Basic Inventory Systems

and Control

1
 Inventory is simply a stock of physical goods
having some economic value held at a specific
location at specific time.
 May be regarded as those goods which are
procured, stored and used for day to day
functioning of the organization.
 Can be in the form of physical resources such as
Raw materials, Work in progress, finished goods
used in the production and assembling operations.
 Companies, shops, businesses keep inventories
because demand and supply cannot be matched.
  Production and Operation management tries to
maintain optimum inventory level at each
stock point to ensure smooth flow of
production to meet demand of the customers at
optimum cost.
Conversion Process Stock Point
Stock Point Work in Progress Output
Inputs (Finished
(Raw Inventory Goods)
Materials) Stock Points

Feedback 3

Basic Inventory System

3
Major Problems:
Maintaining fluctuating demands by
maintaining required inventory – Important
Aspect?
1. How Inventories are handled?
2. Whether they are really relevant?
3. What functions do they perform?

4
 Requirements
The basic reason for keeping inventory is that it is
physically and practically impossible to meet the need of
customers whenever and wherever required.
Inventories play an essential role in any organization
because they make it possible,

 To get right amount of stock at exact time of need to

ensure continuous and smooth production.
 To avoid the physical impossibility and economical
impracticability of getting right amount of stock at
exact time of need.
 To order large quantity of goods , materials or
components from the suppliers at advantageous prices.
5
 To provide reasonable customer service through
supplying most of the requirements from stock
without delay.
 To take advantages of shipping economies.
 To facilitate economic production runs.
 To make effective use of available capital and storage
space.
 To achieve favorable return on investment.

Inventory policy
How much to Order? – Order Quantity
When to Order?- Reorder level
6
Inventory Control
 Inventory has necessitated the use of scientific techniques in the
management of inventories known as Inventory Control.
 The technique of maintaining stock items at desired levels.
 The means by which material of the correct quality and quantity is made
available as and when required.

Objectives
 To maintain the overall investment in inventory at the lowest level,
consistent with operating requirements.
 To supply the product, raw material, sub assemblies, semi finished goods
etc to its users as per their requirements at right time at right price.
 To keep inactive, waste, scrap and obsolete items at the minimum level.
 To minimize holding, replacement and shortage costs of inventories and
maximize the efficiency in production and distribution.
 To treat inventory as investment which is risky. For some items, investment
may lead to higher returns and for others less returns.
7
Classification of Inventory
Inventory
Classification

Manufacturing Service Control

Aspect Aspect Aspect

Raw materials or Lot size A-item

production inventory stocks Inventory
Anticipation
Work in progress Stocks B-item
inventory Inventory
Fluctuation
Finished goods Stocks C-item
inventory Inventory
Risk
MRO Inventory Stocks
Speculative
Miscellaneous Inventory Stocks
Manufacturing Inventory
Manufacturing Inventory
Production Inventory Items going into final product like raw
materials, components, sub assemblies
purchased from outside
Work in progress All items in semi-finished form or
Inventory products at different stage of production
Finished goods Includes products ready for dispatch to
Inventory users or to distributors
MRO Inventory Maintenance, repair and operating
supplies like spare parts, consumables
stores
Miscellaneous Inventory Items other than mentioned above like
scrap, unsaleble products arising from
main production, stationary used in
office etc.
Service Inventory
Service Inventory
Lot size Stocks Means Purchasing in lots
It would be uneconomical for a textile unit to buy
everyday rather in bulk during the cotton season.
Anticipation stocks Kept to meet predictable changes in demand or in
availability of raw materials.
Purchase of potatoes in the potato season for sale of
roots preservation products.
Fluctuation Stocks Carried to ensure ready supplies to consumers or
customers in the face of irregular fluctuations in
their demands.
Risk Stocks Items needed to ensure that there is no risk of
complete breakdown of production.
Items with long lead time for supply but are vital
and critical for production.
Speculative Stocks These are stocks held in an anticipation of price
increasing. 10
 Control of Inventory (ABC Classification)
 A good start in examining an inventory control system is to make
ABC classification.
 Known as ABC analysis which means the ‘Control’ will be
‘Always Better’.
 Divides inventories into three groupings (A, B and C) in terms of
percentage of number of items and percentage of total value.
Value
Frequency form
A A
10% 70% 80

