John Player store

replenishment
Bibekananda Patel
 Inventory

An inventory system is the set of policies and

controls that monitor levels of inventory and
determine

– what level should be maintained,

– when stock should be replenished and
– how large order should be.
 Effective Inventory
Management
 A system to keep track of inventory
 A reliable forecast of demand
 Knowledge of lead times
 Reasonable estimates of
Holding costs
Ordering costs
Shortage costs
 Key Inventory Terms
 Lead time: time interval between ordering and
receiving the order

 Holding (carrying) costs: cost to carry an item in

inventory for a length of time

 Ordering costs: costs of ordering and receiving

inventory

 Shortage costs: costs when demand exceeds supply

 Product
• Formal Shirts
 Boundary Conditions
• As the storage capacity of this item
is 750 units we can’t have a EOQ >
750 units.
• And, as the lead time is 10 days we
should have a stock of 10 days while
ordering.
Month-wise sales Estimates for
2008
Deman
Yr 2008 d
January 238 Average Demand per
February 242 month 239
March 227
April 230
May 162 Standard Deviation 72.16
June 156
July 137
August 172 SD/Mean = 0.301
September 319
October 388
November 286
i.e. we can’t apply EOQ
December 300
Total model (SD/mean > 0.01)
Demand 2857
Formula for EOQ

EO
Q 595.04
 OC 200
EOQ Approach Deman Order
HC Holding
0.27
Yr 2008 d Number Quantity Cost
January 238 1 707  
February 242 - 65.34
March 227 - 122.58
April 230 2 685  
May 162 - 43.74
June 156 - 84.24
July 137 - 110.97
August 172 3 879  
September 319 - 86.13
October 388 - 209.52
November 286 4 586  
December 300 - 81
Total Demand 2857   Total
2857 of 803.52
Total Order Cost (4x200) = 800.00 Cost 1603.52
 OC 200
EOQ Approach Deman Order
HC Holding
0.27
Yr 2008 d Number Quantity Cost
January 238 1 707 
February 242 - 65.34
March 227 - 122.58
April 230 2 685 
May 162 - 43.74
June 156 - 84.24
July 137 - 110.97
August 172 3 491 
September 319 - 86.13
October 388 4 674 
November 286 - 77.22
December 300 5 300 
Total Demand 2857   2857 590.22
Total Order Cost (4x200) = 1000.00 Total 1590.22
 Factors Affecting
Replenishment
Replenishment of merchandise is dependent on:

3. Storage capacity of the store - 750 units

4. Lead times for supply of goods – 10 Days
5. Rate of sales – 10% growth
6. Relative stock positions across the chain – Assumed as Zero
7. Ensuing events like seasonality – Sale pattern shows 3
clusters for this product.
8. Holding cost – Rs. 0.27
 Depending upon
the sales pattern
there are three
seasons;
• Jan-Apr
• May-Aug
• Sept-Dec
i.e. we have three EOQ
model
 Table showing calculated total
cost (according to days of
stock) Order
Days of Stock Quantity in
units
Deman
d in
units
HC in
Rs.
OC in
Rs.
No of
orders
Total
OC in
Rs.
Total Total
HC in Cost in
Rs.
379.48 Rs.
120 937 937 0.27 200 1 200.00 5
284.61
579.49
120 days 105 820 937 0.27 200 2 400.00 38
189.74
684.61
demand
per day = 937
937/120 = 90 703 937 0.27 200 2 400.00 25 589.74
126.49
demand = 7.8 75 586 937 0.27 200 2 400.00 5 526.50
63.247
Total OC = OC * No of 60 469 937 0.27 200 2 400.00 5
31.623
463.25
Orders 45 351 937 0.27 200 3 600.00 75 631.62
21.082
Total Cost = Total OC + 40 312 937 0.27 200 3 600.00 5
10.541
621.08
Total HC 35 273 937 0.27 200 4 800.00 25 810.54
30 234 937 0.27 200 4 800.00
1000.0
0 800.00
1000.0
25 195 937 0.27 200 5 0 0
0 1600.0
1600.0
15 117 937 0.27 200 8 0
2400.0
0
0 2400.0
10 78 937 0.27 200 12 0 0 0
 Table showing calculated total
cost (according to days of
stock) Order
Days of Stock Quantity in
units
Deman
d in
units
HC in
Rs.
OC in
Rs.
No of
orders
Total
OC in
Rs.
Total Total
HC in Cost in
Rs.
253.86 453.8
Rs.
120 627 627 0.27 200 1 200.00 75
190.38
7
590.3
120 days 105 549 627 0.27 200 2 400.00 38 8
526.9
demand
per day = 627
627/120 = 90 470 627 0.27 200 2 400.00 126.9
84.577
0
484.5
demand = 5.05 75 392 627 0.27 200 2 400.00 5
42.322
8
442.3
Total OC = OC * No of 60 314 627 0.27 200 2 400.00 5
21.161
2
621.1
Orders 45 235 627 0.27 200 3 600.00 25
14.107
6
614.1
Total Cost = Total OC + 40 209 627 0.27 200 3 600.00 5
7.0537
1
807.0
Total HC 35 183 627 0.27 200 4 800.00 5 5
800.0
30 157 627 0.27 200 4 800.00 0 0
1000.
25 131 627 0.27 200 5 1000.00 0 00
1600.
15 78 627 0.27 200 8 1600.00 0 00
2400.
10 52 627 0.27 200 12 2400.00 0 00
 Table showing calculated total
cost (according to days of
stock) Days of
Stock
Order Dema
Quantity in nd in
HC in OC in No of
Rs. Rs. orders
Total Total Total
OC in HC in Cost in
units units Rs. Rs. Rs.
120 1,293 1293 0.27 200 1 200.00 523.46 723.46
120 days
105 1,131 1293 0.27 200 2 400.00 392.55 792.55
demand
per day = 1293
1293/120 = 90 970 1293 0.27 200 2 400.00 261.77 661.77
demand = 10.78
75 808 1293 0.27 200 2 400.00 174.49 574.49
Total OC = OC * No of 60 647 1293 0.27 200 2 400.00 87.28 487.28
Orders
Total HC = HC * Order 45 485 1293 0.27 200 3 600.00 43.64 643.64
quantity 40 431 1293 0.27 200 3 600.00 29.09 629.09
Total Cost = Total OC +
Total HC 35 377 1293 0.27 200 4 800.00 14.55 814.55
30 323 1293 0.27 200 4 800.00
1000.0 0 800.00
1000.0
25 269 1293 0.27 200 5 0
1600.0 0
0 1600.0
15 162 1293 0.27 200 8 0
2400.0 0
0 2400.0
10 108 1293 0.27 200 12 0 0 0
Graph of Stock Replenishment
for a single season
 Total cost incurred in the
year 2008

• Total Cost;
= 463.25 + 442.32 + 487.28
= 1392.85
 Conclusion
• From the EOQ model approach the
total cost is found to be Rs.1590.22
• And the from the model John Player
follows is found to be Rs. 1392.85
• So comparing both the model the
letter one is cost effective.