DETERMINISTIC INVENTORY MODEL AND ITS APPLICATION TO MOUKA FOAM INDUSTRY
abstract
It is frequently necessary to keep inventory in order to meet fluctuations in demand and to avoid shortages that could result in the loss of goodwill. As a result, most businesses strictly adhere to safety stock control in order to absorb certain fluctuations in demand. This could be the deterministic inventory approach, which assumes that demand is known with certainty. In this work, a deterministic inventory model that evaluates when to place an order or produce more goods was applied to the foam industry. According to empirical evidence, keeping inventory is an essential part of production, and thus production cannot be said to be completed until the goods produced are purchased by the final consumer. It is frequently necessary to keep inventory in order to meet fluctuations in demand. demand, as well as to avoid shortages that could lead to a loss of goodwill. As a result, most businesses strictly adhere to safety stock control in order to absorb certain fluctuations in demand. This could be the deterministic inventory approach, which assumes that demand is known with certainty. In this work, a deterministic inventory model that evaluates when to place an order or produce more goods was applied to the foam industry. According to empirical evidence, keeping inventory is an essential part of production, and thus production cannot be said to be completed until the goods produced are purchased by the final consumer.
CHAPTER ONE
1.0 INTRODUCTION: AN OVERVIEW OF INVENTORY THEORY
It is a well-known fact that most manufacturing processes, production systems, the financial services industry, the economy, and agriculture keep stock of goods and services for future sale or use. Inventory is the practice of storing goods for future use or sale.
It is a well-known feature, particularly among retailers, wholesalers, and manufacturers. The hotel manager may always ensure that a sufficient amount of meat and fish is available in the freezer for use whenever guests arrive.
Inventory theory is thus concerned with mathematical and analytic techniques that aid policymakers in determining when and how much to replenish the available stock of goods. It is possible in small businesses for the Manager is responsible for inventory management and decision making. However, because this may not be feasible even in small businesses, many businesses have saved large sums of money by implementing scientific inventory management. The following are examples of scientific inventory management:
Create a mathematical model that describes the inventory system’s behavior.
Determine the best inventory policy based on the model you created.
Use a computer system to keep track of inventory levels and to signal when and how much to replenish.
In many real-world business situations today, maintaining an optimal inventory policy plays a significant role in management policy decisions. This is due to the significant impact on the company that a loss of goodwill has. A poor inventory policy could result in a drop in patronage, revenue, and customer loyalty.
Inventory analysis allows us to develop an optimal inventory policy that specifies:
The order or production quantity.
The time elapsed between one order and the next.
The total cost of the minimum inventory.
The model formulation and optimal inventory policy are designed in such a way that (1) and (2) above result in a minimum inventory cost and increased net income.
1.1 DETERMINISTIC INVENTORY MODELS
There are numerous models for inventory problems. The nature of demand and the lead time, which is the time between when an order is placed and when it arrives, determine the type of model and its mathematical formulation.
These inventory models deal with inventory problems in which the actual demand in the future is assumed to be known; we will assume that the lead time for these models is instantaneous, i.e. when an order is placed, it arrives immediately. However, demand is typically of two types:
Random demand, which is more common in practice. In this case, demand is uncertain, but its behavior can still be compared to a certain pattern, also known as probability distributions, such as Normal, binomial, and so on. Stochastic inventory models are those that operate under the assumption of random demand.
1.2 PURPOSE OF THE STUDY
The determination of an adequate level of raw material and other goods stocks is a major problem for most business organizations. Management should use the techniques provided by inventory theory to solve this problem. The goal of this research is to figure out: What is the best quantity of an item to order each time an order is placed?
When is the best time to place an order?
What quantity of the item, if any, should be kept as a safety stock in anticipation of fluctuations in demand?
What quantity of an item should be backlogged, and how much shortage should be allowed?
Should management take advantage of the available discount?
1.3 SCOPE OF THE STUDY
Inventory theory is a broad area of operations research that has found useful and notable applications in a variety of fields, particularly in the study of stochastic inventory models.
However, the focus of this work is on deterministic inventory models and how they can be used to solve the problem of optimal stock keeping policy.
1.4 ORGANIZATION OF THE STUDY
This project will be divided into five chapters. The first chapter is an introduction, and the second contains literature reviews and some basic inventory theory concepts. The third chapter examines the methodological and theoretical aspects of inventory theory, while the fourth chapter focuses on empirical research. The final chapter is Chapter 5.
1.5 SOME BASIC DEFINITION
Certain terms will be used during the course of this project’s work. Within the context of this work, the following definitions are provided:
Safety Stock: This is stock that the company keeps as a buffer against reasonably expected minimum usage, i.e. a sudden increase in demand that may cause the company to run out of stock.
Stock is the total of all raw materials used in production, work-in-progress (unfinished goods), and finished goods that are fully completed and ready for sale.
Lead Time or Procurement Time: The time between placing an order and receiving that order, i.e. the time it takes for an order to be received.
Level of Reordering: This is the point at which it is necessary to place an order for new supplies.
Holding/Carrying Cost: This is the cost incurred by the company while stock is held. It includes the cost of storage space, insurance, deterioration, and the cost of maintaining adequate and accurate records.
Ordering Fee: This is the fee for placing an order. It includes clerical costs for preparing the purchase order as well as special processing and receiving costs based on the number of orders processed.
1.6 CONCLUSION
So far, it has been established that organizations that purchase goods and services stock these goods and services for future sale or use. This chapter introduced inventory theory to simply provide us with operational techniques and tools for achieving an optimal stock keeping policy that aligns with the overall goal of the organization.
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