Inventory Control Model

INVENTORY THEORY

SITI AISYAH ABDUL KADIR

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

2

MPC is a manufacturer of personal computers. The
personal computers use 80GB hard disks. The
company requires 6000 units of computer disks each
year. Currently MPC obtains the disks from a supplier
on a monthly basis at a price of RM250 per unit. The
ordering cost is estimated to be RM175 per order.
The quantity ordered from the present supplier is
500.

Recently, another supplier offered to supply the disks
in the price of RM235 per unit. However, MPC must
purchase a minimum quantity of 1500 units per
order and the cost to place an order from this
supplier is RM200. Regardless of the supplier, the
holding cost is RM2 per unit per annum.

Fill in the Blanks

DEMAND

Fill in the Blanks

Holding cost

Draw

State the purchase cost and ordering cost with the current supplier

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

3

MPC is a manufacturer of personal computers. The
personal computers use 80GB hard disks. The
company requires 6000 units of computer disks each
year. Currently MPC obtains the disks from a supplier
on a monthly basis at a price of RM250 per unit. The
ordering cost is estimated to be RM175 per order.
The quantity ordered from the present supplier is
500.

Recently, another supplier offered to supply the disks
in the price of RM235 per unit. However, MPC must
purchase a minimum quantity of 1500 units per
order and the cost to place an order from this
supplier is RM200. Regardless of the supplier, the
holding cost is RM2 per unit per annum.

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q>=1500

Ch = RM2

Current Q = 500

CO = RM200

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

4

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q >= 1500

a) Calculate the total inventory cost for the disks based on the

present ordering policy.

b) Determine the Economic Order Quantity for the disks from the

present supplier.

c) What is the minimum total inventory cost for the present supplier?
d) Is it worthwhile for MPC to order from the other supplier? Should

this supplier be used in the future? Justify your answer.

e) Based on the recommended supplier and order quantity,

determine:

i.

the number of inventory cycles per year

ii.

the length of each cycle

iii. Accordingly, draw the inventory-time graph for one year

Current Q = 500

Ch = RM2

CO = RM200

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

5

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q >= 1500

a) Calculate the total inventory cost for the disks based on the

present ordering policy.

𝑇𝐶 = 𝐷

Q + 2

𝐶ℎ + 𝑃𝐷

Q?

Take Q=500

Current Q = 500

Ch = RM2

CO = RM200

𝐶o

Q

Multiple Choice

What is the total cost with the present supplier and policy?

• RM1,502,600

• RM1,502,049

• RM1,501,600

• RM1,501,049

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

6

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q >= 1500

b) Determine the Economic Order Quantity for the disks from the

present supplier.

2𝐷𝐶𝑜

𝐶ℎ

Current Q = 500

Ch = RM2

CO = RM200

𝑄 =

Multiple Choice

What is the economic order quantity with the present supplier?

• 1095.4451

• 1024.6951

• 500

• 1500

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

7

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q >= 1500

c) What is the minimum total inventory cost for the present supplier?

𝑇𝐶 = 𝐷

𝑄

𝐶ℎ + 𝑃𝐷

Q?

Take Q from the EOQ

Current Q = 500

Ch = RM2

CO = RM200

𝐶𝑂 +

2

𝑄

Multiple Choice

What is the minimum total inventory cost with the present supplier?

• RM1,502,600

• RM1,502,049.39

• RM1,502,049

• RM1,412,300

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

8

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q >= 1500

d) Is it worthwhile for MPC to order from the other supplier? Should

this supplier be used in the future? Justify your answer.
Current Q = 500

Ch = RM2

CO = RM200

*Find EOQ for the other supplier, then
compare total cost between
suppliers*

Fill in the Blanks

For the other supplier, EOQ= $\sqrt[]{\frac{2\left(6000\right)\left(x\right)}{2}}=1095.4451$ . What is x?

Multiple Choice

Choose your next step.

• Use x=1095.4451 to find the minimum total cost with the other supplier.

• Since EOQ is less than 1500, take Q=1500 and find the total inventory cost.

• I am not sure

• That's the final answer

Total inventory cost is RM1,412,300

​The other supplier, with minimum purchase of 1500,

The minimum total inventory cost we can get is RM1,502,049.39

​Present supplier,

Let us compare

Multiple Choice

So who should MPC choose?

• Present supplier

• The other supplier

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

9

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q >= 1500

e) Based on the recommended supplier and order quantity,

determine:

i.

the number of inventory cycles per year

ii.

the length of each cycle

iii. Accordingly, draw the inventory-time graph for one year

𝑁 = 𝐷

𝑄

𝑇 = 𝑄

𝐷

Current Q = 500

Ch = RM2

CO = RM200

Draw

Calculate the number of inventory cycles per year

Multiple Choice

... and the length of each cycle is...

• 0.25 year

• 4 years

• 4 months

• 120 days

EXAMPLE 4

2022

INVENTORY THEORY : BASIC EOQ MODEL

10

Demand = 6000

P = RM250

CO = RM175

Offered P = RM235

With Q >= 1500

e) Based on the recommended supplier and order quantity,

determine:

i.

ii.

iii. Accordingly, draw the inventory-time graph for one year

Current Q = 500

Ch = RM2

CO = RM200

​

THANK YOU

20XX

PRESENTATION TITLE

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