INVENTORY CONTROL

Muhammad Ridwan Andi Purnomo, ST, MSc, PhD Department of Industrial Engineering Faculty of Industrial Technology Universitas Islam Indonesia 2011

DEFINITION

Activity to control items quantity with lowest cost. The activity is focus on quantitative analysis and requires mathematical model.

REQUIRED DATA

Demands Appropriate inventory cost

Lead times

DEMAND PATTERN

Deterministic
Constant can be determined directly Dynamic with small change, the data is around its average value

Probabilistic

Demand pattern follows several mathematical model.

TERMS
Inventory level: current units amount. Order quantity: no of units to be purchased. Reorder point: time when placing an order. Lead time: time interval between placing an order and unit arrival. Reorder period (cycle time): time interval between units arrival and next unit arrival.

INVENTORY GRAPH

COST ANALYSIS

Purchase (buying) cost occurred when purchasing the units (Rp/unit). Inventory carrying cost required to maintain the purchased units. Ex: store labor cost, store investment, equipment and resources cost, etc (Rp/unit/period). Ordering cost occurred when placing an order. Ex: telephone, fax, photo copy cost, etc (Rp/order).

COST ANALYSIS

Purchase cost = PxD Inventory carrying cost = average inventory unit quantity x holding cost = ((Q/2) x h) Ordering cost = cost per order x order frequency to fulfill the demand = (D/Q) x A

P = purchase cost per units D = demand Q = order quantity h = holding cost A = ordering cost

COST ANALYSIS

Total inventory cost = PxD + ((Q/2) x h) + (D/Q) x A. TC = ((Q/2) x h) + (D/Q) x A PxD can be excluded since it hasnt effect to any decision. Q optimum can be determined through the derivative of TC.

COST ANALYSIS
dTC = 0 dQ

Q=

2DA h

THANK YOU