Modeling Technique—A Tool ® for Inventory Control in Supply Chain Se Tarun Kumar Gupta®, Dharamvir Mangal, Vishal Shankar Srivastava, Rahul Kumar, Vijay Prakash Gupta, and Sandeep Kumar Singh 1 Introduction Incase of production process, the management and flow of supply of raw material and finished goods i.c. commonly known Supply Chain Management, is onc of the critical process where all the operations that convert raw materials into finished products [1] Supply chain management covers from sourcing raw materials right up to customer’s satisfaction, The components of Supply chain are Inventory Management, Production Management, Management of Risk and Contingency, Contracts of procurement of raw materials and supply of finished goods, plant and machine lay out and planning, Warehouse, Transporting, Routing and distribution planning, and pricing etc. The inventory management is one of the important parts of part in the process of SCM, where producer consider and ascertain the procurement of inventory, level of inventory as well as the cost of production along with ordering and holding cost (9). It is the utilization system used to optimize a company’s profit by keeping a minimum inventory. Inventory management objectives are as follows: T.K. Gupta. V. S. Srivastava (2) Department of Mechanical Engineering, GLBITM, Greater Noida, U.P. 201310, India D. Mangal ‘Mechanical Engineering Department, Gautam Buddha University, Greater Noida, UP. 201312, India R. Kumar Research Scholar, Gautam Buddha University, Greater Noida, U.P. 201312, India V.P. Gupta Institute of Technology & Science, Mohan Nagar, Ghaziabad, U.P. 201007, India S.K. Singh Cente for Energy Studies, IMT Delhi, Delhi, India © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd, 2022 6 A. Dvivedi et al. (eds.), Recent Trends in Industrial and Production Engineering, Lecture Notes in Mechanical Engineering, btps:#/doi.org/10,1007/978-98 -16-3330-0_670 T.K. Guptaet al i, Minimizing the cost and time of transporting, ii, To calculate quantity of purchase, frequency of purchase for the chosen raw materials items. iii, To calculate the EOQ, Re-Order point (ROP), Safety Stock (SS) and Total Inventory Cost (TIC) for the chosen raw materials items. The Economic Order Quantity in inventory management is the scientific concept which is used to minimize the order quantity, total cost, ordering cost and holding cost. Ithas been used by various manufacturers since so many years and it is considered as an engineering model of the traditional manufacturing process. This was first put-up in 1913 by Harris [2]. EOQ is an inventory management method that displays the amount of an item for reduction of various production cost of inventory- such as Ordering, Holding and Shortage Costs. Safety stock (SS) is an extra quantity of inventory which a company holds in inventory to reduce the risk of the item being out of stock. Safety stock or buffer stock is a term used for extra stock which is maintained because of uncertainties in production and consumption to simplify the risk of stock-out [3]. The tolerance limit used is generally 5% above and below the estimated value of 1.65(z) (the value of is obtained from the table of normal distribution). The Re-Order Point (ROP) is considered as a level of inventory that raises the cost of such a stock of inventories. Re-order point is an approach to analyze when to order; it doesn’t specify how much to order when an order is placed [4] The total cost of inventory of raw materials forced organizations to use EOQ calculation minimally. This is required for cost savings in organization. Figure 1 of EOQ Model determines the inventory cost and quantity (level) of order that can reduce the cost of holding of inventory, holding costs and ordering costs. Itis done on the basis of accounting formula which details are mentioned and explained in this paper. It also useful for the determination of the optimum total inventory cost during the given period of time. Economic Order Quantity (EOQ) Model Fig. 1 Economic order quantity £0Q Re-Order Quantity,Modeling Technique—A Tool for Inventory Control in Supply Chain n 2 Literature Survey Supply chain management an integrative methodology, consisting of all levels directly or indirectly engaged in the satisfaction of consumer demands. It is consid- ered as a network of supply and distribution channels. It is one of the major compo- nents and driving force for the launch of new product, sales and marketing activi- ties, production& operation, Supply and distributions channels, investment