Inventory control

Inventory control

Inventory is any stored resource that is used to satisfy a current or a future need. Raw materials, finished goods are exa mples of inventory. The inventory problem involves placing and receiving orders of given sizes periodically so that the total cost of inventory is minimized.

An inventory decisions

1. How much to order ? 2. When to order ?

Costs involved in an inventory problems

(i) Holding cost or storage cost or inventory carrying cost(C₁) :

The cost associated with carrying or holding the goods in stock is known as holding cost per unit per unit time.

(ii)  Shortage cost (C₂) :

The penalty costs that are incurred as a result of running out of stock are known as shortage cost.

(iii) Setup cost or ordering cost or procurement cost (C₃) :

This is the cost incurred with the placement of order or with the initial preparation of production facility such as resetting the equipment for production.