1. Material Lectur-9 Main Ahmed Farhan (ACA)

2. Inventory Control System 1. Order level. 2. Maximum stock level. 3. Minimum stock level. 4. Danger level.

3. Inventory Control System Ordering point or Re-order level Maximum consumption x Lead time

4. Inventory Control System Maximum stock level Ordering level-(Minimum consumption*Lead time) +E.O.Q

5. Inventory Control System Minimum stock level Order level-(Average consumption*Lead time)

6. Example Maximum consumption 1000 units per day. Minimum consumption 800 units per day. Average consumption 900 units per day. Lead time 5 to 10 days Average lead time 8 days Emergency lead time 2 days Economic order quantity 2500 units

7. Order Level Maximum consumption x Lead time 1000 units x 10 days = 10,000 units

8. Maximum Stock Level Ordering level-(Minimum consumption*Lead time) +E.O.Q 10,000-(800 * 5)+25000 = 31000 units

9. Minimum Stock Level Ordering point – (Average daily consumption*Lead time) 10,000 – (900 * 8) = 2800 units

10. Danger Level Average daily consumption x Emergency time 900 x 2 = 1800 units

11. Economic Order Quantity (E.O.Q) Economic Order Quantity is the quantity which an entitle orders to the suppliers. This order Quantity should be Economical.

12. Methods for EOQ calculation Economic Order Quantity Formula Table Graph

13. E.O.Q 2x RU x O.C U.C x C.C% RU Annual Required units O.C Ordering Cost (Cost Per Order) U.C Per Unit Cost C.C Carrying Cost

14. Example Annual required units 80,000 units Order cost Rs. 1200 Per Unit cost Rs. 6 Carrying cost 50% U.C

15. Solution 2 x 80,000 x 1200 6 x 50% EOQ = = 8000 Units

16. EOQ 2 x 80,000 x 1200 3 8000 = 2x RU x O.C U.C x C.C% EOQ 2 x 80,000 x 1200 3 8000 = 2 2

17. EOQ 80,000 x 1200 3/2 8000 * 8000 = 80,000 x 1200 8000 8000 * 3/2 = 12,000 = 12,000

18. No Of Orders No of orders RU Ordering quantity = 100 / 50 = 2 units

19. Average Inventory Ordering Quantity 2 8000 units 2 = 4000 units

20. Table Method Order QtyRU# of orders O.C # of orders * 1200 C.C Order qty/2 * 3 Total cost 20,00080,00044,80030,00034,800 10,00089,60015,00024,600 8,0001012,000 24,000 5,0001619,2007,50026,700 4,0002024,0006,00030,000

21. Diagram (E.O.Q.) ORDER SIZE (Q) (000) Carrying Cost Ordering Cost Total Cost COSTS (000) 5 4 10 208 6 12 18 24 30 36

22. Inventory Cost  Defective units  Spoiled units

23. Losses Normal Loss : The Loss which was expected Abnormal Loss : The Loss which was not expected

24. Charge Of Loss Normal Loss FOH cost Abnormal Loss Job Charge