Percentages of Value
60
B 20% B
20%
40

10% C 20
C 70%
0
Numbers ABC Classification
Tabular Form Percentage of Numbers
ABC Classification
A-Items  Constitutes 10% of the total number of items, 70% of total money value for
all the items.
 High cost, low volume parts.
 Must receive the attention first in every respect of the control.
 High degree of order coordination required due to their unique design and
used for specific construction projects.
 Physically large and require more space than other parts.
 e.g. poles, assemblies of machine parts etc.
B-Items  Constitutes 20% of the total number of items and 20% of the total money
value for all the items.
 Moderate cost, low to moderate volume parts.
 Do not require a high degree of order coordination due to their standard
design characteristics.
 Are small to moderate in size.
 Do not require special storage considerations.
 e.g. anchors, brackets, connectors etc.
C-Items  Constitutes 70% of total number of items and 10% of the total value.
 Include miscellaneous hardware.
 Do not require high degree of order coordination due to their low cost.
 Small in size and do not require special storage.
 e.g. nuts and bolts, gaskets, washer, clip etc. 12
Factors affecting Inventory
 Economic Parameters
 Demand
 Ordering Cycle
 Delivery Lag or Lead Time
 Time Horizon
 Number of Supply Echelons
 Number of Stages of Inventory
 Number of Items
 Availability of Items
 Government’s/ Company’s policy
All the above factors responsible for the development of Inventory System are
known as Inventory Characteristics.
Major factors affecting inventory system are, Demand, Cost factors and Lead
time. 13
Economic Parameters
 Cost of an Item
 Ordering/ Set up cost
 Carrying/ Holding cost
 Cost of Backorder Or Shortage/stock out costs
 Selling price

Cost of an Item
Ordering Cost / Set up Cost
 Costs incurred by placing a purchase order of raw materials for stock or the set
up costs related with the initial preparation of a production system if
manufactured.
 These costs vary directly with each purchase order placed or with setup made.
 Usually assumed independent of the quantity ordered or produced.
14
Holding cost
 Costs associated with carrying of items in stocks.

 Includes rent, insurance, security, light, power, leakage, depreciation, pilferage,

obsolescence etc.
Shortage cost
 Stock out refers the shortage of stock to meet demand of customers.
 Costs include the cost of back order, loss of goodwill, loss of profit, expenses
incurred for receiving the stock from supplier and notifying the customers when
goods are arrived.
Selling Price
 Price paid by the customers for the product.
Demand
 Demand pattern of a commodity may be either Deterministic or
Probabilistic.
 Deterministic-it is assumed that the quantities needed over subsequent
periods of time are known with certainty.
 Probabilistic-requirements over a certain period of time are not known with
certainty but their pattern can be described by a known 15
probability
distribution.
Ordering Cycle
 Concern with the time measurement of inventory situation.
 May be identified by the time period between two successive placement of
orders.

Lead Time
 The amount of time between placing or releasing the order and receiving the
goods.

Time
Order cycle
LT

16
 Example 1
Suppose the annual demand for the item is D=10,000 units with 250 days per
year. The order quantity is, Q= 1000 units. Find the number of order placed,
ordering cycle time and a reorder point if lead time is 5 days.
Solution 1000

We have given, D=10,000 units/year

Number of days per year=250 days
So,
Demand Rate, d = 10000/250=40 units/day 200
Also We have given, Q=1000 units/order
So, number of order placed, n= 10,000/1000 = 10 25 5
So, ordering cycle time = 250/10 = 25

We have calculated, demand rate, d= 40 units/day

And we have lead time, L = 5 days
So, we set a reorder point at Ld=200 units to cover lead time demand.

So, we will order 1000 units when inventory on hand reaches 200 units.

17
Time Horizon
 Planning period over which inventory is to be controlled.
 Mostly planning in an enterprise is done on annual basis.
Number of supply Echelons
 There may be several stocking points in the inventory system.
 These points are organized such that one point acts as a supply source for
some other points.
 Each level is called an Echelon.

Warehouse
Retailer
Factory
Customer
Warehouse
Retailer Customer

Customer
Multi - Echelon supply system 18
 Number of Stages of Inventory
 Parts are stocked at more than one stage in the sequential production process.

Number of Items
 Inventory system generally involves more than one commodity.
 Number of items held in inventory affect the situation when these items
compete for limited space or limited total capital.
Availability of items
 Some times supply position is badly affected due to various market situations.
 Affects the inventory position in an enterprise.

