Inventory System with EOQ and ABC Analysis

EOQ and ABC Analysis for Inventory System. This slide includes Numerical as well.

1. Inventory System Numerical Kumod Kumar Sah 2025/03/11

2. Economic Order Quantity (EOQ) The Classic Inventory Model Balances ordering and holding costs Assumes constant demand, fixed costs Formula: EOQ = √(2DS/H) D = Annual demand S = Setup/ordering cost H = Annual holding cost per unit

3. EOQ Example A Nepalese paper manufacturer orders wood pulp Annual demand: 10,000 kg Ordering cost: NPR 2,000 per order Holding cost: NPR 4 per kg per year EOQ = √(2×10,000×2,000/4) = 1,414 kg

4. EOQ Practice Question Nepal Soft Drink Co. has a soft drink product which has a constant annual demand rate of 3000 cases and cost Rs 200 per case. If ordering cost are Rs. 20 and inventory holding cost are changed 25%, what is the EOQ for this product?

5. EOQ Practice Question A beverage company sells an energy drink with a constant annual demand rate of 5,000 bottles. The cost per bottle is Rs. 150. The ordering cost is Rs. 25 per order, and the inventory holding cost is 20% of the unit cost per year. Calculate the Economic Order Quantity (EOQ) for this product .

6. EOQ Practice Question A retail store sells packaged fruit juices with a constant annual demand of 4,500 cartons. The cost per carton is Rs. 250. The store incurs an ordering cost of Rs. 30 per order, and the inventory holding cost is 18% of the unit cost per year. Calculate the Economic Order Quantity (EOQ) for this product. Also determine the number of orders and cycle time.

7. ABC Analysis Categorizing inventory based on value/importance A items : High value (70-80% of value, 10-20% of items) B items : Medium value (15-20% of value, 30% of items) C items : Low value (5-10% of value, 50-60% of items) Example: A Nepalese electronics retailer categorizing products for differentiated control

8. ABC Analysis Steps Step 1: Gather Inventory Data Identify all inventory items. Note the annual demand (units per year) and cost per unit for each item. Step 2: Calculate Annual Consumption Value (ACV) Use the formula: Annual Consumption Value=Annual Demand × Unit Cost ACV=ACQ X Cost Price Do this for each inventory item. Step 3: Rank Items in Descending Order Arrange the items based on their annual consumption value , from highest to lowest.

9. ABC Analysis Steps Step 4: Calculate Cumulative Totals and Percentages Develop a new table as per rank and get percentage of ACV for each item of inventory. Calculate the percentage of total inventory value for each item

10. ABC Analysis Steps Step 5: Classify Items into A, B, and C Categories Category A: Top 70-80% of total inventory value , but only 10-20% of total items . Category B: Next 15-25% of total inventory value , covering about 30% of total items . Category C: Last 5-10% of total inventory value , but making up 50-60% of total items . Step 6: Interpret Results and Take Action A items need strict control , frequent review, and accurate demand forecasting. B items require moderate control with periodic reviews. C items need minimal control , bulk ordering, or lenient inventory tracking.

11. ABC Numerical From the following information, classify the inventory from ABC system. Items Annual Consumption Price (Rs) X 500 100 Y 200 300 Z 1000 50 A 50 500 B 150 200

12. ABC Numerical From the following information, classify the inventory from ABC system. Items Annual Consumption Price (Rs) A 1400 5 B 200 80 C 400 75 D 40 8000 E 600 30 F 60 6000 G 600 90 H 1150 10 I 2000 3 J 950 60

13. ABC Numerical From the following information, classify the inventory from ABC system. Items Annual Consumption Price (Rs) A 300 7000 B 6000 390 C 200 16000 D 12000 100 E 20000 210 F 100 2100 G 600 850 H 800 35

14. ABC Numerical A manufacturing company maintains an inventory of various raw materials. Classify the items into A, B, and C categories based on the ABC Analysis method. The details of five items are given below: Items Annual Consumption Price (Rs) P 600 150 Q 300 400 R 1200 50 S 80 700 T 200 250