The MOT and Venture Business
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Transcript of The MOT and Venture Business
THE MOT AND VENTURE BUSINESS
Prof. Takao Ito, Doctor of Economics, PH.D. of Engineering, Graduate School of Engineering, Hiroshima University
Thursday, October 16, 2014
TOPIC 7 STOCK CONTROL AND PROBABILITY
STOCK CONTROL AND INVENTORY Deciding how much stock to keep depends on the size and nature of your business, and the type of stock involved. If you are short of space you may be able to buy stock in bulk and then pay a fee to your supplier to store it, calling it off as and when needed.
KEEPING LITTLE OR NO STOCK AND NEGOTIATING WITH SUPPLIERS TO DELIVER STOCK AS YOU NEED IT.
AdvantagesAdvantages DisadvantagesDisadvantages Efficient and flexible - Efficient and flexible - you only have what you only have what you need, when you you need, when you need itneed it
Meeting stock needs Meeting stock needs can become can become complicated and complicated and expensiveexpensive
Lower storage costsLower storage costs You might run out of You might run out of stock if there's a hitch stock if there's a hitch in the systemin the system
You can keep up to You can keep up to date and develop new date and develop new products without products without wasting stockwasting stock
You are dependent on You are dependent on the efficiency of your the efficiency of your supplierssuppliers
KEEPING LOTS OF STOCKAdvantages Disadvantages
Can meet sudden changes in demand
Costs of storage – rent and insurance
Less chance of loss of production time because of stock outs
Money tied up in stocks not being used elsewhere in the business
Can take advantage of bulk buying economies of scale
Large stocks subject to deterioration and theft
OPTIMIZING ECONOMIC ORDER QUANTITY (EOQ) The value of the average stockholding = (Q/2 x item cost/value) where Q is the order quantity. The holding cost/unit (Ch) is derived from the average inventory value) multiplied by the cost of carrying the item over the period (one year) expressed as a % of the item cost/value.
OPTIMIZING ECONOMIC ORDER QUANTITY (EOQ)
Ch is the holding cost per unit. It is also called carrying costs. Q is the order quantity
2cos QCtsHolding h
Order cost (Co) is derived from the number of orders placed (D/Q - demand p.a. divided by order quantity) multiplied by the cost of placing an order.
QDCtsOrdering ocos
Co……ordering cost D…… demand per yearQ …… order quantity
Total costTotal cost=Holding cost + Order cost =Holding cost + Order cost
QDCQCTC oh
2
h
o
CDCQ 2
EXAMPLEAs an example, in a company where order cost is estimated at $10 and with a holding cost of 25% of item value if annual demand is 1000 units at a supply price of $36. Calculate the EOQ.
ANSWER
the EOQ is 48 units
unitsCDCQh
o 1.4725.03610100022
THANK YOU FOR YOUR ATTENTION!