Inventory Management And Control

The overseeing and controlling of the ordering, storage and use of components that a company will use in the production of the items it will sell as well as the overseeing and controlling of quantities of finished products for sale.

Types of Inventory
Work In Process Material that has entered to the production process but is not yet a finished goods . A manufacturing company must maintain a certain amount of inventory ,during production In-Transit Inventory currently situated between its shipment and delivery locations. Except this each type of inventory would have to wait for the preceding stage to complete a unit Provide incentive in idle time and delays.

Cond.
raw materials The basic material from which a product is made A firm has to buying raw materials strictly in keeping with its production schedule Finished Goods Goods that have completed that manufacturer but have not sold yet.

Classification; What To Control

ABC Method Of Inventory Control. Method that controls expensive inventory itmes more closely than less expensive The ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost

Contd
while also providing a mechanism for identifying different categories of stock that will require different management and controls. A Item is very important .B Inventory is less important than A And more important than C.

ABC Analysis Categories

Economic Order Theory (EOQ)

It is Also Called Whilson Formula ( 1913) It is the important concept in the purchase of raw materials and in the storage finished goods and In-transit Inventories. It is the order quantity that minimizes total inventory Holding costs and Ordering costs

Why We Use EOQ

For Example : a company ordering goods from karachi to swat in the quantity of (10000) .If a company order these at one time it can either be advantageous or disadvantageous. If the company order the goods with intervals so its ordering costs will be high and if at one time thus, there carrying cost.

How Much Should We Order ?

Underlying assumptions
The ordering cost is constant. The rate of demand is known, and spread evenly throughout the year. The lead time is fixed. The purchase price of the item is constant i.e. no discount is available

Contd
The replenishment is made instantaneously, the whole batch is delivered at once. Only one product is involved. EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A common misunderstanding is that the formula tries to find when these are equal.)

Variables
Variables Q = order quantity Q * = optimal order quantity D = annual demand quantity S = fixed cost per order (not per unit, typically cost of ordering and shipping and handling. This is not the cost of goods) H = annual holding cost per unit (also known as carrying cost or storage cost) (warehouse space, refrigeration, insurance, etc. usually not related to the unit cost)

Economic Order Quantity

Optimal Order Quantity Q* = 2(O)(S) C Q* = 2 (100)(2000) = 200 units 10

Order To Point
When To Order Now we are Concerned here that when to reorder of the EOQ amount