Government’s /company’s Policy

 For items to be imported government has laid down some policy norms.
 Company may also lay down certain policies based on available capital.
 These have affect on the level of inventories in any organization.
19
 The Basic Order Point/Order Quantity
System/Economic Order Quantity (EOQ) Model
EOQ is the quantity of goods ordered which minimizes total annual cost of
Inventory.
Let us suppose the annual demand for the item is 10,000 units.
i.e., D = 10,000 units

Assume, 5 days week and 2 weeks vacation given 250 days per year.
This gives, demand rate, d = 10,000/250 units/day
d = 40 units/day
Further, annual per unit holding cost, h = 40% of the cost of the item
Item cost, c = $10
So, h = 0.4*10 = $4

Let set-up or purchasing cost be, s = $500

For the above given conditions, When and How much should the company
purchase the items? 20
 When an order is placed, it is assumed that the full quantity is delivered.
A linear relationship is assumed for usage of the stock as shown below.
Q
Ordered Quantity

1 month 2 month
Time
A. Set Up Cost
a. If the order quantity is 10,000 units then there would be D/Q = 10,000/10,000 = 1
order in a year.
The annual set up cost is simply the number of orders times the set up cost per
order, i.e. D/Q * S = DS/Q
10,000
So,
Annual Set up cost for Q=10,000 units is DS/Q = 1*500

21
250
b. If the order quantity is 5000 then the number of order is, D/Q = 10000/5000 = 2.
The annual set up cost = 2*500 = $1000
5000

125 days 125 days

Order Number of Annual Set Up

Quantity(Q) Orders Cost
10000 1 500
5000 2 1000
4000 2.5 1250
3000 3.33 1666.66
2000 5 2500
1000 10 5000
1 10000 5000000 22
Set Up Cost
Annual Set up cost = (D/Q)*S

Annual Set up cost increases

as Q decreases

Order Quantity, Q

23
B. Annual Holding Cost
a. If the order quantity is 1000 then there would be 10000/1000 = 10 order in a
year.
With an order size of Q =1000, average inventory would be, Q/2 = 500

Then, Annual holding cost = h*Q/2 = 4*500 = 2000

b. If the order quantity is 2000 then number of order 10000/2000 = 5
Then, Annual holding cost = h*Q/2 = 4*1000 = 4000

c. If the order quantity is 3000 then number of order 10000/3000 = 3.33

Then, Annual holding cost = h*Q/2 = 4*1500 = 6000

d. If the order quantity is 4000 then number of order 10000/4000 = 2.5

Then, Annual holding cost = h*Q/2 = 4*2000 = 8000

e. If the order quantity is 5000 then number of order 10000/5000 = 2

Then, Annual holding cost = h*Q/2 = 4*2500 = 10000

24
Holding Cost

Annual Holding cost = h*Q/2

Annual Holding cost increases

as Q increases

Order Quantity, Q

25
Now, Total Relevant Cost = Set Up Cost+ Holding Cost

i.e. T.R.C (C) = DS/Q + (Q/2) * h

- DS h
To find the minimum T.R.C at Q,
dC
0   0
dQ Q2 2
2DS
Solving for Economic Order
Quantity Q*,
Q 
h
For the above problem;
2  10000  500
Q   1581 units
4
At Economic Order Quantity
Quantity 1581
Number of Order D/Q = 6.58
Annual Set up Cost 3162.55
Annual Holding Cost 3162
Total Relevant Cost 6324.5
26
27
Problem 1
By calculation only, determine the effects if D =16,500

2  16500  500
Q   2031 units
4
At Economic Order Quantity, Q
Quantity 2031
Number of Order D/Q = 8.12
Annual Set up Cost 4062
Annual Holding Cost 4062
Total Relevant Cost 8124

Problem 2
Find the Economic Order Quantity, number of Order and Total cost from the
following information;
i) Annual demand, D = 1000 units
ii) Ordering Cost, S = Rs. 5 per order
iii) Holding Cost, h = Rs. 0.25 per unit per year
iv) Price per unit, p = Rs. 12.5

28
Production Rate Model

29
Production Rate Model
(Gradual Replacement Model)
 In EOQ model, the entire lot quantity is delivered at the end of the fixed lead time.
 But in production rate model, items are delivered depending on its production rate
per day.
For Example- Let us consider a production rate of the supplier is, p = 100 units per day
and the order quantity may be, Q = 1000 units. The demand rate, d = 40 units per day.
Then, at this production rate, it would take Q/p = 10 days to produce a lot size of 1000
units.
Day 1- Receive 100 units Day 3- Receive 100 units
Used 40 units Used 40 units

Stock 100-40 = 60 units Stock 60+60+60=180 units

Day 2- Receive 100 units Similarly

Used 40 units Day 10- Receive 100 units
Stock 60+60=120 units Used 40 units

Stock 600 units

30
Day 11- Receive 0 units Day 12- Receive 0 units
Used 40 units Used 40 units
Stock 600-40= 560 units Stock 560-40=520 units
By following the same pattern, the inventory level becomes zero at the end of 25 days.

