Material
Wastage control measure:
Input wastage. Quantity of materials
wasted as a percentage of the quantity of material used.
Output wastage. Number of quality
rejects as a percentage of total output.
Rework. Rework costs as a
percentage of production cost.
Material issued from inventory can be valued using LIFO, FIFO, weighted
average methods and Periodic weighted average methods.
Periodic weighted
average method:
Cost of
all receipts in the period + Cost of opening inventory
Number of units received in the period + Number of units of
opening inventory
Inventory control level can be calculated in
order to maintain inventories at the optimum level. The three critical control
levels are reorder level, minimum level
and maximum level.
Total annual cost of holding inventory = [Buffer Inventory+(EOQ/2)] x Annual holding cost per component
Average Inventory = Buffer Inventory + Half reorder quantity
Example:
A component has a safety inventory of 500, a reorder quantity of 3000 and a rate of demand which varies between 200 and 700 per week. What is the approximate inventory?
Average Inventory = Buffer Inventory + Half reorder quantity
= 500+ (0.5 x 3,000)
= 2,000
Perpetual Inventory System:
Issue and receipt of inventory is recorded as it occurs so that there is a continious clerical record of the balance of each item of inventory. This is known as a PERPETUAL INVENTORY
Reorder level = Maximum
usage x maximum lead time
Minimum Level = Reorder level –(Average usage x average lead time)
Maximum Level = Re
order level + Reorder Quantity-(Minimum usage x Minimum lead time)
Average Inventory = Safety Inventory + Half of reorder quantity
Economic Order Quantity
(EOQ):
The economic order quantity (EOQ) is the order quantity which minimises
inventory costs. The EOQ can be calculated using a table , graph or formula.
EOQ= Economic Order Quantity = √2CoD
Ch
Here,
Co = cost of ordering a
consignment from a supplier
Ch = cost of holding one unit of
inventory for one time period
D =
demand during the time period
Total annual cost of holding inventory = [Buffer Inventory+(EOQ/2)] x Annual holding cost per component
Average Inventory = Buffer Inventory + Half reorder quantity
Example:
A component has a safety inventory of 500, a reorder quantity of 3000 and a rate of demand which varies between 200 and 700 per week. What is the approximate inventory?
Average Inventory = Buffer Inventory + Half reorder quantity
= 500+ (0.5 x 3,000)
= 2,000
Perpetual Inventory System:
Issue and receipt of inventory is recorded as it occurs so that there is a continious clerical record of the balance of each item of inventory. This is known as a PERPETUAL INVENTORY
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