The MOT and Venture Business

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Presentation transcript:

The MOT and Venture Business Thursday, October 16, 2014 The MOT and Venture Business Prof. Takao Ito, Doctor of Economics, PH.D. of Engineering, Graduate School of Engineering, Hiroshima University

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. Advantages Disadvantages Efficient and flexible - you only have what you need, when you need it Meeting stock needs can become complicated and expensive Lower storage costs You might run out of stock if there's a hitch in the system You can keep up to date and develop new products without wasting stock You are dependent on the efficiency of your suppliers

Can meet sudden changes in demand Keeping lots of stock Advantages 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

Co……ordering cost D…… demand per year Q …… order quantity 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. Co……ordering cost D…… demand per year Q …… order quantity

Total cost=Holding cost + Order cost

Example As 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

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