This can be illustrated from the graph below;

Order Quantity
1000

Maximum Inventory
600

10 25

31
 Maximum Inventory
Qmax
Units in Inventory

Tp Td Time
 This will effectively reduce the annual holding cost because we never hold Q in stock
but always somewhat less.
 We may be able to save money by increasing the lot size to reflect that we are not
holding every unit we received.
 We can find the maximum inventory, Qmax from
Rise Qmax
Slope  p  d 
Run Tp For the above problem;
Q max  ( p  d )Tp 40
Q max  1000( 1  )  600 units
But the time Tp required to produce a lot size of Q is 100
Q Substituting,
Tp 
p d 32
Q max  Q( 1  )
p
Total Relevant Cost (TRC)
TRC = Set up Cost + Carrying Cost

Here, Set up Cost = DS/Q

Holding Cost or, Carrying Cost = (Qmax/2) * h

DS h Qd
TRC   [Q  ]
Q 2 p

Optimum Quantity, dc/dQ = 0

2DS  p
Q
h( p  d )

33
For the previous problem;
2DS  p 2  10000X 500  100
Q   2041
h( p  d ) 4( 100  40 )

Comparison between EOQ and EPQ

EOQ EPQ
Quantity 1581 2041
Number of Order 6.325 4.9
Annual Set up Cost 3162.5 2450
Annual Holding 3162.5 2450
Cost
Total Relevant Cost 6324 4900

From the comparison ,

EPQ gives a larger quantity than EOQ because entire EPQ is never held in inventory.
The maximum inventory is Q(1-d/p).
Total Relevant cost is less.
34
Now we have, maximum inventory, d
Q max  Q (1  )  2041(1  40 / 100)  1225
p
Order Quantity EPQ
2041

EOQ
1581

Maximum Inventory
1225

# Determine the effect of reducing the supplier daily production rate from
100 items a day to 60 items a day w.r.t the above data.
35
 Quantity Discounts
 A policy of allowing item cost to vary with the
volume ordered.
 Usually the item cost decreases as volume increases
due to economies of scale in production and
distribution.
 In simple EOQ, it was assumed that price would be
constant throughout the period.
 Suppliers may offer quantity discount to encourage
buyers to purchase more units of stock.
 Two ways of quantity discount,
 All with discounts
 Increment quantity discount 36
 The main assumptions of the EOQ model for the
quantity discounts are as follows:
 Demand of product is constant.
 There is no stock out or shortage cost.
 Price or cost per unit of product changes due to quantity
discount.

 So, If there are quantity discounts, the purchase price

is also included into the total relevant cost.
i.e. T.R.C = set up cost + Holding cost + purchase price
DS hQ
   Dp
Q 2

 37
 Steps
1. Calculate the economic order quantity for the lowest unit price using the
simple lot size formula. 2DS
Q1 
h
2. Determine if the EOQ in step 1, Q1 is feasible by determining whether it is in
the quantity range for that price.
If Q1 ˃ Quantity at lowest cost price, it is feasible
If Q1 ˂ Quantity at lowest cost price, it is not feasible

3. If the EOQ in step 1 is not feasible, compute the total cost for the smallest
feasible quantity at the lowest unit price.
4. If the EOQ for the lowest unit price is feasible, compute the total cost for this
quantity at the lowest unit price, and choose the quantity yielding the lowest total
cost.
5. Repeat steps 1 through 4 for the remaining unit prices until a feasible EOQ is
found or all unit prices are evaluated. If the EOQ for each unit price is not
feasible, choose If the EOQ for the lowest unit price is feasible, choose the price
break with the lowest total cost. 38
#. Find the optimum order quantity for a product for which the price breaks are as
follows:
Quantity in Unit Cost
Units Monthly demand is 400 units. Store cost is
20 % of purchase price. Ordering or set up
Less than 100 200
cost is 50 per order.
101 to 200 180
More than 160
200

