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Neha Tikoo, Lovely Professional University Unit 9: Inventory Model and Safety Stocks

Unit 9: Inventory Model and Safety Stocks Notes

CONTENTS
Objectives
Introduction

9.1 Functions of Inventory
9.2 Inventory Costs

9.3 Inventory Control by Classification Systems
9.3.1 ABC Classification and Analysis
9.3.2 Other Classification Systems
9.4 Inventory Control

9.4.1 Inventory Metrics
9.4.2 Economic Order Quantity (EOQ)/Optimal Order Quantity
9.4.3 EOQ Model with Demand and Delivery Uncertainty

9.4.4 The Economic Batch Quantity (EBQ)
9.5 Summary
9.6 Keywords

9.7 Review Questions
9.8 Further Readings

Objectives

After studying this unit, you will be able to:
 Recognize the functions and costs of Inventory;

 Describe the inventory control by classification system;
 Explain the concept of Economic Order Quantity (EOQ).

Introduction

The term ‘inventory’ means any stock of direct or indirect material (raw materials or finished
items or both) stocked in order to meet the expected and unexpected demand in the future. A
basic purpose of supply chain management is to control inventory by managing the flows of
materials. It sets policies and controls to monitor levels of inventory and determine what levels
should be maintained, when stock should be replenished, and how large orders should be.
Inventory is a stock of materials used to satisfy customer demand or support the production of
goods or services. By convention, inventory generally refers to items that contribute to or
become part of an enterprise’s output. In simple terms, inventory is an idle resource of an
enterprise comprising physical stock of goods that is kept by an enterprise for future purposes.

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