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Inventory Control

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Prof. T T Narendran, DOMS,IITM

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Inventory
The stock of any item or resource used in an organization. These items or resources can include:
Raw Materials WIP Finished Goods Pipeline inventory Machine Spares

Prof. T T Narendran, DOMS,IITM

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Why Inventory Control
Replenishment orders Customer order

Suppliers

Factory

Wholesaler

Distributor

Retailer

Customer

Production Delay

Shipping Delay

Shipping Delay

Supplier Inventory

Wholesaler Inventory

Distributor Inventory

Retailer Inventory

Prof. T T Narendran, DOMS,IITM

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Purposes of Inventory
1. To maintain independence of operations 2. To meet variation in product demand 3. To allow flexibility in production scheduling 4. To provide a safeguard for variation in raw material delivery time 5. To take advantage of economic purchase-order size

Prof. T T Narendran, DOMS,IITM

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Independent vs. Dependent Demand
Independent Demand (Demand not related to other items or the final end-product) Dependent Demand (Derived demand items for component parts, subassemblies, raw materials, etc.)

Prof. T T Narendran, DOMS,IITM

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Costs in Inventory Control
Item cost or unit cost Ordering / set-up cost
Clerical Administrative Expediting Transportation etc.

Prof. T T Narendran, DOMS,IITM

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Costs in Inventory Control
Inventory carrying costs
Locked-up capital Storage space Handling Taxes (?) Insurance Obsolescence Deterioration Maintaining records
Prof. T T Narendran, DOMS,IITM

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Costs in Inventory Control
Shortage costs
Overtime requirements due to shortage Special clerical and administrative costs, expediting Loss of goodwill (?) Special transportation Lost production time

Prof. T T Narendran, DOMS,IITM

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Deterministic

Inventory Models

Probabilistic

Single-Period Inventory Model

Multi-Period Inventory Models

Fixed Order Quantity Model

Fixed Time Period Model

Prof. T T Narendran, DOMS,IITM

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