Material

Lectur-9
Main Ahmed Farhan (ACA)


Inventory Control System
1. Order level.
2. Maximum stock level.
3. Minimum stock level.
4. Danger level.

Inventory Control System
Ordering point or Re-order level


Maximum consumption x Lead time
Inventory Control System
Maximum stock level

Ordering level-(Minimum consumption*Lead time) +E.O.Q
Inventory Control System
Minimum stock level

Order level-(Average consumption*Lead time)
Example
Maximum consumption 1000 units per day.
Minimum consumption 800 units per day.
Average consumption 900 units per day.
Lead time 5 to 10 days
Average lead time 8 days
Emergency lead time 2 days
Economic order quantity 2500 units
Order Level
Maximum consumption x Lead time

1000 units x 10 days

= 10,000 units
Maximum Stock Level
Ordering level-(Minimum consumption*Lead time) +E.O.Q

10,000-(800 * 5)+25000

= 31000 units
Minimum Stock Level
Ordering point (Average daily consumption*Lead time)


10,000 (900 * 8)

= 2800 units
Danger Level
Average daily consumption x Emergency time

900 x 2

= 1800 units





Economic Order Quantity (E.O.Q)
Economic Order Quantity is the quantity which an
entitle orders to the suppliers. This order Quantity
should be Economical.

Methods for EOQ calculation
Economic Order Quantity
Formula
Table
Graph
E.O.Q

2x RU x O.C
U.C x C.C%
RU Annual Required units
O.C Ordering Cost (Cost Per Order)
U.C Per Unit Cost
C.C Carrying Cost
Example


Annual required units 80,000 units
Order cost Rs. 1200
Per Unit cost Rs. 6
Carrying cost 50% U.C


Solution


2 x 80,000 x 1200
6 x 50%
EOQ =
= 8000 Units
EOQ


2 x 80,000 x 1200
3
8000 =
2x RU x O.C
U.C x C.C%
EOQ
2 x 80,000 x 1200
3
8000 =
2
2
EOQ
80,000 x 1200
3/2
8000 * 8000 =
80,000 x 1200
8000
8000 * 3/2 =
12,000 = 12,000
No Of Orders
No of orders

RU
Ordering quantity
=
100 / 50 = 2 units
Average Inventory
Average Inventory

Ordering Quantity
2
8000 units
2
= 4000 units
Table Method
Order Qty RU # of
orders
O.C
# of
orders *
1200
C.C
Order
qty/2 * 3
Total cost
20,000 80,000 4 4,800 30,000 34,800
10,000 8 9,600 15,000 24,600
8,000 10 12,000 12,000 24,000
5,000 16 19,200 7,500 26,700
4,000 20 24,000 6,000 30,000
Diagram (E.O.Q.)
ORDER SIZE (Q) (000)
Carrying Cost
Ordering Cost
Total Cost
C
O
S
T
S

(
0
0
0
)

5 4 10 20 8
6
12
18
24
30
36
Inventory Cost
Defective units

Spoiled units
Losses
Normal Loss : The Loss which was expected

Abnormal Loss : The Loss which was not expected






Charge Of Loss

Normal Loss FOH cost

Abnormal Loss Job


Charge
Charge