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Inventory planning & control under uncertainty
The basic EOQ model assumes that all the parameters (elements) in the model are certain (i.e. can be predicted precisely in advance). Such parameters are:
(a) Demand or usage of stocks(b) Lead times.(c) Holding costs per unit, ordering costs per order and costs per unit.
In reality however, stock demand, supplies lead times and cost date are not known with certainty. Accordingly to make the models applicable to real situations we must consider uncertainty when planning for inventory levels.
To protect itself from conditions of uncertainty, a firm will maintain a level of safety stocks for raw materials, work-in-growth and completed goods stocks. Therefore safety stocks are the quantity of stocks which are carried in excess of the expected use throughout the lead time to give a cushion against running out of stocks. Thus the reorder point is computed as safety stock plus the average usage during the lead time
i.e. reorder point = Average usage during lead time + safety (buffer) stock.
Private sector companies have multiple stakeholders who are likely to have divergent interests.( five stakeholder groups and discuss their financial and other objectives).
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Inventory planning & control under uncertainty The basic EOQ model assumes that all the parameters (elements) in the model are certain (i.e. can be predicted precisely in advan
1. Compute the predetermined overhead rate.
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Working Capital management is affected through two characteristics of current assets that are as follows (i) short life span (ii) swift transformation in the other asset forms.
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