Inventory Control Notes

Lecture 16: Inventory (Stock) Control Summary * Introduction * Deterministic Demand * Variations on the Classic Stock Control Model Introduction * Stock Control (Inventory Control) = The control of 'goods' to act as a buffer between supply and demand * Stock or goods held as: * Finished goods for demand until the next batch is produced or supplied * In process goods held between production processes (i.e. machine spares for repair) * Goods before the production process (i.e. raw materials) * The cost of holding stock: * Opportunity cost of capital tied up in stock * Cost of providing accommodation for stock * Cost of products that have a limited shelf-life * Cost of goods becoming obsolete * The cost of ordering stock: * Administrative and delivery costs, or set-up costs for stock manufactured in house (labour, changing machine job, lost production time etc.) * The cost of not holding stock: * Goods not in stock lead to customers waiting, going elsewhere or demanding discounts to await supplies * Production lines may be idle if stocks of raw materials are not available * Two basic types of inventory policy: * Periodic Review: ? Stock checked at regular intervals ? Decisions on replenishment based on stock level at the time ? Increasingly being replaced by the next policy * Continuous Review: ? Stock levels checked continuously ? Decisions to replenish when stock falls to predetermined levels ? i.e. using EPOS systems * Demand modes: * Stock can have deterministic demand or stochastic demand Deterministic Demand: The Classic Stock Control Model * Simplest stock control model * Has four assumptions: a. Demand is constant i. Called Y (units) per unit time b. Orders for stock met immediately (zero lead-time) Course Notes Page 40 

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