Las prestaciones según el módulo o módulos

While the EOQ formulation is relatively straightforward, there are some other factors that must be considered in actual application. The most important and persistent problems are those related to various adjustments necessary to take advantage of social purpose situations and utilization characteristics.

1. Volume transportation rate: In the EOQ formulation, there was no consideration for the impact of transportation cost on order quantity. The transportation cost from the origin to the inventory depot is incurred by the seller. However if the ownership is transferred at the origin, the impact of the transportation rates on the total cost must be considered when determining the order quantity. As a general rule, greater the quantity, lesser will be the volume transportation rate because many sellers tend to give a discount when the goods are bought in a larger size (both by the truck and rail). Thus all other things being equal, an enterprise will want to buy goods in large quantities to maximize transportation economies. Such quantity may be larger than the actual quantity determined by EOQ. Increasing the size of the order has a two fold impact on the inventory:

• It increases the inventory carrying cost • It provides better transportation economies.

Finally, two factors regarding inventory cost under costs of origin purchase are: • The transit inventory is a part of the enterprise’s average inventory and

therefore subjected to an appropriate charge.

• The transportation cost should be added to the price of the goods purchased to assess the value of the goods tied up in inventory. Thus the inventory carrying cost should be assessed on the combined cost of the item and transportation.

2. Quantity Discounts

Purchase quantity discounts represent an EOQ extension. If the discount at any associated quantity is sufficient to offset the added cost of maintenance less the reduced cost of ordering, then the quantity discount offers a viable alternative. It should be noted that quantity discounts and volume transportation rates each effect later purchase quantities. However, this does not mean that the lowest total cost purchase will always be a large quantity.

EOQ Adjustments

A variety of special situations can occur that will require adjustments to basic EOQ model. Some of them are:

• Production lot size (most economical quantity from manufacturing perspective)

• Multiple item purchase.

This describes situations when more than one product is bought concurrently, so that quantity and transportation discounts must consider the impact of the product combinations.

• Limited capital (limited capital – budget limitations for total inventory investment)

• Private trucking (influences order quantity since it represent a fixed cost once the decision is made to replenish the product.)

If the enterprise decides to use its own truck, it should fill the truck regardless of the value calculated by the EOQ. Transporting a half empty truck does not make any sense.

Inventory Related Definitions

This includes definitions related to an inventory management policy.

1) INVENTORY POLICY: It consists of guidelines concerning what to purchase or manufacture, when to take action and in what quantity. It also deals with the inventory positioning and placements in plants and distribution centers. E.g some plants may maintain stock at a plant and hence postpone the inventory positioning. The second inventory policy element concerns inventory management strategy. One approach is to manage inventory at each distribution center independently. The other extreme deals with inventory interdependence across distribution sites by managing inventory centrally. Centralized inventory management requires more coordination and communication.

(2) Service level: It defines the performance objectives that the inventory function mustr be capable of achieving. It can be defined in terms of the following: (a)Order cycle time: the time taken to complete from the time of placing the order

to the payment for the goods received. It can also be defined as the elapsed time between the release of a purchase order by a customer and the receipt of the corresponding shipment.

(b)Case fill rate: it can be defined as the percentage of cases or units ordered that can be shipped as 4requested. For e.g. 95% case fill rate indicates that on an average, 95 cases out of 100 could be filled from available stock. The remaining 5 will be back ordered or deleted.

(c) Line fill rate: % of order lines that could be filled completely. Each time on an order is a request for an individual product, so an order may have multiple lines. E.g. if a customer order is received requesting 80 units of product A and 20 units of product B, the order is of 100 cases and 2 lines. If there are 75 units of product A available and all 20 of product B, the case fill would be 95% (75+20)/ (80+20) and the line fill rate would be 50%.

(d)Order fill: it is a % of customer orders that could be filled completely. In the above example, the order could not be filled completely filled, so the resulting order fill would be zero.

The inventory function is a major element of the logistics process that must be integrated in order to meet the service objectives. To improve service level, once can increase the inventory. Other approaches would be faster transportation modes, better information mgmt, or alternative sources of supply.

Average inventory: this consists of the materials, components, WIP and finished products typically stocked in logistical facilities. Average inventories include cycle, safety stock and in transit inventory components.

Cycle inventory: it is also known as base stock. It can be defined as the % of the inventory that results from the replenishment process. Cycle inventory can also be said to result when in order to reduce unit purchase costs (or increase production efficiency), the number of units purchased (or produced) inventory from to which the lot size is applied. It may be more economical to order the product in a large size than to order it in small batches. At the beginning of a performance cycle, the stock level is at the maximum level. However daily customer demands stock to be withdrawn from

the inventory until it reaches zero. Prior t this, a replenishment order must be given. The amount ordered for replenishment is called the order quantity. The average inventory held as a result of the order process is referred to as base stock, which is also called as the lot size stock. Usually the base stock equals to one half of the order quantity.

Transit inventory: this represents the stock that is either moving or awaiting movement in transportation vehicles. This portion of the total inventory is also known as pipeline inventory. It can also be defined as the materials moving forward but not yet received. It is necessary to achieve order replenishment. Transit inventory represents real assets and must be paid for even though it is not accessible or usable. There has typically been a high degree of uncertainty associated with transit inventory because shippers were unable to determine where a transport was located or when it was likely to arrive. While satellite communications have somewhat reduced this uncertainty.

Shippers bill have limited accessibility to such information. Increased focus on smaller order quantities, more frequent order cycles and just in time strategies have resulted in transit inventory becoming a larger percentage of the total inventory assets. As a result, greater attention is paid to reducing the amount of transit inventory and its associated uncertainty.

Formulating inventory policy

Inventory turnover is a widely used performance measure that reflects the liquidity of a firm’s inventory and the speed with which inventory is converted into sales.

This indicates the number of times the inventory is sold or turned over during a stated period.

Inventory turnover ratio = Cost of goods sold Average inventory value

e.g, if the firm’s annual cost of goods sold = Rs.5,00,000 and its average inventory value = Rs.50,000, the inventory turns over 10 times. If the cost of goods sold rises to Rs.10, 00,000 and the value of the inventory remains as it is, the turnover ratio jumps to 20.

Inventory turnover is related to actual sales. Hence high inventory levels are not penalized if the sales are very high and low inventory levels are not rewarded, if the sales are low. If the inventory turnover is high, it means that the inventory is kept in stock for a less period of time and hence it is more liquid. The cash flow needed to finance the inventory also decreases as the number of inventory turnover increases. A high level of sluggish inventory amounts to unnecessary tie-up of funds, reduced profits and increased costs. If these inventories are written off, it will adversely affect the Working capital and liquidity position of the firm. However, if the inventory level is maintained at a very low level (inventory turnover high), then it may result into frequent stock outs, which means the firm replenishes its inventory in small lot sizes. This may be costly to the firm.