and other supply of services. Integration is the main key of supply chain management. As per various literature and researchers it has been found that there are many different methods and approaches in Supply chain management to determining Quantity, Total Inventory Costs, Reorder Point and Safety stock under different conditions. Amirjabbari and Bhuiyan [5] presented a model for the optimization of safety stocks with the objective function of reducing overall logistic costs. Safety stock is one of the main factors of inventories. Throughout this paper, an optimization model and a simulation model are successfully applied to optimize the level of the safety stock in a real case. Such models result not only in the optimum levels but also in the locations of safety stocks within the supply chain. Samak-Kulkarni and Rajhans [6] proposed a model for determining of optimum inventory model which focus on mini- mizing total cost of inventory on yearly basis and other various types of inventory models are considered. Wagner-Whitin has also given a model to minimize the total annual inventory cost for each and every section of business operation and production process. In continuation with this Liao and Shyu [7] has also introduced one of the most important model of inventory management i.e. known as probabilistic inven- tory model wherein the lead time is considered as a variable for decision and a fixed inventory levels. The demand is found to take normal distribution, and the lead time includes of several modules each with different parameters for reduction of cost of lead time. Whereas Roach [2] explained how the Economic Order Quantity emerged clarified that the quantity of the economic order (EOQ) was a notable equation that determines the optimum quantity of the economic order and Izar-Landeta et al. [8] determined the level and point of lead time and reorder point which helps producers to ascertain the minimum inventory cost of production, by using econometric tools like Exponential and Poisson distributions methods for each of the corresponding products under research paper when a level of service is needed. Supporting to this study, Pan et al, [9] has examined about the most advantageous and cost effective reorder point with variable lead time and backorder discount considerations and studied the integrated inventory systems with objective to improve the order quan- tity, lead time, and backordering and reorder point simultaneously. Makel et al. [10] has also tried to determine the threshold point of reordering and safety stock level to inspect the ordering time and quantity of stock during the production process by the manufacturers. The main focus of researcher is to determine that how much inventory is expected, including evaluations of the Economic Order Quantity (EOQ) to determine the ordering cost at the lowest cost possible. Kisaka [11] examined how the EOQ Model is applied to reduce the cost of inventory and raw materials in various project with special focus on dairy farm project. He analyses that by usingn T.K. Guptaet al EOQ Model the cost is reduced as compared to earlier model adopted in the project. Huang [12] set up an EOQ model in which the manufacturer offers the seller with to some extent acceptable delayed of the payment for the inventory amounts less than a specified amount and provides him with full trade credit. Thapalia et al. [13] observed the ecological and geographical risks associated with the various strate- gies of inventory and their favorable and in favorable on the supply chain, using case studies. There have been several significant revelations in the area of supply chain and management of inventory, specially considered those one which reduce the cost, consumer preferences and responsiveness of lead time. Sunhal and Mangal [14] analyzed the techniques of inventory storage and its management in a Supply Chain by using EOQ Model. Inventory cost, order cost and the gross operating costs were also reduced. The total inventory and order size have been optimized, Park and Kyung [15] introduced a model for improving both the order fill rate and total cost by adopting the changes in the condition of initial inventory and byreflectingthevarious- informationqualitylevelsonthesupplychainoptimizationprocess for each level. Rosé etal. [16] examined two methods for modifying the Economic Order Quantity (EOQ) model that brings changes in either order quantity or order units to dissemble inven- tory shortage and the second method is an extremely effective way of