Inventory control for independent demand items with certain demand

Types of inventory
Work-in-progress inventory

Raw material inventory

Finished materials inventory

Raw materials inventory

A-B-C Classification There are three types of raw materials (A B C) classified according to their importance (impact on production). The importance is known by multiplying the Annual demand ( by the cost of one unit Example on A B C classification Item (i) 1 80 2 500 3 20 4 2500 5 6000 6 120 7 1500 8 4 9 300 10 50 Arranging by order Order 1 2 3 4 5 6 7 8 9 10 Item (i) 4 1 5 2 10 9 7 8 6 3 Order 2 4 10 1 3 9 7 8 6 5

(LE/unit) 450 50 0.5 16 5 0.4 3 25 20 200

36,000 25,000 10 40,000 30,000 48 4,500 100 6,000 10,000

% of total annual dollar value 23.7 19.8 16.5 6.6 4.0 3.0 0.06 0.03 0.007

Cumulative Percentage (y) 26.4 50.1 86.4 92.9 96.9 99.9 100

% of total items 10 10 10 10 10 10 10 10 10 10

Cumulative % of total item (x) 10 20 30 40 50 60 70 80 90 100

100 90 80 70 60 50 40 30 20 10 0 0 20 40 60 80 100 Pareto Chart 20% to 80%

20% of total items with the highest annual dollar value 4&1 Or items with 80% of the total annual dollar value and the highest annual dollar value 4,1,5 Class A: 15-20% - Critical items, requires a lot of planning to make sure shortages does not occur Class B: 20-30% Class C: 80% - negligible items, should be monitored every 6 12 months

Inventory level diagram

The economic order quantity (EOQ) model

Assumptions
1. 2. 3. 4. 5. 6. The demand rate is constant and deterministic (parallel straight lines). The order quantity (Q) need not be integer. No shortages (stock outs) are allowed. The lead time (L) is deterministic. All costs do not change with time The entire ordered quantity replenishes the inventory in no time.

Saw teeth diagram

D: Demand rate (units/year) Q: Order quantity (units) T: Consumption cycle length (year)