Page 278 - DCOM303_DMGT504_OPERATION_RESEARCH

Unit 13: Inventory Control

Cost per unit ` 1 Notes
Ordering cost ` 12 per order
Inventory carrying cost 24%
Normal lead time 15 days
Safety stock 30 days consumption
Solution:
1. Calculation of EOQ

=

`
= `

= 1,095.4 units
2. Calculation of ROL.
= Safety stock + Normal LT consumption
   
=    
   
= 1,500 units
3. Calculation of safety stock

= = 1,000 units

Self Assessment

Give one word for the following:
7. The time lag between indenting and receiving materials or the time gap between placing
an order and receiving the materials.
8. The maximum quantity of material which a store can hold at any point of time.
9. Inventory level that represents that the purchaser has to place fresh orders for the materials.

13.3 Inventory Control System in Practice

There is a well know Italian saying “take care of the pound, the penny will take care of itself”.
Of course, it is grandly true either it may be with the national scene or a company situation or
human life itself. We encounter a peculiar phenomenon, out of which the vital will be few and
trivial will be many. Even it is a simple common sense that to solve any important problem,
rigorous efforts are to be made and vice versa. In case of inventory management too, much of
the effective time is spent on managing the important materials. And the motto behind any
selective inventory control is that ‘equal analysis’ of all the items of materials will be very costly
or expensive and the concentration will also be diffused. However, the importance of any
material is going to be normally decided on the basis of its cost, its critically, its availability and
its rate of consumption. The credit of coining this idea goes to a German Economist’ ‘Pareto’. He
propounded this during 1896. Hence it is popularly known as ‘Pareto’s Law.’

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