explaining the classic trade between safety stock, service level and total costs. Dull et al. [17] used novel regression techniques in an organization to investigate the optimization of supply chain management inventory control. The EOQ is a widely used tool for estimating inventory management parameters, and predicted the same parameters for the various regression methods. The standard EOQ model and predicted values are compared with different regression techniques. Suhardi et al. (18] concluded that the supply chain has an important effect on the implementation of total quality manage- ment. The analytical method used, using simple regression, is descriptive analysis. ‘As well as the TQM Company increasingly being implemented, the company can further improve its performance in both operational, financial and market share. After doing literature survey it has been found that to reduce inventory cost less work has been done in the following areas: Standard Deviation (SD), Safety Stock (SS), Economic Order Quantity (EOQ), Re-Order Point (ROP), and Total Inventory Cost (TIC). In the present work the focus is to reduce the Total Inventory Cost (TIC) by implementing proposed model (OQ) [19-24] Inventory management has also been a challenging job for companies selling various products, manufacturing optimum number of products and purchasing raw materials. An important aspect of managing inventories is when and how much to order. The company wants to fulfill increasing demand from consumers, but on the other hand also tries to work on optimum cost of inventory. 3 Methodology Adopted ‘A case study has been done in an automobile company that manufacturers four wheeled vehicles in India. Research work has been done to minimize inventory related costs by implementing proposed model and company model. The collected‘Modeling Technique—A Tool for Inventory Control in Supply Chain B ‘Table 1 Purchasing and selling data of 2019 (Materials Al & A2) S.No. Months | Material AL ‘Material A2 Purchase | Sale (kg) | Difference | Purchase | Sale (kg) | Difference (kg) (kg) (kg) (kg) 1 Jan 1250.00 _| -1250.00 1366.00 | -1366.00 2 Feb 78050 [513.50 | 267.00 | 1222.00 | 1628.00 | -406.00 3 ‘Mar 1940.00 [1450.00 | 490.00 | 2888.00 | 1889.00 | 999.00 4 Apr 830.00 | 830.00 | 1552.00 | 1232.00 _| 320.00 5 May 2052.50 | 1958.50 | 94.00 690.00 | 1320.00 _ | -630.00 6 Jun 2360.00 | 1802.00 _| 558.00 320.00 _| 320.00 7 Jal 82000 |-820.00 |2128.00 | 622.00 | 1506.00 8 Aug 2720.00 [2696.00 | 24.00 822.00 |725.00 | 97.00 9 Sept 2628.00 | 2230.00 | 398.00 196.00 | -196.00 10 [ot 2022.00 | 1060.00 | 962.00 442.00 | 442.00 u___|Nov 3682.00 | 1130.00 |2552.00 | 422.00 | 422.00 12 [Dec 2120.00 | ~2120.00 | | 403.00 | ~403.00 ‘Total 18,185.00 | 17,860.00 |325.00 | 9302.00. | 10,565.00 | -1263.00 Frequency | 8 12 6 12 Average [2273.13 | 1488.33 1550.33 | 880.42 data from the company for year 2019 has been shown in Tables 1, 2 and 3 respectively. Following assumptions have been used in the model: a, Shortage of raw materials is not considered. b. Costs of transshipment are neglected. The lead time for the order being obtained is constant. Unit cost of the product is neglected. ae Following formulae have been used to calculate inventory related costs: 1. Economic Order Quantity (EOQ) (E0Q) := V((2A0)/C) where, EOQ = Economic Order Quantity, A= Annual Demand Quantity, O = Selling Cos/Ordering Cost, C = Holding Cost/Carrying Cost/Storage Cost. 2. Standard Deviation (SD) := ¥ ((2(X - X)2)/N)4 TK. Gupta et al. seeded “Total ordering cost S.No. _|Months [Material Al (Rs) [Material A2 (Rs) 1 Jan 2 Feb | 326,405.10 511,040.40 3 Mar [811,308.00 1,207,761.60 4 Apr 649,046.40 5 May [858,355.50 288,558.00 6 Tun | 986,952.00 7 Tal 889,929.60 8 ‘Aug _|1,137.50800 [343,760.40 9 Sept | 1,099,029.60 10 Get | 845,600.40 u Nov _|1,539,812.40 12 Dee Total 7,608,966.60 | 3,890,096.40 Frequency 8 6 Average 950,620.83 648,349.40 eine components of S.No. Holding costs Costs (Rs.) per year 1 Labour cost 3500 2 Insurance cost 15,500 3 Storage cost 4000 4 Electricity bill 3200 5 Water usage 100 6 ‘Telephone bill 400 ‘Total holding cost | 26,700.00 where, x X = Average material Sales, ‘otal actual material sales per period (kg/period). N = Number of material ordering period. 