Inventory Control and Management 

  Inventory problems (models) are mainly concerned with the inventory decisions. The basic inventory decisions are:

-          How much to order at one time and

-          When to order this quantity

The first decision namely-how much to order at one time is to be balanced between two pressures-the first pressure is to order huge lots so as to minimize ordering costs and the other pressure is to order small lots so as to minimize carrying costs. The optimum course of action is a compromise between the two extremes. This can be done by arriving at a model for deriving the economic order quantity (E.O.Q The E.O.Q can be derived through graphic representation and also through algebraic formula. Economic ordering Quantit, (E.O.Q)

=     [ 2x order placing and receiving costs per order x annual usage / Cost of carrying one unit in inventory for one year]^1/2

The second decision namely - when to order this quantity is decided by ascertaining the re-ordering level is the point lying between the maximum and the minimum levels at which time it is essential to intimate the purchase department for fresh supplies of the material. This point will usually be slightly higher than the minimum stock, to cover such emergencies as abnormal usage of the material or unexpected delay in delivery of fresh supplies. Re-ordering level depends on lead time rate of consumption and economic ordering quantity.

Re ordering level = Average consumption per week x (minimum stock expressed in week +                 

                                 Delivery time in weeks)

                             = Maximum reorder periods X maximum usage.

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