Solution
We have, D = 12 *400 = 4800 units
s = 50
h = 20 % of purchase price, p

Purchase price per unit, p1 = 200

p2 = 180
p3 = 160
Step 1
Find EOQ based on lowest price, p3 2DS Q3  2  4800 50  123units
Q3  160 0.2
h3
Step 2
Check Feasibility
Q3 ˂ 200 units, it is not feasible 39
Step 3 Calculate the total cost for Q= 200 units at p3 = 160
DS hQ
TRC    Dp
Q 2
4800 50 200160 0.2
   4800160  772400
200 2
Step 4
Moving to the next lowest price
2DS 2  4800 50
Q2  Q2   115units
h2 180 0.2
Q2 lies on the range 101 to 200, So
Find the total cost at Q2 = 115 units at p2 = 180
DS hQ
TRC    Dp
Q 2
4800 50 115180 0.2
   4800180  868157
115 2
Now comparing the total cost, the total cost of 200 units is less than the total
cost of 115 units. Therefore, optimum order quantity for this case is 200 units.
40
Consider an inventory situation in a medical center where disposable sanitary packs
are ordered in boxes of 5 dozen/box.. Annual demand is 400 boxes. The cost of
placing an order is 12 and the inventory carrying charge is 20%. The price breaks
are:
price per box is 29 for 1 to 49 boxes
28.5 for 50 to 99 boxes
28 for 100 or more boxes.

41
EOQ with Shortages

42
 Shortage and back orders may occur in any
inventory system.
 This will cause extra administrative work,
additional cost and customer dissatisfaction.
 Shortage and back order cost can be
represented by the symbol π.
 Back orders are simply negative inventory.

43
 M

Q  M B
Where,
Q = Quantity Ordered
M = Maximum Inventory Level
B = Back Orders

If the back orders B are priced at $π per unit per year, then how many backorders should
be allowed per cycle?
44
 If order size is Q and allow B backorders per
cycle then
 Average back order would be B/2
 Average inventory would be M/2 = (Q-B)/2
 On each cycle the maximum inventory is M=
Q-B because the new lot is immediately
depleted by the backorder form the previous
cycle.
 Now, total relevant cost must now reflect
backorder costs as well as set up and holding
cost.
 i.e. TRC = Set up cost + Holding Cost + Back
Order Cost
 Q-B Q-B
Annual Holding Cost  ( ) h( )
2 Q
D
Annual set Up Cost  s
Q
B B
Annual Back order Cost    
2 Q

Where, (Q-B)/Q = Time exists on each cycle when positive inventory.

B/Q = Time when Negative inventory exists.

We have now two decisions,

a. How much to order?
b. How many back orders to allow?

46
Differentiating and setting the partial derivatives to zero, we can solve the optimum values of
Q and B , i.e.
d(TRC) d (TRC )
0 and
0
dQ dB
We have
Q-B Q-B B B D
TRC (Q, B )  ( ) h( )   S
2 Q 2 Q Q
Q 2 - 2QB  B 2 B 2 D
( )h   S
2Q 2Q Q
Qh B2 h B2 DS
  Bh   
2 2Q 2Q Q
Now,
d (TRC ) 2 Bh 2 B
 h   0
dB 2Q 2Q
h
Solving for B, we get
B  Q( )
hπ
47
Similarly,
d (TRC ) h B 2 h B 2 DS
  2
 2
 2 0
dQ 2 2Q 2Q Q

Q 2 h  B 2 h  B 2  2 DS  0

Q 2 h  B 2 (h   )  2 DS  0

Substituting the value of B, we get,

h2
Q hQ
2 2
 (h   )  2 DS
(h   ) 2

Solving for Q, we get

2 DS h 
Q 
h 

48
If demand D= 10000, S = 500, h = 10, π = 40,
Then Find, Q, B and M.
We have
2 DS h 
Q 
h 
2 x10000x500 10  40
Q   1118
10 40

And
h
B  Q( )
hπ
40
B  1118( )  223.6
10  40
Then
M  B  Q  894.4

49
ABC Inventory Planning System

50
 A firm maintains large numbers of inventory of
several types.
 It is impractical and impossible to control all
these inventories with equal attention.
 The main reason is that all inventories are not
equally important to firm from the view points of
cost, profit, sales, availability etc.
 Hence, firm should pay more attention to those
items whose value is the highest.
 Therefore, always better control (ABC) analysis is
a technique which concerns with classification of
inventory into three groups.
 Group A: it includes few items with large
value
 Group B; it includes items with moderate
volume and value
 Group C: it includes items with high volume
with small value.

