Inventory Management and Economic Order Quantity Analysis

Inventory Management Case Study 1

A company consumes 186 units annually. The cost per order is 4.80 €, and the storage cost is 6.60 € per unit/year. The lead time is 6 days, and the safety stock is 4 units.

• 1. Economic Order Quantity (EOQ): √((2 × 186 × 4.80) / 6.60) = 16.44 units
• 2. Annual Orders: 186 / 16.44 = 11.31 orders
• 3. Order Frequency: 365 / 11.31 = 32.27 days
• 4. Daily Consumption: 186 / 365 = 0.5 units
• 5. Reorder Point: (Daily Consumption × Lead Time) + Safety Stock = (0.5 × 6) + 4 = 7 units
• 6. Total Storage Cost: 6.60 × (16.44 / 2 + 4) = 80.65 €
• 7. Total Ordering Cost: 4.80 × 11.31 = 54.28 €
• 8. Total Stock Management Cost: 80.65 + 54.28 = 134.93 €

Inventory Management Case Study 2

Annual demand is 28,800 units, unit price is 5 €, ordering cost is 200 €, and maintenance cost is 8 € per unit. Lead time is 4 days. Maximum daily intake is 105, and average daily intake is 75.

• A) EOQ: √(2 × 200 × 28,800 / 8) = 1,200 units
• B) Annual Orders: 28,800 / 1,200 = 24 orders
• C) Review Period: 365 / 24 = 15.2 days
• D) Safety Stock: (105 - 75) × 4 = 120 units
• E) Reorder Point: (28,800 / 365 × 4) + 120 = 436 units
• F) Maximum Stock Level: 1,200 + 436 = 1,636 units
• G) Order Quantity (if inventory is 400): 1,636 - 400 = 1,236 units

Inventory Management Case Study 3

Fernandez Parts purchases items at 0.35 € each. Annual demand is 1,000 units over 288 working days. Ordering cost is 200 € per order. Storage cost is 0.15 € per 1,000 pieces, plus a capital cost of 10% of the unit price.

• Cost Calculation: Storage (0.015 €) + Capital (0.035 €) = 0.05 € per unit/year.
• Objective: Determine the optimal order quantity to minimize total costs, including maintenance and ordering expenses.