Open Systems Approach to Project Management in Organizations
When organizations have “flat” structures and consist of coalitions of people coming together with multiple loyalties, intersection of the organization with its environment being characterized by shifting boundaries; the informal nature of the work processes makes use of “open” systems approach towards organizations. The point to note here is that external environments both shape and […]
Disaster Recovery and Business Continuity Sites and Options
Disaster Recovery and Business Continuity have become an integral part of the ongoing business process with most of the Organizations that consider it important to do risk assessment and risk mitigation to safeguard their business from all sorts of threats and crises. DR & BC plans can be drawn up in detail and elaborately to […]
What is Pugh Matrix and How to Use it ?
The Pugh Matrix is one of the most widely used methods of finding out the best solution once a number of alternate solutions have been generated. The success of the Pugh Matrix is in its simplicity. The tool is not very mathematically intensive and fairly simple to use. However, it has a record of coming […]
Optical Character Recognition and E-Invoicing
Automation of business processes has become the single objective of every multinational corporation. Automation saves a lot of money in the long run. It also streamlines the process and makes it more robust. In the recent past, two technologies have helped companies automate their accounts payable departments. These two technologies are optical character recognition and […]
Warehouse Design Concepts
Supply chain efficiencies depend upon the efficiency of logistics including transportation and warehousing operations. Warehouse efficiencies depend upon a combination of warehouse design, layout, infrastructure, systems, process and people. In cases where one can design a warehouse and implement the complete project from ground zero, gives the SCM Project Manager a good scope to create […]
Every organization that is engaged in production, sale or trading of Products holds inventory in one or the other form. While production and manufacturing organizations hold raw material inventories, finished goods and spare parts inventories, trading companies might hold only finished goods inventories depending upon the business model.
When in case of raw material inventory management function is essentially dealing with two major functions. First function deals with inventory planning and the second being inventory tracking. As inventory planners, their main job consists in analyzing demand and deciding when to order and how much to order new inventories. Traditional inventory management approach consists of two models namely:
Example: Biotech.Co produces chemicals to sell to wholesalers. One of the raw material it buys is sodium nitrate which is purchased at the rate of $22.50 per ton. Biotech’s forecasts show a estimated requirement of 5,75,000 tons of sodium nitrate for the coming year. The annual total carrying cost for this material is 40% of acquisition cost and the ordering cost is $595. What is the Most Economical Order Quantity ?
D = Annual Demand
C = Carrying Cost
S = Ordering Cost
D = 5,75,000 tons
C =0.40(22.50) = $9.00/Ton/Year
S = $595/Order
= 27,573.135 tons per Order.
This model pre supposes certain assumptions as under:
In this model, the demand increases for production the inventory gets depleted. When the inventory drops to a critical point the re order process gets triggered. New order is always place for fixed quantities. On receipt of the delivery against the order the inventory level goes up.
Using this model, further data extrapolation is possible to determine other factors like how many orders are to be placed in a year and what is the time lapse between orders etc.
This model is also used to determine the order size and the production lot for an item to be produced at one stage of production and stored as work in progress inventory to be supplied to the next state of production or to the customer.
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