INVENTORY MODEL

BY
ROHIT MUNDA : ADMN NO.13JE0012
AJAYPAL SINGH: ADMN NO. 14JE000701

Guided by
Prof (Mrs) Bani
Mukherjee

Content

Definition of Inventory
Motivation for holding inventory
Types Of Inventory
Inventory Costs
Future Work
Reference

Definition Of Inventory
There are mainly three ways of defining Inventory

Inventories are stockpiles of raw materials , suppliers , components,

work in process , and finished goods that appear at numerous points
throughout a firms production and logistics channel.

Inventory is the stock of any item or resource used in an organisation

Inventory or stock is the stored accumulation of material resources in

a transformation system.

Motivation for Holding Inventory

There are many reasons that motivate companies to have stock.

Economies of scale:

A firm can realise economies of scale in manufacturing , purchasing and

transportation by holding inventory . Manufacturing can have longer
production runs if more material is inventoried , allowing per unit fixed cost
reductions.

Balancing supply and demands:

Some firm must accumulate inventory in advantage of seasonal demand .By

manufacturing to stock ,production can be kept level throughout the year.
This reduces idle plant capacity and maintains a relatively stable workforce ,
keeping cost down.

Specialisation :

Inventory allows firms with subsidiaries to specialise. Instead of manufacturing

a variety of products , each plant can manufacture a product and then ship the
finished products directly to customers or to a warehouse for storage . By
specialisation , each plant can give economies of scale through long
production runs.

Production from uncertainties :

A primary reason to hold inventory is to offset uncertainties in demand. If

demand increases and raw material stocks run out , the production line shuts
down until more material is delivered . Likewise , a shortage of work in process
means the product cannot be finished . Finally , if customer orders outstrip
finished goods supply , the resulting stockouts could lead to lost customers.

Buffer Interface
Inventory can buffer key interfaces, creating time and place utility.
Key interfaces include
Supplier and purchasing
Purchasing and production
Production and marketing
Marketing and distribution
Distribution and intermediary
Intermediary and customer

Types of Inventory
Inventories can be categorised into six distinct forms:
Cycle stock :
Cycle stock is inventory that results from the
replenishment process and is required in order to meet
demand under conditions of certainty ,that is , when the
firm can predict demand and replenishment times (lead
times)almost perfectly .For Example, if the rate of sales
for a constant 20 units per day and the lead time is
always 10 days , no inventory beyond the cycle stock
would be required.

In-transit inventories

In-transit inventories are items that are in route from one location to another. They may
be considered part of cycle stock even though they are not available for sale and /or
shipment until after they arrive at the destination.

Safety or buffer stock

Safety or buffer stock is held in excess off cycle stock because of uncertainty in demand
or lead time . The notion is that a portion of average inventory should be devoted to
cover short-range variations in demand and lead time .

Speculation stock

Speculation stock is inventory held for reasons other than satisfying current demand .
For example , materials may be purchased in volumes larger than necessary in order to
receive quantity discount , because of a forecasted price increase or material shortage.

Seasonal stock :

Seasonal stock is a form of speculative stock that involves the accumulation

of inventory before a season begins in order to maintain a stable labour
force and stable production runs or , in the case of agricultural products
,inventory accumulates as the result of a growing season that limits
availability throughout the year.

Dead stock:

Dead stock is inventory that no one wants , at least immediately. The

question is why any organisation would incur the costs associated with
holding these items rather than simply deposing of them. The most
compelling reason for maintaining these goods is customer service.

Inventory costs:
There are three types of costs that must be considered in
setting inventory levels

Holding Costs:

These are costs such as storage, handling, insurance, taxes,

obsolescence,
theft and internet on funds financing the
goods. These charges increase as inventory levels rises.
Holding costs are commonly assessed as a percentage of
unit value rather than attempting to derive a monetary value
for each of these costs individually.

Ordering Costs:

These costs are associated with placing an order,

including expenses
related to personnel in a
purchasing department, communications and handling
of the related paperwork. Lowering these costs would be
accomplished by placing a small number of orders, each
for a large quantity.

Stock-out Costs:

These costs includes sales that are lost, both short and long
term. These charges are probably the most difficult to
compute, but arguably the most important because they
represent the costs incurred by customers when inventory
policies falter. Failure to understand these costs can lead
management to maintain higher inventory levels than
customer requirement may justify

Future Work
In the near future we intend to carry work with help of all
the theories mentioned in this presentation and by next
semester shall be able to present our work on the following:
Solution of various Differential Equations with
corresponding boundary conditions
Analysis
1.Graphical Analysis
2. Numerical Analysis
3. Sensitivity Analysis

REFERENCE

BALLOU R H.2004 Business logistics / Supply chain management.

Planning , Organising and controlling the supply chain, 5thedition,
PEARSON-Prentice Hall
PYCRAFT et al. 2000 . Operations management, Pearson
education
Optimal inventory model under stock and time dependent
demand for time varying deterioration rate with shortages By :
Krishna Prasad & Prof Bani Mukherjee
An Inventory Model for Non instantaneous Deteriorating items
under the effect of Price with Partial Backlogging and shortage by
K. Prasad* , Prof Bani Mukherjee and S. Kumar

THANKYOU