exper ne ea ace atts, Decision needs o be taken to determine hom aa to what eect ts us types of overheads shou that a company manufactures tue jous 1P i Lats us asume i i ld be allocated to cy, gt 9H specific . vers: jining Cost Dri 7 ee Is t0 determine cost drivers. The cost diver sa factor het han "ee or dives the cost ofthe activity. Athy, oy sone examples of Cost Drivers Product A and Product B. i. Prouc A reat spedal engin special machine setups, special Product B requites very little attention, no special special testing ‘Activity Cost Driver A He compay es ttiona costing methods, the compan yy oe : — alate th al manuacaring costo both the produce fe 52 ame oneatna ca adine pesos prt Bl be hoa for uh seit (Spec ena —tHapaenon Tape Ps Sb Spa ial Machine setups, Special testing) which was actualy caw manufacturing Product B. 7 Warehousing (Storage) __| Number of Units, numberof days of fw. In ABC analys activites and {used} such acti the company will identify the cost of rach, : I be assigned only tthe product that consuna | Cost Calculation: Thebaststepis to allocate cost under each activity. Im our example, Product A will be charged for special enginesing. dation Special setup, Special testing. But such expenses assigned to Product B. net Du to increased competition, companies have begun to look into the tet methods of costing other than the traditional one. The ing particular Product, This helps in iden jnvoWed in manufacturing a particulat product Methodology of ABC Activity Identification: etd for mission based costing emerged as ear cost wos dea psd costing isto identity activities voWed® ey wid, averanee re average cost per delivery. This method did not i ae product. (ee ine the exact cost associated with each and every mission as asad 28S Were considered. This gave rise to the idea of mision costing Bison ca er, any on can be det ecific Product, any Custom Yan ge CO" Be defined as any Specific Prod Wason (oent, Any Geographical area etc. © scanned with OKEN Scanner