PRODUCTION

PLANNING AND
CONTROL
INVENTORY CONTROL

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 INVENTORY CONTROL
 Introduction
 Classification of Inventories
 Direct Inventories
 Indirect Inventories
 Direct Inventories
 Raw Materials
 In - process Inventories (Work in Progress)
 Purchased Parts
 Finished Goods
 Indirect Inventories
 Tools

 Supplies

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 Inventory Control
 Inventory Functions (Need for Inventories)
 To ensure against delays in deliveries
 To allow for possible increase in output

 Maintain smooth and efficient production flow

 To keep better customer relations

 To take advantage of quantity discounts

 To utilize to advantage price fluctuations

 To ensure against scarcity of materials in the market

 To have a better utilization of men and machinery

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 Advantages of Inventory Control

 Determining Inventory Level

 Maximum Quantity
 Minimum Quantity

 Standard Order or Order Quantity

 Reorder Point

 Lead Time

 Safety Stock

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 Inventory Models
 Static Inventory Models
 Dynamic Inventory Models

Inventory Costs (Cost Associated with Inventories)

 Ordering Costs (Inventory Procurement Cost)
 Carrying Cost

Economic Order Quantity (EOQ)

Method of Calculatio of EOQ
ABC Analysis
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 Ordering Cost (Inventory Procurement Cost)
 C1- Cost of placing an order
 Q – Order Quantity
 S – Total Quantity
 No of orders = S /Q
 Ordering Cost = (S/Q) ×C1
 Carrying Cost
 C2 – Cost per item
 I – Cost of carrying inventory in percent per period

 Q/2 Average Inventory

 Inventory Carrying Cost = (Q/2) × C 2 × I

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Total Cost = E = (S/Q) × C1 + (Q/2) ×C2 ×I

dE/dQ = d {(S/Q) × C1 + (Q/2) ×C2 ×I }/dQ

Q = √ {(2 × S × C1)/(C2 × I)}

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 References: O. P. Khanna, Industrial
Engineering and Management, Khanna
Publishers, 2005
M. Mahajan, Industrial Engineering and
Production Management, Dhanpat Rai &
Co. New Delhi, 2002

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QUESTIONS ?
THANK YOU!

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