52
ABC Classification
A-Items  Constitutes 10% of the total number of items, 70% of total money value for all the
items
 High cost, low volume parts
 Must receive the attention first in every respect of the control
 High degree of order coordination required due to their unique design and used for
specific construction projects
 Physically large and require more space than other parts
 e.g. poles, assemblies of machine parts etc
B-Items  Constitutes 20% of the total number of items and 20% of the total money value
for all the items
 Moderate cost, low to moderate volume parts
 Do not require a high degree of order coordination due to their standard design
characteristics
 Are small to moderate in size
 Do not require special storage considerations
 e.g. anchors, cutouts, brackets, connectors etc
C-Items  Constitutes 70% of total number of items and 10% of the total value.
 Include miscellaneous hardware
 Do not require high degree of order coordination due to their low cost
 Small in size and do not require special storage
 e.g. nuts and bolts, gaskets, washer, clip etc
53
 Procedure
STEP 1: Obtain data as the annual usage rate along with
the unit cost of each inventory items of these items.
Annual Value = unit cost x Average usage rate
STEP 2: Arrange these items in a descending order on
the basis of their respective usage values.
STEP 3: Obtain the cumulative percentage of annual
usage values.
STEP 4: Obtain the percentage volume of each of the
items. Also cumulative of these percentage volumes.
STEP 5: Draw a graph between percentage of items (on
x-axis) and annual percentage of value (on y-axis) and
mark cut off points where the graph changes its slope and
determine appropriate decisions for A, B and C. 54
#. The details of material stock in a company are given below with the unit cost and the
annual consumption in rupees. Classify the material into A class, B class and C class by
ABC analysis

[Link]. Item code no. Annual Consumption in pieces Unit cost (in paisa)
1 501 30000 10
2 502 280000 15
3 503 3000 10
4 504 110000 5
5 505 4000 5
6 506 220000 10
7 507 15000 5
8 508 80000 5
9 509 60000 15
10 510 8000 10

55
 Solution:

First find the annual usage value for each item and rank them in the descending order

[Link]. Item Annual Unit cost Annual Rank

code Consumption in paise usage
no. in pieces value
1 501 30000 10
2 502 280000 15
3 503 3000 10
4 504 110000 5
5 505 4000 5
6 506 220000 10
7 507 15000 5
8 508 80000 5
9 509 60000 15
10 510 8000 10

56
Solution:
First find the annual usage value for each item and rank them in the descending
order
[Link]. Item Annual Unit cost Annual Rank
code Consumption in paise usage
no. in pieces value
1 501 30000 10 3000 6
2 502 280000 15 42000 1
3 503 3000 10 300 9
4 504 110000 5 5500 4
5 505 4000 5 200 10
6 506 220000 10 22000 2
7 507 15000 5 750 8
8 508 80000 5 4000 5
9 509 60000 15 9000 3
10 510 8000 10 800 7

57
List the items in their descending order of annual consumption value, find the cumulative value
of annual consumption value and find the percentage of cumulative volume with respect of total
inventory value.
Rank Item Annual Cumulati Cumul % of Cumulative Category
code usages ve ative items % of items
no. annual annual
usage usage
%

58
List the items in their descending order of annual consumption value, find the cumulative value
of annual consumption value and find the percentage of cumulative volume with respect of total
inventory value.
Rank Item Annual Cumulative Cumul % of Cumulative Category
code usages annual usage ative items % of items
no. annual
usage
%

1 502 42000 42000 48 10 10 A

2 506 22000 64000 73 10 20 A
3 509 9000 73000 83 10 30 B
4 508 5500 78500 90 10 40 B
5 504 4000 82500 94 10 50 B
6 501 3000 85500 98 10 60 B
7 510 800 86300 98.6 10 70 C
8 507 750 87050 99.4 10 80 C
9 503 300 87350 9.69 10 90 C
10 505 200 87550 100 10 100 C
59
100

98 In A class we
have 2 items
consuming 73 %
of the amount
and in B class,
73 we have 4 items
consuming 25%
B C of the amount
A and in C class,
we have 4 items
consuming about
2 % of the
inventory
investment

20 60 100

60
From the following details of a company draw a plan of ABC inventory control

Items Units Unit Cost

1 7000 5
2 24000 3
3 1500 10
4 600 22
5 38000 1.5
6 40000 0.5
7 60000 0.2
8 3000 3.5
9 300 8
10 29000 0.4
11 11500 7.1
12 4100 6.2

61