Business Management - Operations management: inventory management
Inventory management techniques
There are four important techniques of inventory management. These
techniques include: - economic order quantity, materials requirement
planning, manufacturing resource planning, and just-in-time inventory
Two basic decisions that can help minimise inventory are how much raw
material to order and when to order it from suppliers. The economic order
quantity, is designed to minimise the sum of both ordering costs and of
holding costs. Ordering costs are the costs associated with actually
placing the order such as administrative paperwork, delivery, receiving,
and inspection. Holding costs are those costs associated with keeping the
items on hand such as storage, finance charges, and materials handling
The EOQ calculation indicates the order quantity size that will minimise
holding and ordering costs based on the organisation's use of inventory.
The EOQ formula includes ordering costs, holding costs and annual demand.
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