3. Safety Stock (SS) » where, Dx Z Z = Sceurity factor is form on the basis of company policy 4. Re-Order PointModeling Technique—A Tool for Inventory Control in Supply Chain 15 (ROP) := Safety Stock +Lead Time x Q where, ROP =Re-order Point, Lead Time = Watch Time Q = Average material sales per month 2. Total Inventory Cost (TIC): Total Inventory Cost based on the EOQ Model (TIC) = ¥/ (2AOC) Total Inventory Cost based on the Company Model TIC=QxC+OxF where, Q = Average material sales per month, C = Holding Cost/Carrying Cost/Storage Cost, O = Selling Cost/Ordering cost, F = Frequency of the Period. Ordering Cost: The cost of ordering materials (Al & A2) is the cost associated with ordering materials. The container size will also affect the cost of earlier bookings. The ordering cost in 2019 for the purchase of the material was 418 per kg. Holding Cost: Holding cost associated with storing inventory that remains unsellable. The cost includes labour costs, cost of insurance, and cost of storage, bill for power, use of water and bill for telephones. Standard Deviation: It is a quantity measured to signify the extend of deviation for a category as a whole. The tolerance limit used is usually 5% higher than the estimate and 5 per cent lower than the estimate with a value of 1.65 z (the z value is derived from the standard distribution table) and Lead time 2 per month. Table 4 shows the results of Standard Deviation (SD) for materials (Al & A2) in 2019. 4 Results and Discussions ‘Throughout this research work, Standard Deviation (SD), Safety Stock (SS), Economic Order Quantity (OQ), Re-Order Point (ROP), and Total Inventory Cost (TIC) are measured for comparison between two models (used by the company and the proposed model (EOQ) to minimize inventory related costs. Tables 5 and 6 repre- sent the outcome related to EOQ and the comparison of ordering of optimum material respectively.6 Table 4 Results of standard deviation for materials (Al & A2) in 2019 TK. Gupta et al. S.No. | Months | Material Al Material A2 Sales (kg) | (X - X) Sales (ke) | (X —X) | (X —X)* tke?) (kg) tke) 1 [Jan | 1250.00 |—238.33 [6,801.19 | 136600 | 48558 | 235,787.94 2 [Feb | 51350 |—974.83 | 950,203.53 [1628.00 | 747.58 | 558,875.86 3 Mar | 1450.00 |—38.33 [1469.19 1889.00 | 1008.58 | 1,017,233.62 4 [Apr | 830.00 | 658.33 [433,398.59 [123200 | 35158| 123,608.50 5 [May [195850 |470.17 | 221,059.83 [132000 | 439.58 | 193,230.58 6 fun | 1802.00 |313.67 [98,388.87 | 32000 |—Soo42| 314,070.58 7 [sa | 820.00 | —668.33 | 446,664.99 | 622.00 |-25842| 66,780.90 8 Aug 2696.00 | 1207.67 | 1,458,466.83 | 725.00 | —155.42 24,155.38 9 [Sop | 2230.00 |741.67 [55007439 | 196.00 |—68442| 468,430.74 10 Oct 1060.00 | —428.33 | 183,466.59. 442.00 | —438.42 192,212.10, 11 [Nov |1130.00 | -358.33 | 128,400.39 | 422.00 | —458.42| 210,148.90 12 [Dec _|2120.00 | 631.67 | 399,006.99 | 403.00 |—47742 | 227,929.86 ‘Total 17,860.00 4,927,491.18 | 10,565.00 27,763,347.58 Frequency 2 2 ‘Average 1488.33, 880.42 Table 5 Outcomes of proposed model (EOQ) in 2019 S. No. Description Material Al ‘Material A2 1 ‘Quantity of sales per year (kp/year) | 17,860.00 | 10,565.00 2 Costs per order (Rs.) 950,620.83 648,349.40 3 Holding cost per year (Rs) 26,100.00 | 26,700.00 4 BOQ (kg) 1127.73 716.31 ‘Material Al = 1127.73 kg and Material A2 = 716.31 kg respectively with the purchase frequency of each material Al = 15.84 ~ 16 times (17,860/1127.73) orders in one year, and material A2 =14.75 ~ 15 times (10565/716.31) 5 Conclusions In this research work, two models (one is used by company and other is proposed EOQ model) have been compared to evaluate EOQ, Re-Order point (ROP), Standard Deviation (SD), Safety stock (SS) and the Total Inventory Cost (TIC). It has been found that Total Inventory Cost (TIC) by using the proposed EOQ model has been reduce by 57.23% and 43.25% for materials Al & A2 respectively. It has also been found that Economic Order Quantity (EOQ) is reduced by 50.39% as compared to ‘company’s model for material Al and 53.80% for material A2.Modeling Technique—A Tool for Inventory Control in Supply Chain 1 Table 6 Comparison of ordering optimum material (Al & A2) in 2019 S.No. | Description Material Al Material A2 Company [EOQmodel [Company | EOQ model model model 1 Frequency/number | 8 15.84 6 14.75 of order Quantity of 2273.13, 1127.73 1550.33 71631 purchase 3 Standard deviation 640.80 1521.06 4 Safety stock 1087.32 2509.75 5 Reorder point 4033.98 4270.59 6 Total inventory | 47,343,377.64 | 30,110,295.59 | 27,397,310.40 | 19,125,373.97 cost 6 Managerial and Practical Implementations The main focus of Inventory Control in Supply Chain Management through Modeling Technique is to ensure that all activities involved in supply chain process ate carried out efficiently, effectively and economically. 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