INVENTORY MANAGEMENT

Inventory management is a systematic approach to sourcing,

storing, and selling inventory—both raw materials
(components) and finished goods (products).

• Inventory Planning – involves determination of the quality

and quantity and location of inventory, as well as the time of
ordering, in order to minimize costs and meet future business
requirements. Examples: EOQ, Reorder Point, JIT System

• Inventory Control – involves regulation of inventory within

predetermined level; adequate stocks should be able to meet
business requirements, but the investment in inventory
should be at the minimum.
Economic Order Quantity (EOQ)

EOQ is the quantity to be ordered which

minimize the total inventory cost (ordering
and carrying cost).

• Ordering Cost – Expenses spent in placing an

order (ie. Transportation cost, admin cost in
purchasing, cost of receiving the goods,
inspection cost)

• Carrying Cost – also known as holding cost,

•Formula:
 

EOQ – Economic Order Quantity

AD – Annual Demand
OC – Ordering Cost
CC – Carrying Cost
Problem: Economic Order Quantity

Assume an annual requirement of

24,000 units at P20 per unit, cost
per order of P750 and carrying
cost of 20%.

Compute for the following:

a) EOQ(units)
b) EOQ(pesos)
c) Number of orders
d) Average inventory
e) Ordering cost
f) Carrying cost
g) Relevant cost
•  
Reorder Point

The reorder point (ROP) is the level

of inventory which triggers an action to
replenish that particular inventory stock. It is a
minimum amount of an item which a firm holds
in stock, such that, when stock falls to this
amount, the item must be reordered.

Lead Time – is the time span from date of order