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6:7   
:
2etr  = & (or requirement or consumption or
procurement) of material
: = +:$ or size (Quantity per order)
 = 7"& (effective price)
' = +' per Order
'" = '$+' of Inventories ? on the #
#+",- or
'; = ;+ / '$+' of Inventories in Rs per unit
Quantity (per piece or MT or Cu M)  #+",
[ie '; >'"9]
[Average stock = Q/2r in case of Cycle Inventory r where Min. 2evel is 0]
 '#$-
' > '.& +
 '+E '$+'
:"/
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To find out the most economic ordering quantityr C t will &&&r and thus
at the minimum condition
the first differentiationr '< >' >F
:
± d(D X P) + d[(D/Q) x Co] + d[(Q x P x Cc) / 2 ] = 0
dQ dQ dQ
± 0 + ( - D/ Q 2 ) x Co + (P x Cc) / 2 = 0
± :G>H I099' )9'" J
>H I099' )'; J

- 3< 
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Nowr the "' r
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#
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4 #$
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Ordering Cost

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›






:$ Demand/Consumption
Production / Order Quantity. (Q) Production
"(Supply)  =(
& (Consumption)  =
Max Inv 2evel (Qmax )
"(Supply) &- ! = Q/p
:&9 = (p ± d) x t1 = (p ± d) x Q/p

p ;+' = (Qmax / 2) x CH
d
= (M  9:)0( 9';
&
! t2
Total Inventory Costr " >;+'E+'
" >(M  9:)0( 9';E): 9'
For minimizing the Total Inventory Costr Tc d (Tc) =0
dQ
±(p ± d) CH / 2p ± (D/Q2) x Co = 0 _____________________
± Q2 = 2p . => :>0/' 9 (/
D. Co (p ± d) . CH H '; (4 

+ when .
&&#$
@ @ @
    2  2 ý   ý 2

‡ Example
± Average Usage = 12 order forms/day; ıd = 3
± Average 2ead time = 7 days; ı2T = 1
± ROP = (12)(7) + 1.96[(7)(9) + (144)(1)] = 84 +
1.96(14.4) = 84 + 27.7 = 112
± Reorder when 112 order forms are left
0 4$& 94 & %.$",
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0
6 #$#-: = ",E$",

: >9
E E 89N
E %.N
E >NH
E
2 

:7   - :>: 4 › r 3.-
N
E = # & +
#%E
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N = #%,$&.
: = :$ (+:$)
 = &&
& (i.e. #/'&(
)
#/'&(

8=
8 #"#' = ""(+("
O
' K

' 

=
#% = &+(%""##%)
+
 = &
› ='#$# (includes items on order) i.e. ",44.
9&(4C
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#!L(%,%.#%,$& 
B/ . &+B%,-:%.: 4$&DB
#"#PF?/
+4$&#$ +&/

4 Annual demandr  = Mean Weekly Demand ( ) x Weeks/year


(wherer mean demandr >!L ) = !L x 52 = P2C
No. of orders per year = Annual Demand / EOQ = 936 ÷ 75 (as :>DB)

#%r
= Total Period / no. of order = 52 weeks
÷ (936 / 75)
= (52 x 75) ÷ 936 weeks = 5/0%, § 5%,

#& + &E


#% -

N N/H
E > B/ H5EB > B/ HP >!B

E >

wherer N is Standard Deviation of weekly demandr ( N>B /


Nowr for PF?#"# r
#"4#'r 8>!/0L (from the table)
$", >89N
E = !/0L9!B = !P/0units =!P
(say)
", =  /
E Iwherer &&- =18 /week J
>!L95EB >!C0
+#$# = ",E$",
= !C0E!P = !L!
%
1. At the interval of 5%, 
#% - review of the
Actual Stock is done and the Actual Stock position is
compared with the Target Inventory 2evel.
2. If the Actual Stock is  # the Target Inventory
2evel ,(
+ 9
#%/
2evelr 9
#%
3. If the Actual Stock is % the Target Inventory 2evelr
2evel
" and *$ *
"% +#$ "
",/
  
'
 ';:7
'  '&#' basis  ±Highest costr  ±Medium costr
' ±2owest cost
;   7' basis  ;± High pricer ± Medium pricer  ± 2ow price
===========================================================
 
*&'"$ basis  ± Vitalr ± Essentialr  ± Desirable
===========================================================
  '&( basis   ± Fast movingr  ± Slow movingr
 ± Non-moving
============================================================
  (Procurement) #$ basis   ±Scarcely availabler  ±Difficultly
availabler  ± Easily available
or    M Scares- M Available-4 Plenty
6  "&" basis  6 ± Govt. quota (priority)r  ± Ordinaryr
 ± 2ocalr - Foreign
'  %$'  
  $
'&#'?
 '

100 ' !F?


90 
0F?
70 A  cost = 70%r qty = 10%
B  cost = 20%r qty = 15%
C  cost = 10%r qty = 75%
DF?

:$
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 0FF 2FF CF-FFF
' BF DFF 2B-FFF
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6 !FFF !FF !FF-FFF
; DFFF BFF 2-BFF-FFF
 BFFF !FB B0B-FFF
R CF !FFF CF-FFF
& '
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; 3r500r000 ^ 2-BFF-FFF DF?
---------------------------------------------------------------- ------------------------------
 525r000 ^ 4r025r000
 500r000 ^ 5-B0B-FFF PF? 
---------------------------------------------------------------- ------------------------------
 120r000 ^ 4r645r000
6 100r000 ^ 4r745r000
 90r000 ^ 4r835r000
 60r000 ^ 4r895r000
R 60r000 ^ 4r955r000
' 35r000 ^ 4r990r000
10r000 ^ B-FFF-FFF !FF? '
=======================================================
'"
Item ; is class r Items 1 are class r
Items -6---R-'1 are class '